notes from cst presentation

Notes from CST Briefing Held Melbourne 23/3/2009

These are in a statement form than a flowing report.

Policy on Dividends:
We will pay a substantial dividend, and make it compatible with growth.
Off shore tax losses are substantial, can’t carry these tax losses will get rid of these first.

We don’t ship out of Australia as it is cheaper to ship from U.S. the kits are manufactured in California. We have capacity in the U.S. warehouse to carry 20,000 kits, the new facilities both in the U.S. and Germany are very large and help with capacity.

Major reference labs in the U.S. rolling out at one a week training up and validating the new labs to take on QFT in Tube.

Increased commercial partners, have ramped up pressure on them to increase sales. We are a lot more sophisticated in gaining results. The city’s of Paris Tokyo and New York have adopted QFT.
Korea has re-imbursement of US$50.00 per each test.

U.S. Army and Navy can now use it.
Austria has produced a predictive paper on QFT in HIV which is significant, as good as the Diel paper.
Altona in Australia had an outbreak of TB, what peeved them off was that an employee of Cellestis had a child at the school, Cellestis called the Minister of Health in Victoria and it was approved on 15/1/2009
New Zealand is using the test very strongly.

The public health markets appear unaffected.
Low A$ has raised A$ returns, we have natural hedges. Direct hedging is taken out, but we don’t depend on it, long term currency is always there we have to deal with it. We use some currency instruments but keep it simple.

Mergers & Acquisitions
We have a strong balance sheet, and cash, we will have a strong look at anything, this is the time to buy. Looked hard have not found anything, has to be in our field of knowledge, has to be what we know. Has to be easy to make must not be earning dilutive, the last thing we want is an anchor around our necks.
Has to be synergistic.
The company we will look at has to have an effective sales force. If we were to put on 20% more sales force we would probably only grow the sales by 20%, we are looking for a company that has a sale force that we would know the costs, would be selling another product alongside ours and visits who we visit.
We would look at a private group that has no exit plan or trouble in retiring from business.

R&D
TB product is hard to develop class 3 in U.S.
We can’t rely on TB as only product. For us to develop as a business we have appointed Jeff Boyle head of research working alongside Jim to bring on more products using QFT.

QFT CMV
CE marked and cleared, will be marketed through U.S. transplant conferences. Two papers coming out.

Market size 70,000 expected to be on market 3-5 years no competitor never been measured. Transplant Doctors are at cutting edge of medicine they are used to adapting to new technology. Within Europe 615 transplant places to be visited.

Growth
60million Test QFT has 2.5% there is a 97.5% target = rich environment to change to QFT.
60 million test- there will be a reduction in the number of tests but there will be a larger number of tests in Europe which will grow market.
Some of the hurdles we are encountering
We have to put it into labs.
Prescribers still do not have QFT labs and services
Prescribers who fear cost of moving to QFT because of perceived costs and others who do not feel the winds of change
All markets are gaining at about 90% between Dec 07 to Dec 08 $7.5m to $14.5m no where have we seen a plateau.
Growth prospects USA is the predominant market HCW screening we have 10% of this market, current growth from immigration, immunosuppressed, future growth Military and corrections. We are currently working with immigration.
Europe
Active TB, immediate sales coming from immunosuppressed, future growth military, want to build up HCW test.
Japan, contacts looking for active TB, future growth military, employee screening, Japan represents a quarter of what we sell.
Rest of World Asia – HCW. Middle East immigration screening, getting it set up is an issue.

Marketing
Plans match our analysis, we need more labs.
All our activities are continuing and on track. We conduct 150 regional meetings, separate from newsletters, e mails, conferences etc.
Second IGRA conference in May
Co-marketing with reference labs to regional meetings.

Sales
Sales revenue remains strong presently
Japan in tube still expected in current half.
Balance sheet strong and now paying dividends
Still comfortable in doubling sales this half, but further out hard ask in this climate, we are shooting at it. If you look at last couple of months we have increased sales coming up to the June quarter.

Paris
Administrator of Health has placed orders, there is no re-imbursement in France.
Have to get Doctors to want it, then the Doctors have to lobby the French Health Dept. we can not approach them directly. Good market close to tipping point. We have 100 accounts and could easily see another 500 coming across as well as major teaching hospitals without re-imbursement.

Japan
Are they holding out for QFT in tube? Don’t think it is , our guy in Japan is very optimistic about selling there in future. SRL biggest lab in Japan indicated 2G is hard to implement re blood to lab on time but this was a few years ago.

CDC
Expecting significant changes with CDC guidelines?
Jim was at a meeting with the chair of the CDC only said QFT in some situations are preferable but will not say at this moment. Children under 5 not yet need more papers.

Japan spends 1 billion on TB each year
Employee screening program 45 million X rays each year
Have large dedicated TB hospitals.


Tipping point
Hard to answer the question but probably happens around 10% to 15%.
One to two years away from 10%
U.S. alone market. 18 million tests selling currently 3% to 4%.
5% to 10% is a conceptual thing got a lot of visible presence at 2.5% at 4% it will be so much more and will assist take up.
We haven’t even marketed in Asia or Korea and Taiwan.


Negatives
Slow process, the incumbent testers are conservative.
Using a wine analogy, corks have been used for over 100 years, the industry is changing over to metal screw caps this has not taken place completely same analogy can be used for QFT.

Patents
Modifications on the way its done, the small volume is patent.
No more details, we want to lodge more patents not saying much now.
Patent protection in tube 2022, when it runs out we will have incremental benefits.
It will be difficult for a Generic test to just copy. Have to go through the same process as we have taken will take over 5 years. To get a new generic test is a hell of an expensive process, can not get me to approval, not many companies are going to do this when there is an incumbent.

Pricing
CSL said we would never get more than $6 a test, put price up last year don’t see to much room to increase in the near future.

Cheers