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China Medical Technologies, Inc. (CMED)

F4Q2010 Earnings Call

June 2, 2011 8:00 am ET

Executives

Winnie Yam – IR

Xiaodong Wu – CEO

Sam Tsang – CFO

Charles Zhu – SVP, Operations

Analysts

Jack Hu – Deutsche Bank

Chris Li – Morgan Stanley

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the Fourth Quarter 2010 China Medical Technologies Incorporated Earnings Conference Call. My name is Isha [ph] and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Winnie Yam. Please proceed.

Winnie Yam

Thank you. Good day, ladies and gentlemen. I’m pleased to welcome you to China Medical earnings conference call. China Medical already announced its fourth fiscal quarter and full year results ended March 31, 2011. A copy of the press release is also available on the company’s website at www.chinameditech.com.

Today your speakers will be Mr. Xiaodong Wu, CEO; Mr. Sam Tsang, CFO; and Mr. Charles Zhu, Senior VP of Operations. After they’ve finished with their remarks, they will be available to answer your questions.

Before we continue, please bear with me as I take you through the company’s Safe Harbor policy. The discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Legislation Reform Act of 1995.

Forward-looking statements involve inherent risk and uncertainties. As such, the results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in the company’s public filings with the U.S. Securities and Exchange Commission. China Medical does not undertake any obligation to update any forward-looking statement except as required by applicable law.

As a reminder, this conference call is being recorded. A replay of this conference call will be available via webcast on China Medical’s website.

Now allow me to turn the call over to Charles, who will give remarks on behalf of Mr. Wu. Charles?

Charles Zhu

Thank you, Winnie. Hello, everyone. We’re pleased with this quarterly result, in particular the continued growth of our molecular diagnostic business during this seasonally weak March quarter. We expect our FISH business and SPR HPV-DNA chip business to continue driving our future growth.

For FISH business, our direct sales team kept driving the sales of recurring FISH probe revenue by increasing the test usage in existing FISH applications, in particular recent SFDA approved FISH applications in each hospital user, as well as expanding FISH applications in other clinical departments in the existing hospital users.

We have received SFDA approval for the EGFR FISH detection kit and expect to receive SFDA approval for our prostate cancer FISH detection kit and TOP2A FISH detection kit within the next two months. We have submitted application to SFDA for several other FISH detection kits and expect to receive approval within the next 12 months.

By then, we’ll further strengthen our market position as the dominant FISH player in China, but the largest and most comprehensive SFDA approval FISH product portfolio in China and are far ahead of our competitors in China. This will increase the entry barrier for our existing and potential FISH competitors in China as well.

For SPR HPV-DNA chip business, we are pleased to see the increasing recurring revenue from the sales of HPV-DNA chips to our hospital customers to conduct the HPV test for their women patients. But over a 110 Tier 1 hospitals using our SPR analyzer and HPV chips. We expect to see a growing influential group to speak for the clinical benefits of our HPV chips in conducting HPV tests for cervical cancer screening.

In addition, we’re developing our second generation SPR analyzer, which will be more compact, more user-friendly and higher throughput. We believe that many hospitals and independent laboratories will be – will have strong interest to buy the analyzer after seeing the positive feedback from our existing Tier 1 hospital users. We believe HPV test market is in early stage of development in China and there is enormous potential in this market.

For our ECLIA business, we have highlighted in previous earnings call and expected seasonal sequential decline in ECLIA revenue in March quarter due to the two New Year holidays. Although, we are facing the increasing competition in our ECLIA business, we’re encouraged to see the trend of higher usage of ECLIA test to replace ELISA test by hospitals, which give us confidence to expect a stable performance in our ECLIA business.

To summarize, we are focused on the development of our molecular diagnostic businesses, including expanding our product offering in FISH probes and the development of a new SPR analyzer. We will leverage our established sales networks to introduce our new products to our hospital customers.

Meanwhile, we’re also leveraging our brand name as the leading molecular diagnostic product provider in China to explore extensive partnership. We are actively working on several initiatives to support our sustainable growth, including discussion with the leading independent laboratory testing service group in China to promote the usage of molecular diagnostic test.

As part of the China Healthcare Reform, the government is spending a lot of efforts and funds to improve the insurance coverage and the reimbursement rate. As a result, business of independent labs have achieved tremendous growth in past few years.

Read the rest of this transcript for free on seekingalpha.com