Trinity Biotech plc
Annual Report 2023
This report has been prepared in accordance with the Companies Act 2014
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DIRECTORS
| Mr Ronan O’Caoimh | | |
| Dr Jim Walsh | | |
| Mr John Gillard | | |
| Mr Aris Kekedjian | US | Resigned 17 December 2023 |
| Mr Tom Lindsay | UK | Appointed 29 September 2023 |
| Dr Andrew Omidvar | US | Appointed 29 September 2023 |
COMPANY SECRETARY
Mr John Gillard
REGISTERED OFFICE
IDA Business Park,
Bray,
County Wicklow,
Ireland.
LEGAL ADVISORS
Matheson LLP,
70 Sir John Rogerson’s Quay
Dublin 2,
Ireland.
Carter, Ledyard & Milburn LLP,
2 Wall Street,
New York,
United States of America.
AUDITOR
Grant Thornton
Chartered Accountants and Registered Auditors,
City Quay,
Dublin 2,
Ireland.
DEPOSITARY FOR AMERICAN SHARES
Bank of New York,
101 Barclay Street,
New York,
United States of America.
Market, Industry and Other Data
Unless otherwise indicated, information contained in this Annual Report concerning our industry and the markets in which we operate, including our competitive position and market opportunity, is based on information from our own management estimates and research, as well as from industry and general publications and research, surveys and studies conducted by third parties. Management estimates are derived from publicly available information, our knowledge of our industry and assumptions based on such information and knowledge, which we believe to be reasonable. Our management estimates have not been verified by any independent source, and we have not independently verified any third-party information. In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section entitled “Risk Factors” of this annual report.
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report contains statements that constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements are neither historical facts nor assurances of future performance. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to numerous risks and uncertainties some of which are beyond our control and are made in light of information currently available to us.
In some cases, these forward-looking statements can be identified by words or phrases such as “believe,” “may,” “will,” “expect,” “estimate,” “could,” “should,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. Forward-looking statements contained in this Annual Report include, but are not limited to, statements about:
| | • | the development of our products; |
| | • | the potential attributes and benefit of our products and their competitive position; |
| | • | our ability to successfully commercialize, or enter into strategic relationships with third parties to commercialize, our products; |
| | • | our estimates regarding expenses, future revenues, capital requirements and our need for additional financing; |
| | • | our ability to acquire or in-licence new product candidates; |
| | • | potential strategic relationships; and |
| | • | the duration of our patent portfolio. |
We operate in an evolving environment. New risks emerge from time to time, and it is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of important factors, including, without limitation, the important risk factors set forth in the section entitled “Risk Factors” of this Annual Report.
The forward-looking statements made in this Annual Report relate only to events or information as of the date on which the statements are made in this Annual Report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this Annual Report and the documents that we have filed as exhibits hereto completely and with the understanding that our actual future results or performance may be materially different from what we expect.
Board of Directors and Executive Officers
John Gillard, Director, President and Chief Executive Officer, joined Trinity Biotech in November 2020 as Chief Financial Officer, Secretary to the board of directors and was appointed to the board of directors as Executive Director. Mr Gillard assumed the role of CEO and President of Trinity Biotech in December 2023. Mr Gillard is both a Chartered Accountant and Chartered Tax Advisor, having trained at PWC. Prior to joining Trinity Biotech, Mr Gillard held a number of senior financial roles including from 2012 to 2016 at Alphabet Inc./Google, and from Nov 2016 to May 2020 at ION Investment Group. From June 2020 until November 2020, Mr Gillard also acted as a business consultant. Mr Gillard holds a Bachelor of Commerce degree from the National University of Ireland Galway and a Masters degree in Accounting from University College Dublin.
Ronan O’Caoimh, Director, Founder & Executive Advisor, co-founded Trinity Biotech in June 1992 and acted as Chief Financial Officer until March 1994 when he became Chief Executive Officer. He was also elected Chairman in May 1995. On May 3, 2022, Mr O’Caoimh stepped down as Chairman and was replaced as Chairman by Seon Kyu Jeon. On October 3, 2022, Mr O’Caoimh stepped down as Chief Executive Officer. Prior to joining Trinity Biotech, Mr O’Caoimh was Managing Director of Noctech Limited, an Irish diagnostics company. Mr O’Caoimh was Finance Director of Noctech Limited from 1988 until January 1991 when he became Managing Director. Mr O’Caoimh holds a Bachelor of Commerce degree from University College Dublin. On March 30, 2011, the service agreement with Ronan O’Caoimh as Chief Executive Officer was terminated and replaced by a management agreement with Darnick Company. This arrangement ceased with effect from December 31, 2018 with Ronan O’Caoimh returning as an employee of the Company.
Jim Walsh, PhD, Executive Director of Business Development, initially joined Trinity Biotech in October 1995 as Chief Operations Officer. Dr Walsh resigned from the role of Chief Operations Officer in 2007 to become a Director of the Company. In October 2010, Dr Walsh rejoined the Company as Chief Scientific Officer. Dr Walsh transferred from this position in 2015 and now provides strategic advice and technical diligence support, on a part time basis, with regards to the Company’s business development activities. Prior to joining Trinity Biotech, Dr Walsh was Managing Director of Cambridge Diagnostics Ireland Limited (“CDIL”). He was employed with CDIL since 1987. Before joining CDIL he worked with Fleming GmbH as Research & Development Manager. Dr Walsh is a director of a number of private Irish companies in the biotechnology and diagnostics sector, including EPONA Biotech since 2016, AllWorth Diagnostics since 2019 and AbacusLabs since 2020. Dr Walsh holds a PhD degree in Chemistry from University College Galway.
Tom Lindsay, Independent Director, joined the board of directors as a non-executive director in October 2022. Mr Lindsay has more than 35 years of sales and marketing leadership experience in the global medical diagnostics industry and was President of Alere Inc’s (now Abbotts’s) business in Africa for many years. Most recently, Mr Lindsay has provided consultancy services to several international in vitro diagnostics businesses. He currently serves as a non-executive director for Genedrive plc, a rapid, low-cost molecular diagnostics platform for the identification and treatment of a selection of infectious diseases.
Andrew Omidvar, PhD, Independent Director joined the board of directors of Trinity Biotech in late September 2023. With over twenty-five years of experience leading cross-functional teams to deliver cutting edge technology solutions in a variety of industries. He brings experience in development and product support for data and AI based systems in the medical device industry. Most recently Dr Omidvar served as Vice President of Government R&D and Enterprise for Philips.
Trinity Biotech develops, acquires, manufactures and markets medical diagnostic products for the clinical laboratory and point-of-care segments of the diagnostic market. These products are used to detect autoimmune, infectious and sexually transmitted diseases, diabetes and disorders of the liver and intestine. Trinity Biotech also operates a licenced reference laboratory that specializes in diagnostics for autoimmune diseases. In January 2024, Trinity Biotech entered into the biosensor industry, with the acquisition of the biosensor assets of Waveform Technologies Inc. (“Waveform”) and intend to develop a range of biosensor devices and related services, starting with a continuous glucose monitoring (“CGM”) product.
We market our portfolio of several hundred products to customers in approximately 100 countries around the world through our own sales force and a network of international distributors and strategic partners.
Trinity Biotech was incorporated in Ireland in 1992 as a private limited company and re-registered as a public limited company (“plc”) in July of that year. In October 1992, the Company completed an initial public offering of its securities in the US. The principal offices of the Group are located at IDA Business Park, Bray, County Wicklow, Ireland. The Group has expanded its product base through internal development and acquisitions.
Industry Overview
The diagnostic industry is very competitive. There are many companies, both public and private, engaged in the sale of medical diagnostic products and diagnostics-related research and development, including several well-known pharmaceutical and chemical companies. Competition is based primarily on product reliability, customer service and price. This is a technology driven market with an emphasis on automation and emerging biomarkers. Trinity actively works on increasing automation for the clinical laboratory. Trinity seeks to bring novel biomarkers to market by licensing agreements with universities and innovative companies.
The Group’s competition includes several large companies such as, but not limited to: Abbott Diagnostics, Arkray, Becton Dickenson, Bio-Rad, Copan, DexCom Inc., Diasorin Inc., Johnson & Johnson, Roche Diagnostics, Sebia, Siemens (from the combined acquisitions of Bayer, Dade-Behring and DPC), Thermo Fisher, Tosoh and Werfen.
Products and services
Our product and services portfolio is divided between Clinical Laboratory tests, point-of-care tests and Laboratory services. In 2023, our clinical laboratory division had revenue of US$42.3 million, the point-of-care division had revenue of US$9.1 million and the revenue from laboratory services was US$5.5 million.
Clinical Laboratory
Trinity Biotech supplies the clinical laboratory segment of the in-vitro diagnostic market with a range of diagnostic tests and instrumentation which detect:
| • | Glycated haemoglobin (for diabetes monitoring and diagnosis) and haemoglobin variants for the detection of haemoglobinopathies (haemoglobin abnormalities); and |
Trinity Biotech also supplies this market with other products through its clinical chemistry business.
Infectious Diseases
Trinity Biotech manufactures kits for the detection of specialty and esoteric biomarkers of infectious diseases and other associated laboratory products. The products are used in processing patient samples whose results aid physicians in the diagnosis and clinical assessment of a broad range of infectious diseases. The key clinical laboratory disease areas that we serve include:
| • | Sexually transmitted diseases, including Syphilis and Herpes; |
| • | Markers for Epstein Barr, Measles, Mumps, Toxoplasmosis, Cytomegalovirus, Rubella, Varicella and other viral pathogens, and |
Business Overview (Continued)
Trinity Biotech develops, manufactures and distributes products predominantly in enzyme-linked immunosorbent assay (“ELISA”) format. As a complement to its product range, the company also offers third party automated processors to its customers.
Many of the products in our Infectious Diseases product line are FDA cleared for sale in the United States and CE marked in Europe. Products are sold in approximately 100 countries in total, with the focus on the Americas, Europe and Asia. The infectious disease products are sold through the sales and marketing organisation of Trinity Biotech to a variety of customers including public health authorities, clinical and reference laboratories directly in the U.S. and U.K. and through independent distributors and strategic partners in other countries.
Diabetes and Haemoglobinopathies
Trinity Biotech manufactures products for in-vitro diagnostic measurement of haemoglobin A1c (“HbA1c”) used in the monitoring and diagnosis of diabetes, as well identifying those who are at a high risk of developing diabetes (pre-diabetic). The Premier Hb9210 uses boronate affinity technology to measure HbA1c which is a marker of a patient’s average blood sugar control over the last 100 to 120 days. It is a highly accurate biomarker available for the diagnosis of diabetes and is a strong indicator of a diabetic’s glycemic control. HbA1c is also used to identify those at risk of becoming diabetic; often referred to as impaired glucose tolerance. Additionally, HbA1c is used in the assessment of diabetes complications.
Trinity Biotech manufactures its own HbA1c instrument, the Premier Hb9210, which was launched in Europe and obtained FDA approval in late 2011. In the USA and Brazil, we sell the Premier Hb9210 through our own direct sales organisations. In the rest of the world, we sell the Premier Hb9210 through a network of distributors. The Premier’s unique features, cost structure and core technology enable it to compete in most economies and settings.
Trinity Biotech has also launched the Premier Resolution, our next generation Haemoglobinapothy Analyzer in Europe and the Middle East after undergoing rigorous and successful field trials. In August 2023, the Premier Resolution was approved by the FDA allowing the instrument to be sold in the U.S.
Autoimmune Diseases
Autoimmune diseases are diseases that involve an abnormal immune response in which the immune system attacks the body’s own cells and tissues. In 2013, Trinity Biotech acquired Immco Diagnostics (“Immco”), an autoimmunity company known for novel assay development and high impact contributions to autoimmune disease diagnostic research. Immco develops, manufactures and sells products in the following formats for diagnosis of autoimmune diseases:
| • | Immunofluorescence Assay (“IFA”); |
| • | Enzyme-linked immunosorbent (“ELISA”); |
| • | Western Blot (“WB”); and |
| • | Line immunoassay (“LIA”). |
Many of Immco’s products are FDA cleared for sale in the U.S. and CE marked in Europe. The Immco product line addresses the lower throughput, specialty autoimmune segment. The principal autoimmune conditions in this segment are Rheumatoid Arthritis, Vasculitis, Lupus, Celiac and Crohn’s Disease, Ulcerative Colitis, Neuropathy, Hashimoto’s Disease and Grave’s Disease.
The Immco products are sold through our sales and marketing organisation to clinical and reference laboratories directly in the U.S. and via distributors in other countries.
The diagnostic product line is complemented by Immco’s New York State Department of Health licenced reference laboratory offering specialised services in diagnostic immunology, pathology and immunogenetics, and is marketed to U.S.-based reference laboratories and hospitals.
In addition, Immco markets a panel of proprietary early markers for Sjögrens disease often referred to as “dry eye disorder”.
Business Overview (Continued)
Clinical Chemistry
The speciality clinical chemistry business of Trinity Biotech includes reagent products such as ACE, bile acids, oxalate and glucose-6-phosphate dehydrogenase (“G6PDH”) that are clearly differentiated in the marketplace. These products are suitable for both manual and automated testing and have proven performance in the diagnosis of many disease states from liver and kidney disease to G6PDH deficiency which is an indicator of haemolytic anaemia.
Blood Bank Screening
Trinity Biotech manufactures enzyme-linked immunosorbent assays, for the detection of syphilis and malaria. These products are sold through distributors and are manufactured under original equipment manufacturer agreements for other major third-party diagnostic companies. The business is not currently operating in the U.S.
Continuous Glucose Monitoring
In January 2024, the Company acquired the biosensor and CGM assets of privately held Waveform Technologies, Inc. (“Waveform”). We intend to update the Waveform CGM device and optimize for broad adoption and then evolve this platform technology to measure and analyse other valuable biomarkers and related datapoints. Our vision is to develop a portfolio of technologies that can offer users and clinicians valuable actionable health and wellness insights based upon what is happening in, on and around the body.
Waveform, a developer of novel and proprietary new technologies for diabetes care, received a CE Mark for its Cascade CGM in 2019, which has since been commercially available in Europe. The primary use of the device is to continuously monitor glucose in the human body. The Cascade CGM device and any subsequently developed sensor would be subject to regulatory oversight from the FDA and country specific regulatory authorities and would be subject to the same risks identified in the Government Regulation section of this Annual Report. Glucose in the blood diffuses from capillaries into the liquid between cells known as interstitial fluid. The Waveform CGM device is an electrochemical biosensor which detects the concentration of glucose in interstitial fluid by means of an enzyme immobilised at the surface of a sensor wire inserted into the skin. The action of the enzyme results in the generation of electrical current that is relayed to an attached transmitter where it is converted by a firmware algorithm into a blood glucose concentration. The transmitter then sends this blood glucose measurement to a smartphone or other device where the time within healthy range is tracked and the user alerted to risks of hypo- or hyperglycaemic episodes.
The Waveform CGM technology contains innovative and proprietary aspects with what we believe are important benefits. Significantly, the special composition of the sensor wire and the unique formulation of its protective outer membrane contribute to the ability to achieve needle-free insertion. Needle free insertion has numerous benefits including a reuseable applicator as no needle needs to be safely disposed. This, combined with a reusable transmitter which is also a feature of the acquired CGM technology, allows for two clear benefits. Firstly, it allows for a lower cost of production of the redesigned CGM product compared to the principal current CGM market players and secondly, it reduces the waste concerns associated with the currently marketed single-use disposable systems.
Additionally, we believe that this innovative platform technology will allow us to develop a broader suite of wearable biosensors to measure and analyse important health and wellness information. If successful, we intend to target other analytes and data points that represent markers of health and function and make these devices available more broadly around the globe.
The CGM technology acquired from Waveform was developed over many years and Waveform has granted a perpetual, worldwide, non-exclusive license to DexCom, Inc. and its affiliates, for some of the patents acquired by us, but to which we retain the right to use and exploit.
The following are the facilities where the Group currently manufactures products:
Bray, County Wicklow, Ireland – point-of-care/HIV, Clinical Chemistry products are manufactured at this site.
Jamestown, New York, United States – this site specializes in the production of Microtitre Plate EIA products for infectious diseases and auto-immunity. Viral Transport Media products are also manufactured at this facility.
Kansas City, Missouri, United States – this site is responsible for the manufacture of the Group’s haemoglobin range of products. It also carries out all of the Group’s haemoglobin R&D activities.
Buffalo, New York, United States – this site is responsible for the manufacture of autoimmune test kits along with its reference laboratory business.
Extrema, Brazil - this site is responsible for the manufacture of some of the haemoglobin range of products sold in Brazil.
We are in material compliance with all environmental legislation, regulations and rules applicable in each jurisdiction in which we operate.
Year ended December 31, 2023
Introduction
The directors submit their Annual Report, together with the audited financial statements of the Company and its subsidiaries (“Trinity Biotech” and/or “the Group”), for the year ended December 31, 2023.
Principal activities
Trinity Biotech develops, acquires, manufactures and markets medical diagnostic products for the clinical laboratory and point-of-care segments of the diagnostic market. These products are used to detect autoimmune, infectious and sexually transmitted diseases, diabetes and disorders of the liver and intestine. Trinity Biotech is a significant provider of raw materials to the life sciences and research industries globally. Trinity Biotech also operates a licenced reference laboratory that specializes in diagnostics for autoimmune diseases. Our products are sold in approximately 100 countries worldwide by the Group’s own sales force and by a network of international distributors and strategic partners. In January 2024, we entered into the biosensor industry, with the acquisition of the biosensor assets of Waveform Technologies Inc. (“Waveform”) and intend to develop a range of biosensor devices and related services, starting with a continuous glucose monitoring (“CGM”) product.
Business review
Trinity Biotech’s revenues for the year ended December 31, 2023 were US$56.8 million compared to revenues of US$62.5 million for the year ended December 31, 2022, which represents a decrease of US$5.7 million or 9.1%. The decrease is mainly due to lower sales of our PCR Viral Transport Media (“VTM”) products (US$1.8 million), lower laboratory services revenue (US$1.8 million) following the loss of our transplant testing service contract and haemoglobins revenues were 8% lower due to the continued decrease in revenues for our legacy haemoglobinopathies product, the Ultra II instrument and due to the deferral of year end shipments of products at sub-optimal pricing as we renegotiated contract terms with a key customer in line with the new management team’s focus on profitability.
The gross margin of 34.2% in 2023 compares to a gross margin of 27.6% in 2022. The gross profit for the year ended December 31, 2022 reflected significant excess inventory and obsolescence charges of US$4.7 million recorded in Q3 2022, consisting of VTM inventory write down (US$3.5 million) Tri-stat inventory write down (US$0.3 million) and other inventory write downs (US$0.9 million). The remainder of the reduction in gross margin in the year ended December 31, 2023 compared to year ended December 31, 2022 is largely due to sales mix changes, inflationary increases in the price of raw materials which cannot always be passed onto customers in the form of higher prices due to contract terms.
Other operating income decreased from US$0.3 million for the year ended December 31, 2022 to US$0.1 million for the year ended December 31, 2023. The other operating income for 2023 relates to a transition services agreement with the acquirer of Fitzgerald Industries. The income for 2022 consisted of government grants in relation to R&D activities and there was no equivalent in 2023.
Research and development expenses increased from US$4.1 million for the year ended December 31, 2022 to US$4.4 million for the year ended December 31, 2023, an increase of 6% mainly due to lower capitalisation of payroll costs into product development intangible assets.
The Company recognised impairment charges of US$11.1 million in the year ended December 31, 2023, compared to US$5.8 million for the year ended December 31, 2022.
Operating loss for the year ended December 31, 2023 was US$27.0 million, compared to an operating loss of US$19.3 million in the year ended December 31, 2022. The higher loss was mainly attributable to decreased revenues, lower other operating income, higher impairment charges and higher indirect costs, partly offset by a higher gross margin.
Financial expenses in the year ended December 31, 2023 were US$11.1 million compared to US$24.7 million in the year ended December 31, 2022, a decrease of US$13.6 million.
The decrease of US$13.6 million in 2023 compared to 2022 is mainly due to two material expenses incurred in the year ended December 31, 2022, which were a loss of US$9.7 million on the disposal of the Exchangeable Notes and an early repayment penalty of just under US$3.5 million.
Directors’ Report (Continued)
Interest on the senior secured term loan, comprising cash and non-cash interest, decreased from US$9.8 million in 2022 to US$8.4 million for 2023 mainly due to a lower term loan balance, although this was partly offset by the impact of higher prevailing interest rates during 2023. Interest on the convertible note, comprising cash and non-cash interest, increased from US$0.7 million in 2022 to US$1.1 million in 2023 due to the full year effect (the convertible note was issued in Q2 2022). An early repayment penalty of US$0.9 million was incurred in Q2, 2023 because of an early partial settlement of the term loan of US$10.1 million. Interest on the exchangeable notes decreased from US$0.4 million in 2022 to US$8,000 in 2023 because 99.7% of the exchangeable notes were retired during Q1, 2022.
Financial income for the year ended December 31, 2023 was US$1.2 million compared to US$0.3 million for the year ended December 31, 2022. In both years, the financial income related to a fair value adjustment for the derivative liability related to warrants granted to the Group’s principal lender.
The Company recorded a tax credit on continuing operations of US$59,000 for the year ended December 31, 2023 compared to a tax credit of US$0.2 million for the year ended December 31, 2022. The 2023 tax credit consists of approximately US$264,000 of current tax charge and US$323,000 of a deferred tax credit. The 2022 tax credit consists of US$280,000 of current tax credit and US$86,000 of a deferred tax charge.
The loss before tax for continuing operations for the year ended December 31, 2023 was US$36.9 million, in comparison to US$43.8 million for the year ended December 31, 2022.
The discontinued operations comprise Fitzgerald Industries which was divested in April 2023 and the discontinued cardiac point-of-care business on the Meritas platform. Profit for the period from discontinued operations totalled US$12.9 million, largely attributable to the gain of US$12.7 million on the divesture of Fitzgerald Industries. The gain comprises proceeds of approximately US$30 million offset by transaction costs of US$1.3 million with net assets eliminated on disposal of US$16.3 million.
Dividends
No dividend has been proposed in respect of the financial year 2023.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As reflected in the accompanying consolidated financial statements, for the years ended December 31, 2023 and 2022, we recorded a loss of US$24.0 million and a loss of US$41.0 million, respectively. In addition, for the years ended December 31, 2023 and 2022, we reported cash outflows of US$2.8 million and US$19.2 million, respectively. As of December 31, 2023, we had net current assets of US$24.0 million but had an accumulated deficit in equity attributable to the equity holders of the Company of US$23.9 million.
As part of the Waveform acquisition in January 2024, we entered into an amended credit agreement (“Amended Term Loan”) with Perceptive, our existing principal lender. Under this agreement, an additional US$22 million of funding has been made available to us, with US$12.5 million being used to acquire the Waveform assets. The remaining US$9.5 million was made available for general corporate purposes including for the further development of the CGM and biosensor technologies. The Amended Term Loan also provides for additional liquidity of up to US$6.5 million, that may be drawn down between April and December 2024, and can be used for general corporate purposes. The Amended Term Loan also immediately reduced the annual rate of interest on the loan by 2.5% with a further rate reduction once the outstanding principal under the Amended Term Loan falls below US$35 million. The Amended Term Loan matures in January 2026. This additional funding and access to additional liquidity, as required, allows the Group to expand on commercial opportunities, and fund ongoing corporate requirements. In April 2024 the Company drew down additional funding of US$6.5 million as prescribed in the Amended Term Loan agreement. This funding will be used for general corporate purposes, including the further development of our CGM offering.
Directors’ Report (Continued)
The directors have considered the Group’s current financial position and cash flow projections, taking into account all known events and developments including the amendment and restatement of the term loan with Perceptive, the acquisition of Waveform assets, the divestiture of the Fitzgerald Industries life sciences supply business, and the success of the commercial launch of the Trinscreen HIV product in December 2023. Additionally, we have undertaken a number of initiatives aimed at improving the financial performance of the existing business by building on our existing revenue base and eliminating unnecessary overhead and complexity. There are no material debt maturities until 2026. Our directors believe that the Group will be able to continue its operations for at least the next 12 months from the date of this report, and that it is appropriate to continue to prepare the consolidated financial statements on a going concern basis.
Key Performance Indicators
The key financial indicators are set out below:
| | | 2023 | | | 2022 | |
| | | US$’000 | | | US$’000 | |
| Revenue | | | 56,832 | | | | 62,521 | |
| | | | | | | | | |
| Operating loss | | | (27,045 | ) | | | (19,349 | ) |
| | | | | | | | | |
| Loss for the year | | | (24,018 | ) | | | (41,009 | ) |
Research and Development activity
Trinity Biotech has research and development groups focusing separately on product development in haemoglobins, infectious diseases and since January 2024, CGM. These groups are located in Ireland and the U.S. and largely mirror the production capability at each production site. In addition to in-house activities, Trinity Biotech sub-contracts some research and development from time to time to independent researchers based in the U.S. and Europe.
Haemoglobin Development Group
Premier Hb9210 Instrument for Haemoglobin A1c Testing
A product development plan focused on improvements in our flagship Premier 9210 instrument is ongoing. The package of changes aims to expand the target market, reduce instrument downtime and service cost, and significantly expand operating margins.
Our program to develop an improved, backward compatible column Diabetes HbA1c column system is now complete. The results of this development program have exceeded expectations, with our new column system now delivering up to four times the number of injections compared to the existing product. We are now executing on the commercial launch of these new products.
Our revised in-house manufacturing process of our key Diabetes HbA1c consumable began in Q4, 2023, and in Q1, 2024 we ceased to order any further product from our outsourced supplier.
Premier Resolution Instrument for Haemoglobin Variant Testing
We developed the Premier Resolution instrument which is utilised for haemoglobin variant testing. The instrument achieved 510(k) approval from the FDA in August 2023. The instrument has been sold in certain international markets outside of the U.S. for many years. Premier Resolution continues to be enhanced with unique features such as lot specific gradients, an optimised column with extended column life, and a rapidly expanding on-board variant library.
Directors’ Report (Continued)
Point-of-Care Development
A combination HIV/Syphilis point-of-care rapid test is also being developed using our existing lateral flow format, we expect this project to restart in 2024.
Continuous Glucose Monitoring Development
In January 2024, we acquired the biosensor and CGM assets of Waveform. It is our intention to further develop these assets with our research and development activities including optimising sensor design and manufacture, reanalysing data from Waveform’s clinical trial data sets, software improvements including algorithm and app development, and performing new pre-pivotal and pivotal clinical trials. In tandem with the acquisition of the Waveform CGM assets, we have also hired a number of the key research and development personal that previously worked on developing the Waveform CGM. Additionally, we have engaged an internationally recognised and reputable technical development consulting house to work on some key development activities. We plan to further augment the CGM development function with further hires in the coming months.
Future developments
Trinity Biotech will continue to pursue product and technological developments through its research and development programmes and the expansion of existing activities through its sales and marketing programmes. As outlined above, the Group is currently developing several new diagnostic tests and instrumentation, while at the same time enhancing its existing products.
Important events since the year end
Acquisition of the CGM assets of Waveform Technologies, Inc.
In January 2024, the Company acquired the biosensor and Continuous Glucose Monitoring assets of privately held Waveform Technologies, Inc. for an initial consideration of US$12.5 million in cash and 1.8 million ADSs of the Company plus contingent consideration of a maximum of US$20 million. We intend to update the Waveform CGM device and optimize for broad adoption and then evolve this platform technology to measure and analyse other valuable biomarkers and related datapoints. Our vision is to develop a portfolio of technologies that can offer users and clinicians valuable actionable health and wellness insights.
Waveform, a developer of novel and proprietary new technologies for diabetes care, received a CE Mark for its Cascade CGM in 2019, which has since been commercially available in Europe. The primary use of the device is to continuously monitor glucose in the human body. The Waveform CGM technology contains innovative and proprietary aspects with what we believe are important benefits. The CGM technology acquired from Waveform was developed over many years and Waveform has granted a perpetual, worldwide, non-exclusive license to DexCom, Inc. and its affiliates, for some of the patents acquired by us, but to which we retain the right to use and exploit.
Directors’ Report (Continued)
The fair value of the total net assets acquired is US$23.2 million and comprises the following:
| | | US$’000 | |
| ASSETS ACQUIRED | | | |
| Non-current assets | | | |
| Property, plant and equipment | | | 1,569 | |
| Goodwill | | | 12,071 | |
| Other intangible assets | | | 9,360 | |
| Financial assets | | | 9 | |
| Total non-current assets | | | 23,009 | |
| Current assets | | | | |
| Inventory | | | 1,296 | |
| Other receivables | | | 135 | |
| Total current assets | | | 1,431 | |
| Total assets acquired | | | 24,440 | |
| | | | | |
| LIABILITIES ASSUMED | | | | |
| Current liabilities | | | | |
| Trade and other payables | | | 50 | |
| Total current liabilities | | | 50 | |
| Non-current liabilities | | | | |
| Deferred tax liability | | | 1,170 | |
| Total non-current liabilities | | | 1,170 | |
| Total liabilities assumed | | | 1,220 | |
| | | | | |
| NET ASSETS ACQUIRED | | | 23,220 | |
Goodwill represents the excess of the purchase price consideration over the fair value of the underlying assets acquired and liabilities assumed and largely results from expected future development and commercialization opportunities for the biosensor technology as well as the assembled workforce, which does not qualify for separate recognition.
Additional contingent consideration of up to US$20 million which may be payable upon the occurrence of certain events, as follows:
Trading Trigger: a US$5.0 million payment if, within 12 months from the date of acquisition, the (i) the closing price of the Company’s ADSs does not exceed US$7.50 per ADS for at a least 20 consecutive trading days and (ii) the average daily trading volume of the Company’s ADSs does not equal or exceed 20,000 ADSs for 20 consecutive trading days, and
Partnership trigger: 50% of the proceeds received by the Company (up to a maximum payment of additional consideration of US$15.0 million) on our entering into certain commercial partnering agreements with certain glucose pump manufacturers within 24 months from acquisition date. The fair value of the contingent consideration at date of acquisition is US$6.8 million.
In connection with the acquisition of the Waveform assets and liabilities, the Company entered into a non-binding Letter of Intent with Bayer’s subsidiary in China for the launch of a Continuous Glucose Monitoring biosensor device in China and India.
Amendment and Restatement of Term Loan
In connection with the acquisition of the CGM assets of Waveform, in January 2024 the Company has entered into the Amended Term Loan with its main lender, Perceptive. Under the Amended Term Loan, an additional $22 million of funding has been made available to the Company, with US$12.5 million being used to acquire the CGM assets of Waveform. The remaining US$9.5 million is available for general corporate purposes including for the further development of the CGM and biosensor technologies. In addition, the Amended Term Loan provides for additional liquidity of up to US$6.5 million, that may be drawn down by the Company between April and December 2024, and can be used for general corporate purposes.
The Amended Term Loan also immediately reduces the annual rate of interest on the loan by 2.5% to 8.75% (the “Base Rate”) plus the greater of (a) Term Secured Overnight Financing Rate (SOFR) or (b) 4.0% per annum, and allows for a further 2.5% reduction in the Base Rate to 6.25% once the outstanding principal under the Amended Term Loan falls below US$35 million. Additionally, the Amended Term Loan reduces the early repayment penalty from a range of 8% to 7% to 4.0% to 3.5%, dependent on timing of early repayment, and also reduces the revenue covenants. The Amended Term Loan matures in January 2026.
Directors’ Report (Continued)
In addition, in connection with the Amended Term Loan, Perceptive received new warrants to purchase an additional 500,000 ADSs and the Company has agreed to price these additional warrants and reprice the existing warrants to purchase 500,000 ADSs that were issued to Perceptive under the original term loan, with an exercise price of US$2.20 per ADS, subject to adjustment.
In April 2024 the Company drew down the additional funding of US$6.5 million as prescribed in the Amended Term Loan agreement. This funding will be used for general corporate purposes, including the further development of our CGM offering.
Comprehensive Transformation Plan
In March, 2024, we announced a comprehensive transformation plan to deliver a step change in the financial performance of our existing business. Our transformation plan has several key components that are expected to be achievable in most cases by mid-2025 and comprise the following:
| i. | Consolidation of our main manufacturing operations into a considerably smaller number of sites and move to an outsourced model for a significant amount of our less complex manufacturing activities. As part of this initiative, we intend to cease manufacturing at our main Kansas City manufacturing plant which currently serves our Haemoglobin business. We expect to have fully executed this change by the end of 2024 and expect this will deliver significant annualised savings. |
| ii. | Product cost reduction from changing suppliers and negotiating new deals with existing suppliers. This is an area we have already successfully executed on a number of cost saving initiatives, which we expect will deliver multi-million-dollar annualised savings. |
| iii. | Transfer of significant aspects of our business support functions to a lower cost and centralised location. We plan to complete this activity by the end of 2024 and it is expected to deliver significant reductions to our existing indirect overheads, plus provide an efficient scalable business support platform to facilitate efficient growth in our wearable biosensor business. |
At the Market Offering Agreement
In July, 2024, we entered into an At the Market Offering Agreement (the “Sales Agreement”) with Craig-Hallum Capital Group LLC (“Craig-Hallum”), pursuant to which the Company may sell up to US$5,500,000 of its ADSs through Craig-Hallum, acting as sales agent. Subject to the terms and conditions of the Sales Agreement, we will, from time to time, set the parameters for the sale of ADSs, including any price, time or size limits or other customary parameters or conditions, and Craig-Hallum will use its commercially reasonable efforts to sell the ADSs when requested by the Company. The Company will pay Craig-Hallum a commission equal to 3.0% of the gross sales price of ADSs sold.
Sales of the ADSs under the Sales Agreement may be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. The ADSs are sold pursuant to the Company’s Registration Statement on Form F-3, which became effective on June 28, 2023. On July 12, 2024, the Company filed a Prospectus Supplement with the SEC relating to the offering of up to US$5,500,000 in ADSs pursuant to the Sales Agreement and on August 29, 2024, the Company filed another Prospectus Supplement with the SEC relating to the offering of up to US$1,870,000 in ADSs pursuant to the Sales Agreement.
Receipt of De-Listing Notice
The Company received a deficiency letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) on November 21, 2023. The letter notified the Company that, for the preceding 30 consecutive business days, the market value of publicly held shares ("MVPHS") had remained below the minimum US$15 million threshold required for continued listing on The Nasdaq Global Select Market pursuant to Nasdaq Listing Rule 5450(b)(3)(c) (the “MVPHS Requirement”). On July 16, 2024, the Company met with the Nasdaq Hearings Panel (the “Panel”) to discuss its plan to regain compliance with the MVPHS Requirement and requested an extension until October 31, 2024, to demonstrate compliance. On August 1, 2024, the Panel granted the Company an extension until October 31, 2024, to meet the MVPHS Requirement.
Directors’ Report (Continued)
If the ADSs are delisted from Nasdaq and we are unable to successfully transfer the listing of the ADSs to the Nasdaq Capital Market, the ADSs would likely then trade only in the over-the-counter market, which would adversely affect the liquidity and marketability of our ADSs.
ADS Ratio change
In February 2024, the Company changed the ratio of the ADSs representing its A Ordinary Shares from one (1) ADS representing four (4) A Ordinary Shares to one (1) ADS representing twenty (20) A Ordinary Shares. For Trinity Biotech plc ADS holders, the change in the ADS ratio had the same effect as a one for-five reverse ADS split. There was no change to the Company’s A Ordinary Shares. The effect of the ratio change on the ADS trading price on the Nasdaq Global Market took place at the opening of trading on February 23, 2024. The ADS ratio change enabled the Company to regain compliance with the US$1.00 Nasdaq minimum bid price requirement. The number of ADS within this document represents the number of ADSs post the ADS ratio change. The earnings/(loss) per ADS calculations have been calculated using the revised number of ADS as the denominator, the prior year numbers have also been restated because of the ratio change.
Directors’ Report (Continued)
Directors’ and Secretary’s interests
Neither the directors, the Company Secretary, their spouses or minor children had interests in the company or its subsidiary undertakings as at December 31, 2023, December 31, 2022 or subsequent date of appointment, except as follows:
| | | Number of A Ordinary Shares December 31, 2023 | | | Number of A Ordinary Shares December 31, 2022 | | | Number of options* December 31, 2023 | | | Number of options* December 31, 2022 | | | Weighted average exercise price of options outstanding at December 31, 2023 | | | Weighted average exercise price of options outstanding at December 31, 2022 | |
| Directors | | | | | | | | | | | | | | | | | | |
| John Gillard | | | - | | | | - | | | | 20,000,000 | | | | 10,000,000 | | | US$3.60 | | | US$6.20 | |
| Ronan O’Caoimh** | | | 9,724,165 | | | | 9,724,165 | | | | 9,037,336 | | | | 9,037,336 | | | US$16.80 | | | US$16.80 | |
| Jim Walsh | | | 1,393,612 | | | | 1,393,612 | | | | 1,350,000 | | | | 1,510,000 | | | US$16.60 | | | US$20.00 | |
| Tom Lindsay | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Andrew Omidvar | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
* Represents the number of A Ordinary Shares which can be purchased under the Company’s share option plan.
** Includes options issued to Darnick Company which in the past provided Trinity Biotech with the services of Mr O’Caoimh as Chief Executive Officer.
Movement in directors’ and company secretary A Ordinary Share options during the year is as follows;
| | | Number of options held at January 1, 2023 | | | Options granted during the year | | | Options exercised during the year | | | Options forfeited during the year | | | Number of options held at December 31, 2023 | |
| Aris Kekedjian | | | 20,000,000 | 1 | | | - | | | | - | | | | 12,000,000 | | | | 8,000,000 | |
| John Gillard | | | 10,000,000 | 1 | | | 14,000,000 | | | | - | | | | 4,000,000 | | | | 20,000,000 | |
| Ronan O’Caoimh | | | 9,037,336 | | | | - | | | | - | | | | - | | | | 9,037,336 | |
| Jim Walsh | | | 1,510,000 | | | | - | | | | - | | | | 160,000 | | | | 1,350,000 | |
| Tom Lindsay | | | - | | | | - | | | | - | | | | - | | | | - | |
| Andrew Omidvar | | | - | | | | - | | | | - | | | | - | | | | - | |
The directors’ options outstanding at December 31, 2023 are exercisable and expire at various dates between 2024 and 2030.
Note 1. Share options with a hurdle price are structured such that they may only become exercisable into ADSs when the average closing price of our ADSs, for ten trading days out of the thirty previous trading days, is equal to or greater than the relevant hurdle price of US$5.00, US$7.50, US$10.00, $15.00, $20.00 and $25.00 per ADS (adjusted for any stock splits, reverse splits or equivalent reorganisations) during the life of the option.
The Company’s register of directors’ interests, which is open to inspection at the registered office, contains full details of directors’ shareholdings and share options. From January 1, 2024 to the date of this report, there were no purchases of shares by the Directors of the Company or by the Company Secretary.
Share option plans
The board of directors have adopted the Employee Share Option Plans (the “Plans”) with the most recently adopted Share Option Plan being the Company’s 2023 Amended & Restated Plan. The purpose of these Plans is to provide Trinity Biotech’s employees, consultants, officers and directors with additional incentives to improve Trinity Biotech’s ability to attract, retain and motivate individuals upon whom Trinity Biotech’s sustained growth and financial success depends. These Plans are administered by the board of directors. Options under the Plans may be awarded only to employees, officers, directors and consultants of Trinity Biotech.
Directors’ Report (Continued)
The exercise price of options is determined by the board of directors, through its remuneration and employee compensation committees as the case may be. The term of an option will be determined by the board of directors, provided that the term may not exceed ten years from the date of grant. All options will terminate 90 days after termination of the option holder’s employment, service or consultancy with Trinity Biotech (or one year after such termination because of death or disability) except where a longer period is approved by the board of directors.
Under certain circumstances involving a change in control of Trinity Biotech, the board of directors may accelerate the exercisability and termination of options.
Transactions with directors
There were no transactions with directors other than those outlined in Note 26 to the financial statements.
Directors’ remuneration
The Group’s policy in respect of remuneration of executive directors is to provide remuneration packages which attract, retain, motivate and reward the executives concerned and encourage them to enhance the Group’s performance. In considering such packages, cognisance is taken of the levels of remuneration for comparable positions, the responsibilities of the individuals concerned and the overall performance of the Group.
Directors’ and executive officers’ remuneration shown below comprises emoluments, pension contributions and bonuses in respect of executive directors. The Company typically has a Remuneration Committee which is responsible for approving executive directors’ remuneration including bonuses and share option grants. The board of directors has appointed an internationally recognised independent consulting firm to advise the board of directors on recruitment and compensation matters for directors and senior management.
Non-executive directors are remunerated by fees and the granting of share options. Non-executive directors who perform additional services outside the normal duties of a director receive additional fees. The fees payable to non-executive directors are determined by the board of directors.
Total directors’ remuneration for the year ended December 31, 2023 amounted to US$2,084,000. The split of directors’ remuneration set out by director is detailed in the table below:
| Director | | Title | | Salary/Other payments/ Benefits US$’000 | | | Performance related bonus US$’000 | | | Transaction related bonus US$’000 | | | Defined contribution pension US$’000 | | | Total 2022 US$’000 | |
Aris Kekedjian1 | | Former Chairman and Former Chief Executive Officer | | | 1,171 | | | | — | | | | — | | | | — | | | | 1,171 | |
John Gillard 2 | | President and Chief Executive Officer | | | 473 | | | | — | | | | 211 | | | | 26 | | | | 710 | |
| Ronan O’Caoimh | | Director, Founder & Executive Advisor | | | 80 | | | | — | | | | — | | | | — | | | | 80 | |
| Jim Walsh | | Director of Business Development | | | 50 | | | | — | | | | — | | | | — | | | | 50 | |
| Tom Lindsay | | Independent Director | | | 63 | | | | — | | | | — | | | | — | | | | 63 | |
Andrew Omidvar 3 | | Independent Director | | | 10 | | | | — | | | | — | | | | — | | | | 10 | |
| | | | | | 1,847 | | | | - | | | | 211 | | | | 26 | | | | 2,084 | |
1 Aris Kekedjian resigned as Chief Executive Officer and as a member of our board of directors effective December 17, 2023.
2 John Gillard was appointed to replace Aris Kekedjian as Chief Executive Officer on December 17, 2023.
3 Andrew Omidvar joined the board of directors in late September 2023.
Directors’ Report (Continued)
Subsidiary and associate undertakings
A list of the principal subsidiary undertakings of Trinity Biotech is given in Note 31 to the consolidated financial statements. The Group
does not have any branches outside of Ireland.
Accounting records
The directors are responsible for ensuring adequate accounting records, as outlined in Sections 281 to 285 of the Companies Act, 2014, are kept by the Company. To achieve this, the directors have appointed suitably qualified accounting personnel in order to ensure that these requirements are complied with. The accounting records of the Company are maintained at the Company’s registered office at IDA Business Park, Bray, County Wicklow, Ireland.
Statement on relevant audit information
In accordance with Section 330 of the Companies Act 2014, the Directors confirm that, in so far as the Directors are aware, there is no relevant audit information of which the Company’s statutory auditors are unaware, and the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company’s statutory auditors are aware of that information.
Non-financial reporting
Introduction
At Trinity Biotech, in addition to advancing our strategic objectives and addressing relevant risks, we also work to support our customers, our employees and the communities we serve, and promote a sustainable environment.
Trinity Biotech develops, acquires, manufactures and markets diagnostic systems, including both reagents and instrumentation, for the point-of-care and clinical laboratory segments of the diagnostic market. The products are used to detect infectious diseases and to quantify the level of Haemoglobin A1c and other chemistry parameters in serum, plasma and whole blood and the Company intends to develop a range of biosensor devices and related services, starting with a continuous glucose monitoring product. Trinity Biotech also operates a licenced reference laboratory that specializes in diagnostics for autoimmune diseases. Our products are sold in approximately 100 countries worldwide by the Group’s own sales force and by a network of international distributors and strategic partners.
Environmental Matters
It is our objective to conduct our business in an environmentally responsible way that minimizes environmental impacts. As a manufacturer of medical devices we face risks associated with the handling and disposal of hazardous materials. We are committed to reducing waste generation and disposing of all waste through safe and responsible methods; minimizing environmental risks by employing safe technologies and operating procedures including engaging specialist service providers; and being prepared to respond appropriately to accidents and emergencies.
Social and Employee Matters
At Trinity Biotech plc, we are proud to devote our time and resources to initiatives that benefit our customers, our employees and our community.
Customers
We are focused on developing, manufacturing and marketing medical diagnostic systems, including both reagents and instrumentation, for the point-of-care and clinical laboratory segments of the diagnostic market. The products are used to detect infectious diseases and to quantify the level of Haemoglobin A1c and other chemistry parameters in serum, plasma and whole blood and the Company intends to develop a range of biosensor devices and related services, starting with a continuous glucose monitoring product. Trinity Biotech also operates a licenced reference laboratory that specializes in diagnostics for autoimmune diseases.
Directors’ Report (Continued)
Employees
The average number of persons employed by the group during 2023 was 380 employees. We employee staff across a number of countries which increases the risks associated with staff management. The challenge given to all colleagues who work in Trinity Biotech is to demonstrate shared ownership, accountability and responsibility for the business. Personal leadership, an ability within us all, helps to create a vibrant workplace where we are challenged to do our best and be high performing at all times.
In our work environment we are responsible for ourselves, responsible for each other and responsible for the business. We trust each other and we strive to bring out the best qualities of our people; we practice behaviours that foster change and ultimately, assist every colleague to become the best they can be.
At Trinity Biotech, we work as a team. In a rapidly changing world we require flexibility from all colleagues to do what it takes in order to deliver an excellent job. We recognise that we are part of a complex adaptive system and so we support each other to thrive, through our behaviours and the relationships we build with each other.
In order to continue our track record of success, we need demonstrated leadership from all colleagues. We are committed to continually learning in order to create a high performing work environment where we continuously improve on what we do and how we do it.
Employee Safety - we implemented health and safety policies to help safeguard our on-site employees. We hold health and safety meetings daily and have key performance indicators we track to ensure that all issues are dealt with in a timely manner ensuring that our staff are safe in the workplace
Community
We take corporate social responsibility seriously. We are committed to promoting a working environment where all decisions are based on socially responsible and ethical principles. As a company we endorse such values as Learning, Trust, Leadership, Support and Teamwork, and as individuals we endeavour to do all we can to breathe life into these very values.
We believe strongly in corporate community involvement. Our colleagues are encouraged to take up activities intended to promote such involvement and foster good relations between Trinity Biotech and the communities within which our various sites are located. By visiting schools, for example, and demonstrating to students how science is central to the practical and beneficial work we do, we can engage meaningfully with the wider community and help create advocacy among possible employees of the future.
Of course we don’t simply focus on communities close to hand. As an organisation that spans continents we are fully aware that distance is no barrier when it comes to forging connections between people.
The way we work with all communities reflects the values we hold dear as a company. We see ourselves as a progressive and dynamic group of people – and our charitable work is governed equally by these principles. Making a difference on the ground is essential.
We will seek to increase charitable activities as the company grows. We see such work as a vital constituent in the development of a successful and ethically grounded corporate organisation – and one which is central to the betterment of not only the lives of our colleagues but in the lives of all those we engage with.
Respect for Human rights, Bribery and Corruption
All our employees are required to adhere to our Code of Business and Ethical Conduct which requires all employees to comply with all laws and regulations applicable to Trinity’s business, including any anti-bribery, anti-corruption, and human rights laws. The Code of Business and Ethical Conduct requires all staff to act with integrity in all business matters. The fact that we sell products to a large number of countries globally is an inherent risk regarding these matters.
Our Code of Business and Ethical Conduct requires staff to report any potential violations of the code to a designated senior individual in the Group or to the Chairman of the Group’s Audit Committee. In 2023 no such potential violations were reported.
Principal risks and uncertainties
Under Section 327(b) of the Companies Act 2014, the Group is required to give a description of the principal risk and uncertainties which it faces. These risk factors are outlined on pages 21-47.
Directors’ Report (Continued)
Financial Instruments
An analysis of the financial instruments used by the Group is contained in Note 28 to the consolidated financial statements.
Directors’ Compliance Statement
It is the policy of the Company to comply with its relevant obligations (as defined in the Companies Act 2014). The Directors have drawn up a compliance policy statement (as defined in section 225(3)(a) of the Companies Act 2014) and arrangements and structures are in place that are, in the Directors’ opinion, designed to secure material compliance with the Company’s relevant obligations. The Directors confirm that these arrangements and structures were reviewed during the financial year to which this report relates. As required by Section 225(2) of the Companies Act 2014, the Directors acknowledge that they are responsible for the Company’s compliance with the relevant obligations. In discharging their responsibilities under Section 225, the Directors relied on the advice both of persons employed by the Company and of persons retained by the Company under contract, who they believe have the requisite knowledge and experience to advise the Company on compliance with its relevant obligations.
Audit Committee
The Audit Committee reviews the Group’s annual and interim financial statements and reviews reports from management on the effectiveness of the Group’s internal controls. It also appoints the external auditors, reviews the scope and results of the external audit and monitors the relationship with the auditors. As a transitional arrangement, the Audit Committee now comprises solely the independent director, Tom Lindsay.
Auditors
Grant Thornton, Chartered Accountants, have expressed their willingness to remain in office in accordance with Section 383 (2) of the Companies Act, 2014.
On behalf of the board of directors
John Gillard
Director
4 September 2024
Statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements
The directors are responsible for preparing the Annual Report and the consolidated financial statements in accordance with Irish law and regulations.
Irish company law requires the directors to prepare the consolidated and company financial statements for each financial year. Under the law, the directors have elected to prepare the financial statements in accordance with Companies Act 2014 and International Financial Report Standards (IFRSs) as adopted by the EU. Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the assets, liabilities and financial position of the company as at the financial year end date and of the profit or loss of the company for the financial year and otherwise comply with the Companies Act 2014.
In preparing these financial statements, the directors are required to:
| • | select suitable accounting policies and then apply them consistently; |
| • | make judgments and accounting estimates that are reasonable and prudent; |
| • | state whether the financial statements have been prepared in accordance with applicable accounting standards, identify those standards, and note the effect and the reasons for any material departure from those standards; and |
| • | prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. |
The directors are responsible for ensuring that the company keeps or causes to be kept adequate accounting records which correctly explain and record the transactions of the company, enable at any time the assets, liabilities, financial position and profit or loss of the company to be determined with reasonable accuracy, enable them to ensure that the financial statements and directors’ report comply with the Companies Act 2014 and enable the financial statements to be audited. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Investing in our shares involves a high degree of risk and uncertainty. You should carefully consider all of the information set forth in this Annual Report, including the following summary of risk factors, when investing in our securities. These risks and uncertainties reflect the international scope of our company’s operations and the highly regulated industry in which it operates. The risks and uncertainties presented below are reviewed on an annual basis and represent the principal risks and uncertainties faced by us at the time of compilation of this annual report. New risks and uncertainties may materialise attributable to changes in markets, regulatory environments and other factors and existing risks and uncertainties may become less relevant, including the following:
Risks Related to our Business & Industry
Our ability to sell products could be adversely affected by competition from new and existing diagnostic products.
We have invested in research and development but there can be no guarantees that our R&D programmes will not be rendered technologically obsolete or financially non-viable by the technological advances of our competitors, which would also adversely affect our existing product lines and inventory. Our main competitors (and their principal products with which we compete) include: Premier (First response™), Chembio (Stat-Pak™, DPP HIV-Syphilis), Abbott (Determine™, SD BioLine™, Abon™, Acon™, Afinion™, Architect™, FreeStyle Libre™), SD Biosensor (Standard Q), Bejing Wantai Biological Pharmacy (Wantai), Roche (Cobas, TinaQuant 3™), Bio-Rad (Variant 2™, Variant 2 Turbo™, D 100™, BioPlex 2200) Tosoh ( G8™ and G11™), Arkray 8180™, Siemens DCA™, Sebia (Capyllaris 2™ and Capyllaris 3™), Shanghai Kehua Bio-Engineering (KHB), Euroimmun™, Guangzhou Wondfo Biotech Co., Ltd (Wondfo), Aesku™, Werfen, Copan™, Becton Dickenson™, Pointe Scientific, Dexcom ™ (G6, G7, Dexcom One, Stelo) and DiaSorin Liaison.
The diagnostics Industry is focused on the testing of biological specimens in a laboratory or at the point-of-care and is highly competitive and rapidly changing. As new products enter the market, our products may become obsolete or a competitor’s products may be more effective or more effectively marketed and sold than ours. If we fail to maintain and enhance our competitive position, our customers may decide to use products developed by competitors which could result in a loss of revenues and adversely affect our results of operations, cash flow and business.
We may in certain instances also face competition from products that are sold at a lower price. Where this occurs, customers may choose to buy lower cost products from third parties or we may be forced to sell our products at a lower price, both of which could result in a loss of revenues or a lower gross margin contribution from the sale of our products. We may also be required to increase our marketing efforts in order to compete effectively, which would increase our costs.
Our tests compete with products made by our competitors. Multiple competitors are making investments in competing technologies and products, and a number of our competitors have significantly greater financial, technical, research and other resources. Some competitors offer broader product lines and may have greater market presence or name recognition than we have. If we receive FDA or other regulatory clearance, and in order to achieve market acceptance, we and/or our distributors will likely be required to undertake substantial marketing efforts and spend significant funds to inform potential customers and the public of the existence and perceived benefits of our products. Our marketing efforts for these products may not be successful. As such, there can be no assurance that these products will obtain significant market acceptance and fill the market needs that are perceived to exist on a timely basis, or at all.
We have a history of losses from operations and negative cash flows from operating activities, which may continue in the future.
We have incurred net losses and negative cash flows from operating activities in the past two years and we may not be able to achieve or maintain profitability or positive cash flow in the future. We have incurred losses of US$24.0 million and US$41.0 million in the years ended December 31, 2023 and 2022, respectively and had negative cash flows from operating activities of US$11.6 million and US$921 thousand, respectively.
We expect to continue as a going concern. Our ability to continue as a going concern depends on our ability to generate cash flows from operations and to conduct adequate financing activities. We believe that we have access to sufficient cash reserves for our operating needs for at least the next twelve months from the date of this Annual Report. However, if negative cash flow from operating activities persists in the long run, cash resources may become insufficient to satisfy our on-going cash requirements.
Additional funding may not be available on acceptable terms, or at all. In addition, we may not be able to access a portion of our existing cash, cash equivalents and investments due to market conditions. Further, as a result of geopolitical and macroeconomic events, including the Israel-Hamas and Russia-Ukraine wars, the global credit and financial markets have experienced volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly or more dilutive.
Expansion into new businesses may present operating and marketing challenges different from those we currently encounter, and we cannot assure that new business initiatives will be successful enough to justify the time, effort, and resources that we devote to them or ultimately achieve profitability.
Any of the above events could significantly harm our business, prospects, financial condition, and results of operations and cause the price of the ADSs to decline.
We have incurred substantial debt, which could impair our flexibility and access to capital and adversely affect our financial position.
As of December 31, 2023, we had total indebtedness with a carrying value of approximately US$68.0 million, consisting of a senior secured term loan (“Term Loan”) from Perceptive, a convertible note, a derivative liability related to warrants issued to Perceptive, lease liabilities and a residual amount owing for an exchangeable note which was almost completely retired in 2022. The Term Loan, which is repayable in January 2026, had a nominal outstanding amount of US$41.7 million at December 31, 2023. In January 2024, we entered into a second amended and restated senior secured term loan credit agreement (the “Credit Agreement”) which allowed for an immediate US$22 million increase to our outstanding Term Loan, bringing the nominal outstanding amount to US$63.7 million. The Credit Agreement also provided for a further US$6.5 million facility that may be drawn down by the Company between April and December 2024 and can be used for general corporate purposes. In April 2024 the Company drew down the additional funding of US$6.5 million as prescribed in the Amended Term Loan agreement. This funding will be used for general corporate purposes, including the further development of our CGM offering.
The convertible note, which was issued to MiCo IVD Holdings, LLC (“MiCo”) and has a nominal outstanding amount of US$20 million, mandatorily converts into ADSs if the volume weighted average price of the Company’s ADSs is at or above US$16.20 for any five consecutive trading days. The convertible note shall become immediately repayable at par together with any accrued interest, if the Company or any of its material subsidiaries ceases or threatens to cease carrying on its business or a part of its business which is material to the Group, however, subject to the terms of an Investor Subordination Agreement between Perceptive and MiCo, MiCo shall not, without the prior written consent of Perceptive, take any enforcement action with respect to the convertible note. Such enforcement actions include, inter alia, any MiCo action to enforce payment of or to collect the whole or any part of the convertible note.
As a result of the debt we have incurred, we may need to raise capital in one or more debt or equity offerings to fund our operations and obligations. There can be no assurance, however, that we will be successful in raising the necessary capital or that any such offering will be available to us on terms acceptable to us, or at all. If we are unable to raise additional capital that may be needed on terms in sufficient amounts or on terms acceptable to us, it could have a material adverse effect on our company and we may have to significantly delay, scale back or discontinue our deliveries under our outstanding customer purchase orders or the development or commercialization of one or more of our products or one or more of our other research and development initiatives, sell assets and/or cease trading.
Our debt may:
| • | require us to use a substantial portion of our cash flow from operations to make debt service payments; |
| • | limit our ability to use our cash flow or obtain additional financing for working capital, capital expenditures, acquisitions or other general business purposes; |
| • | limit our flexibility to plan for, or react to, changes in our business and industry; |
| • | result in dilution to our existing shareholders in the event we issue equity to fund our debt obligations; |
| • | place us at a competitive disadvantage compared to our less leveraged competitors; and |
| • | increase our vulnerability to the impact of adverse economic and industry conditions. |
To the extent we are unable to repay our debt as it becomes due with cash on hand or from other sources, we will need to refinance our debt, sell assets or repay the debt with the proceeds from equity offerings in order to continue in business. Additional indebtedness or equity financing may not be available to us in the future for the refinancing or repayment of existing debt, or if available, such additional debt or equity financing may not be available on a timely basis, or on terms acceptable to us and within the limitations specified in our then existing debt instruments. In addition, in the event we decide to sell additional assets, we can provide no assurance as to the timing of any asset sales or the proceeds that could be realized by us from any such asset sale. Our ability to obtain additional funding may determine our ability to continue as a going concern.
The failure to comply with the terms of the Credit Agreement could result in a default under its terms and, if uncured, could result in action against our pledged assets and dilution of our stockholders.
The Term Loan is secured by substantially all of our property and assets, including our equity interests in our subsidiaries. The Credit Agreement governing the Term Loan contains financial covenants requiring that we (a) maintain aggregate unrestricted cash after January 31, 2024 of not less than US$3,000,000 at all times, which must be held in one or more accounts subject to the security interests of the lenders under the Credit Agreement, and (b) achieve specified minimum total revenue requirements for the twelve months preceding each quarter end. In addition, the Credit Agreement contains covenants that restrict our ability to finance future operations or capital needs or to engage in other business activities. The covenant relating to the requirement to maintain a certain level of cash was reduced to US$1,000,000 until October 1, 2024, thereafter it reverts to US$3,000,000.
The Credit Agreement restricts the ability of our company and the restricted subsidiaries to, among other things:
| • | incur, assume or guarantee additional indebtedness; |
| • | repurchase capital stock; |
| • | make other restricted payments, including paying dividends and making investments; |
| • | sell or otherwise dispose of assets, including capital stock of subsidiaries; |
| • | enter into agreements that restrict dividends from subsidiaries; |
| • | acquire another company or business or enter into mergers or consolidations; |
| • | enter into certain inbound and outbound licenses of intellectual property, subject to certain exceptions; and |
| • | enter into transactions with affiliates. |
A breach of the minimum total revenue covenant or any other covenant in the Credit Agreement would result in a default under the Credit Agreement. Upon an event of default under the Credit Agreement, the lender could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. In such an event, there can be no assurance that we would have sufficient liquidity to fund payment of the amounts that would be due under the Credit Agreement or that, if such liquidity were not available, we would be successful in raising additional capital on acceptable terms, or at all, or in completing any other endeavor to continue to be financially viable and continue as a going concern. If we were unable to pay such amounts due under the Credit Agreement, the lenders could proceed against the collateral securing the loan. Our inability to raise additional capital on acceptable terms in the near future, whether for purposes of funding payments required under the Credit Agreement or providing additional liquidity needed for our operations, could have a material adverse effect on our business, prospects, results of operations, liquidity and financial condition.
We expect we will require future additional capital.
Our future liquidity and ability to meet our future capital requirements will depend on numerous factors, including, but not limited to, the following:
| • | The success of our research and product development efforts, in particular the significant development effort required to develop and commercialise the biosensor technology, including the glucose monitoring technology acquired in January 2024; |
| • | The time, cost and degree of success of conducting clinical trials and obtaining regulatory approvals; |
| • | The costs and timing of expansion of sales and marketing activities; |
| • | The timing and size of any repayment requirements for existing debt obligations; |
| • | The timing and success of the commercial launch of new products; |
| • | The extent to which we gain or expand market acceptance for existing, new or enhanced products; |
| • | The costs and timing of the expansion of our manufacturing capacity; |
| • | The magnitude of capital expenditures; |
| • | Changes in existing and potential relationships with distributors and other business partners; |
| • | The costs involved in obtaining and enforcing patents, proprietary rights and necessary licences; |
| • | The costs and liability associated with patent infringement or other types of litigation; |
| • | The costs related to, and the success of, our operational efficiency focused activities; |
| • | Competing technological and market developments; and |
| • | The scope and timing of strategic acquisitions. |
If additional financing is needed, we may seek to raise funds through the sale of equity or other securities or through bank borrowings. There can be no assurance that financing through the sale of securities, bank borrowings or otherwise will be available to us on satisfactory terms, or at all.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Borrowings under our senior secured Term Loan are at a variable rate of interest and expose us to interest rate risk. On January 30, 2024, we entered into a second amended and restated senior secured term loan credit agreement which reduced the base rate of interest by 2.5% to 8.75%. Since January 30, 2024, the Term Loan accrues interest at an annual rate equal to 8.75% plus the greater of (a) the Term SOFR Reference Rate and (b) one percent per annum. If interest rates continue to increase, our debt service obligations on the variable rate indebtedness will increase and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease. As of December 31, 2023, the nominal amount of our variable rate debt was US$41.7 million. The indebtedness increased by US$22 million to US$63.7 million in January 2024, following a second amendment to the Term Loan credit agreement. Our anticipated annual cash interest expense on US$63.7 million variable rate debt at the current rate of approximately 14 percent would be approximately US$9.0 million. Every one percent increase in the interest rate results in additional annual interest payable of US$0.6 million, based on the current amount of indebtedness.
Our business could be adversely affected by changing conditions in the diagnostic market.
The diagnostics industry is in transition, with a number of changes that affect the market for diagnostic test products. The diagnostics industry has experienced considerable consolidation through mergers and acquisitions in the past several years. For example, major consolidation among reference laboratories and the formation of multi-hospital alliances, reducing the number of institutional customers for diagnostic test products. There can be no assurance that we will be able to enter into and/or sustain contractual or other marketing or distribution arrangements on a satisfactory commercial basis with these institutional customers. Further, this consolidation trend may result in the remaining companies having greater financial resources and technological capabilities, thereby intensifying competition in the industry, which could have a material adverse effect on our business.
Our sales of point-of-care HIV tests in Africa are dependent on our inclusion in national HIV testing algorithms and our exclusion from one or more HIV testing algorithms, or a delay in the implementation of a HIV testing algorithm, could adversely affect our business and financial results. National HIV testing algorithms can be subject to legal challenges from competitors or other stakeholders which can result in delays in the algorithm being implemented or the algorithm being revised with the incumbent provider being then excluded.
Most countries in Africa have an established national HIV testing algorithm. The algorithm determines what provider’s HIV point-of-care test will be used. The World Health Organisation has indicated that national HIV algorithms should contain a HIV screening test (A1) and two HIV confirmatory tests (A2 and A3). Our inclusion on a national HIV testing algorithm determines whether we will be able to sell HIV tests in that country. HIV testing algorithms are not updated annually and typically run for between five and seven years. Our Uni-gold HIV confirmatory test is included on many HIV testing algorithms throughout Africa and our newly launched HIV screening test, TrinScreen, succeeded in being added to Kenya’s algorithm in 2023. In Kenya, the update to the HIV testing algorithm was challenged through the courts by a competitor and this legal challenge caused a delay in purchase orders being placed by the Kenyan health authorities under their revised algorithm. In 2024, another competitor has begun a court challenge in Kenya to the adopted HIV testing algorithm and although we are not party to this court case, it could have an adverse impact for us if the purchase of HIV tests under the testing algorithm in Kenya is suspended while the case is ongoing or if the competitor succeeds in revising the current HIV testing algorithm. Legal challenges from competitors, or other stakeholders, in any country in which we sell HIV tests could adversely affect our business and financial results.
Reductions in government funding to agencies and organizations we work with could adversely affect our business and financial results.
We sell our products into the public health market, which consists of state, county and other governmental public health agencies, community-based organizations, service organizations and similar entities. Many of these customers depend to a significant degree on grants or funding provided by governments or governmental agencies to run their operations, including programs that use our products, such as our HIV testing products. In international markets, we often sell our products to parties funded by such agencies. The level of available government grants or funding is unpredictable, and certain organizations may not have their contracts renewed for funding. Available funding may be affected by various factors including future economic conditions, legislative and regulatory developments, political changes, civil unrest, changing public health priorities and changing priorities for research and development activities. Any reduction or delay in government funding or change in organizational contracts could cause our customers to delay, reduce or forego purchases of our products or cause short-term or long-term fluctuations in our product revenues through these channels.
The acquisition of the biosensor technology, including the CGM assets, of Waveform in January 2024 may be less successful than expected.
In January 2024, the Company acquired the biosensor technology, including the CGM assets, of Waveform for an initial consideration of US$12.5 million in cash and 1.8 million ADSs of the Company plus contingent consideration.
The Company intends to initially design an updated CGM sensor using the acquired Waveform assets together with a related data driven health and wellness insights platform and to further evolve the platform technology acquired through the acquisition of the Waveform assets to measure and analyse other valuable biomarkers and related datapoints. These activities, and their impact on our business, are subject to many risks, including the following:
| • | The acquisition of the CGM assets and the related integration activities may require greater capital and other resources than originally anticipated at the time of acquisition; |
| • | The benefits expected to be derived from the acquisition of the CGM assets may not materialize and could be affected by numerous factors, such as the failure to complete planned research and development objectives, regulatory developments, general economic conditions and increased competition; |
| • | We may be unable to successfully integrate the CGM assets, products and technology into our business; |
| • | Worse than expected performance of the acquired assets may result in the impairment of intangible assets; |
| • | The acquisition will require substantial expense and management time and this could disrupt our business; |
| • | The biosensor industry, including the CGM industry, is a highly innovative area with several industry participants developing intellectual property portfolios over many years. As such there can be no assurance that the technology acquired from Waveform or further developed by us, will not infringe on other parties’ existing IP portfolios. We could incur significant costs and management time in defending against IP infringement claims. |
| • | We may not be able to accurately forecast the performance or ultimate impact of an acquired CGM business; and |
| • | The acquisition may result in the incurrence of unexpected expenses, the dilution of our earnings or our existing stockholders’ percentage ownership, or potential losses from undiscovered liabilities not covered by an indemnification from the seller(s) of the acquired business; |
The occurrence of one or more of the above or other factors may prevent us from achieving all or a significant part of the benefits expected from the acquisition of the CGM assets. This may adversely affect our financial condition, results of operations and ability to grow our business or otherwise achieve our financial and strategic objectives.
Future acquisitions and investments may be less successful than expected, not generate the expected benefits, disrupt our ongoing business, distract our management, increase our expenses and adversely affect our business, and therefore, growth may be limited.
We have historically grown organically and through the acquisition of, and investment in, other companies, product lines and technologies. We may enter into strategic acquisitions or investments as a way to expand our business. These activities, and their impact on our business, are subject to many risks, including the following:
| • | Suitable acquisitions or investments may not be found or consummated on terms or schedules that are satisfactory to us or consistent with our objectives; |
| • | The benefits expected to be derived from an acquisition may not materialize and could be affected by numerous factors, such as regulatory developments, insurance reimbursement, general economic conditions and increased competition; |
| • | We may be unable to successfully integrate an acquired company’s personnel, assets, management systems, products and/or technology into our business; |
| • | Worse than expected performance of an acquired business may result in the impairment of intangible assets; |
| • | Acquisitions may require substantial expense and management time and could disrupt our business; |
| • | We may not be able to accurately forecast the performance or ultimate impact of an acquired business; |
| • | An acquisition and subsequent integration activities may require greater capital and other resources than originally anticipated at the time of acquisition; |
| • | An acquisition may result in the incurrence of unexpected expenses, the dilution of our earnings or our existing stockholders’ percentage ownership, or potential losses from undiscovered liabilities not covered by an indemnification from the seller(s) of the acquired business; |
| • | An acquisition may result in the loss of our or the acquired company’s key personnel, customers, distributors or suppliers; |
| • | An acquisition of a foreign business may involve additional risks, including, but not limited to, foreign currency exposure, liability or restrictions under foreign laws or regulations, and our inability to successfully assimilate differences in foreign business practices or overcome language or cultural barriers; and |
| • | Our ability to integrate future acquisitions may be adversely affected by inexperience in dealing with new technologies. |
The occurrence of one or more of the above or other factors may prevent us from achieving all or a significant part of the benefits expected from an acquisition or investment. This may adversely affect our financial condition, results of operations and ability to grow our business or otherwise achieve our financial and strategic objectives.
Our long-term success depends upon the successful development and commercialization of new products.
Our long-term viability and growth will depend upon the successful discovery, development and commercialization of new and enhanced products from our research and development (“R&D”) activities. In order to remain competitive, we are committed to significant expenditures on R&D and the commercialization of new or enhanced products. The R&D process generally takes a significant amount of time from product inception to commercial launch. However, there is no certainty that this investment in research and development will yield technically feasible or commercially viable products. We may have to abandon a new or enhanced product during its development phase after our investment of substantial time and money. During the fiscal years ended December 31, 2023, 2022 and 2021, we incurred US$1.8 million, US$4.5 million and US$6.8 million, respectively, in capitalised R&D expenses. Due to the acquisition of the biosensor technology of Waveform in January 2024, we expect to incur significantly higher costs related to our research and development activities in the next 24 months.
Successful products require significant development and investment, including testing to demonstrate their performance capabilities, cost-effectiveness or other benefits prior to commercialization. In addition, unless exempt, regulatory clearance or approval must be obtained before our medical device products may be sold. Additional development efforts on these products may be required before we are ready to submit applications for marketing authorisation to any regulatory authority. Regulatory authorities may not clear or approve these products for commercial sale or may substantially delay or condition clearance or approval. In addition, even if a product is successfully developed and all applicable regulatory clearances or approvals are obtained, there may be little or no market for the product. Accordingly, if we fail to develop and gain commercial acceptance for our products, or if we have to abandon a new product during its development phase, or if competitors develop more effective products or a greater number of successful new products, customers may decide to use products developed by our competitors. This would result in a loss of revenues and adversely affect our results of operations, cash flow and business.
Our future growth in the U.S. is dependent in part on the U.S. Food and Drug Administration (“FDA”) clearance of products. If FDA clearance is delayed or not achieved for these products, it could have a material impact on the future growth of our business.
Similarly, future growth outside of U.S. is dependent on clearance of products by the relevant regulatory authorities in those countries.
Consolidation of our customers or the formation of group purchasing organisations could result in increased pricing pressure that could adversely affect our operating results.
The health care industry has undergone significant consolidation resulting in increased purchasing leverage for customers and consequently increased pricing pressures on our business. Additionally, some of our customers have become affiliated with group purchasing organisations. Group purchasing organisations typically offer members price discounts on laboratory supplies and equipment if they purchase a bundled group of one supplier’s products, which results in a reduction in the number of manufacturers selected to supply products to the group purchasing organization and increases the group purchasing organization’s ability to influence its members’ buying decisions. Further consolidation among customers or their continued affiliation with group purchasing organizations may result in significant pricing pressures and correspondingly reduce the gross margins of our business or may cause our customers to reduce their purchases of our products, thereby adversely affecting our business, prospects, operating results or financial condition.
The trend towards managed care, together with healthcare reform of the delivery system in the U.S. and efforts to reform in Europe, has resulted in increased pressure on healthcare providers and other participants in the healthcare industry to reduce selling prices. Consolidation among healthcare providers and consolidation among other participants in the healthcare industry has resulted in fewer, more powerful groups, whose purchasing power gives them cost containment leverage. In particular, there has been a consolidation of laboratories. These industry trends and competitive forces place constraints on the levels of overall pricing, and thus could have a material adverse effect on our gross margins for products we sell in clinical diagnostic markets.
We are dependent on third-party suppliers for certain critical components and the primary raw materials required for our test kits.
The primary raw materials required for Trinity Biotech’s test kits consist of antibodies, antigens or other reagents, glass fibre and packaging materials which are acquired from third parties. Our biosensor business and our HB A1C business, both rely on a supply of raw materials to manufacture polymers, electronics and specialist engineered components. If our third-party suppliers are unable or unwilling to supply or manufacture a required component or product or if they make changes to a component, product or manufacturing process or do not supply materials meeting our specifications, we may need to find another source and/or manufacturer. This could require that we perform additional development work.
Some of our products, which we acquire from third parties, are highly technical and are required to meet exacting specifications, and any quality control problems that we experience with respect to the products supplied by third-party vendors could adversely and materially affect our reputation, our attempts to complete our clinical trials or commercialization of our products and adversely and materially affect our business, operating results and prospects. We may also need to obtain FDA or other regulatory authorisations for the use of an alternative component or for certain changes to our products or manufacturing process. We may also have difficulty obtaining similar components from other suppliers that are acceptable to the FDA or foreign regulatory authorities and the failure of our suppliers to comply with strictly enforced regulatory requirements could expose us to regulatory action including, warning letters, product recalls, termination of distribution, product seizures, or civil penalties. Completing that development and obtaining such authorisations could require significant time and expense and we may not obtain such authorisations on a timely basis, or at all. The availability of critical components and products from other third parties could also reduce our control over pricing, quality and timely delivery. These events could either disrupt our ability to manufacture and sell certain of our products into one or more markets or completely prevent us from doing so and could increase our costs. Any such event could have a material adverse effect on our results of operations, cash flow and business. Furthermore, since some of these suppliers are located outside of the United States, we are subject to foreign export laws and United States import and customs regulations, which complicate and could delay shipments of components to us. In 2022, we experienced significant disruption to our international supply chain which caused some disruption to operations. There can be no assurance that these disruptions will not continue or intensify in the future which may create significant challenges in fulfilling customer orders that we may not be able to overcome.
Although typically we do not plan to be dependent upon any one source for these critical components or raw materials, alternative sources of such raw materials or components with the characteristics and quality desired by us may not be available or commercially viable. Such unavailability could affect the quality of our products and our ability to meet orders for specific products.
If our products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.
We are also required to comply with the FDA’s Medical Device Reporting (“MDR”) requirements in the United States and comparable regulations worldwide, such as the Health Products Regulatory Authority (“HPRA”). For example, under the FDA’s MDR regulations, we are required to report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. In addition, all manufacturers placing medical devices in European Union markets are legally bound to report any serious or potentially serious incidents involving devices they produce or sell to the competent authority in whose jurisdiction the incident occurred.
Were this to happen to us, the relevant competent authority would file an initial report, and there would then be a further inspection or assessment if there are particular issues. This would be carried out either by the competent authority or it could require that our Notified Body, carry out the inspection or assessment.
We have reported MDRs in the past, and we anticipate that in the future it is likely that we may experience events that would require reporting to the FDA pursuant to the MDR regulations. Any adverse event involving our products could result in future voluntary corrective actions, or agency actions, such as inspection, mandatory recall or other enforcement action.
Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.
We may be subject to liability resulting from our products or services.
We may be subject to claims for personal injuries or other damages if any of our products, services, or any product which is made with the use or incorporation of any of our technologies, causes injury of any type or is found otherwise unsuitable during product testing, manufacturing, marketing, sale or usage. There is no assurance that we would be successful in defending any product liability lawsuits brought against us. Regardless of merit or eventual outcome, product liability claims could result in:
| • | Decreased demand for our products; |
| • | Damage to our image or reputation; |
| • | Costs related to litigation; and |
| • | Diversion of management time and attention; |
We have global product liability insurance in place for our manufacturing subsidiaries up to a maximum of €6,500,000 (US$7,178,000) for any one accident, limited to a maximum of €6,500,000 (US$7,178,000) in any one-year period of insurance and is subject to a deductible. We also have professional indemnity insurance for the laboratory services business up to a maximum of US$5,000,000 for each claim and a US$7,000,000 aggregate limit. There can be no assurance that our product liability insurance is sufficient to protect us against liability that could have a material adverse effect on our business. In addition, although we believe that we will be able to continue to obtain adequate coverage in the future, there is no assurance that we will be able to do so at acceptable costs.
Our products may be subject to product recalls that could harm our reputation, business and financial results.
Manufacturers may, on their own initiative, initiate actions, including a non-reportable market withdrawal, a correction, a safety alert or a reportable product recall, for the purpose of correcting a material deficiency, improving device performance, or for other reasons. Additionally, the FDA and similar foreign health or governmental authorities have the authority to require an involuntary recall of commercialized products in the event of material deficiencies or defects in design, manufacturing or labelling or in the event that a product poses an unacceptable risk to health. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is a reasonable probability that a device intended for human use would cause serious, adverse health consequences or death. A government-mandated or voluntary recall by us or one of our distributors could occur as a result of component failures, manufacturing errors, modifications, design or labelling defects or other deficiencies and issues. Recalls of any of our products would divert managerial and financial resources and have an adverse effect on our financial condition and results of operations. The FDA requires that certain classifications of recalls be reported to FDA within 10 working days after the recall is initiated.
Companies are required to maintain certain records of post-market actions, even if they determine such actions are not reportable to the FDA. If we determine that certain actions do not require notification of the FDA, the FDA may disagree with our determinations and require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA could take enforcement action for failing to report the recalls when they were conducted or failing to timely report or initiate a reportable product action. Further, depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA may require, or we may decide, that we will need to obtain new approvals or clearances before we may market or distribute the corrected device. Seeking such approvals or clearances may delay our ability to replace the recalled devices in a timely manner.
The large amount of intangible assets and goodwill recorded on our balance sheet may lead to significant impairment charges in the future.
We regularly review our long-lived assets, including identifiable intangible assets and goodwill, for impairment. Goodwill and acquired indefinite life intangible assets are subject to impairment review on a periodic basis and whenever potential impairment indicators are present. Other long-lived assets are reviewed when there is an indication that an impairment may have occurred. The amount of goodwill and identifiable intangible assets on our consolidated balance sheet as of December 31, 2023, was US$16 million (December 31, 2022: US$35 million) (December 31, 2021: US$36 million). In January 2024, we acquired the biosensor technology, including the continuous glucose monitoring assets of Waveform for an initial consideration of US$12.5 million in cash and 1.8 million ADSs of the Company plus contingent consideration. This acquisition significantly increases the Company’s long-lived assets, which will be assessed for impairment. In the year ended December 31, 2023, we recorded total impairment charges of intangible assets of US$6 million (Year 2022: US$5 million) (Year 2021: US$4 million) as a result of our periodic impairment review. We may record further significant impairment charges in the future if there are changes in market conditions, a significant reduction in share price or other changes in the future outlook. In addition, we may from time to time sell assets that we determine are not critical to our strategy or execution. Future events or decisions may lead to asset impairments and/or related charges. Certain impairments may result from a change in our strategic goals, business direction or other factors relating to the overall business environment. Any significant impairment charges could have a material adverse effect on our results of operations.
Failure to achieve our financial and strategic objectives could have a material adverse impact on our business prospects.
As a result of any number of risk factors identified herein, no assurance can be given that we will be successful in implementing our financial and strategic objectives. In addition, the funds for research, clinical development and other projects have in the past come partly from our business operations. If our business slows and we have less money available to fund research and development and clinical programs, we will have to decide at that time which programs to cut, and by how much. Similarly, if adequate financial, personnel, equipment or other resources are not available, we may be required to delay or scale back our business. Our operations will be adversely affected if our total revenue and gross profits do not correspondingly increase or if our technology, product, clinical and market development efforts are unsuccessful or delayed. Furthermore, our failure to successfully introduce new or enhanced products and develop new markets could have a material adverse effect on our business and prospects.
Global economic conditions may have a material adverse impact on our results.
Uncertainty in global economic conditions may continue for the foreseeable future and intensify. The invasion of Ukraine by Russia and the Israel – Hamas war have destabilised markets, increased volatility and created uncertainty, particularly in energy supply and energy prices. This uncertainty poses a risk to the overall economy that could impact demand for our products, as well as our ability to manage normal commercial relationships with our customers, suppliers and creditors, including financial institutions. Volatile economic conditions have adversely affected and could continue to adversely affect our financial performance and condition or those of our customers and suppliers. These circumstances could adversely affect our access to liquidity needed to conduct or expand our business or conduct future acquisitions, refinance existing debts, or make other discretionary investments. Many of our customers rely on public funding provided by federal, state and local governments, and this funding may be reduced or deferred as a result of economic conditions. If global economic conditions deteriorate significantly, our business could be negatively impacted, including such areas as reduced demand for our products from a slow-down in the general economy, supplier or customer disruptions resulting from tighter credit markets and/or temporary interruptions in our ability to conduct day-to-day transactions through our financial intermediaries involving the payment to or collection of funds from our customers, vendors and suppliers. These circumstances may adversely impact our customers and suppliers, which, in turn, could adversely affect their ability to purchase our products or supply us with necessary equipment, raw materials or components. Even with the improvement of economic conditions, it may take time for our customers and suppliers to establish new budgets and return to normal purchasing and shipping patterns. We cannot predict the reoccurrence of any economic slowdown or the strength or sustainability of the economic recovery.
We are highly dependent on our senior management team and other key employees, and the loss of one or more of these employees or the inability to attract and retain qualified personnel as necessary could adversely affect our operations.
Our success is dependent to a large extent upon the contributions of our key employees. In December 2023, our then CFO, John Gillard, was appointed CEO & President with our then Chairman and CEO, Aris Kekedjian resigning as CEO, Chairman and director. In July 2024, Louise Tallon was appointed as CFO, replacing Des Fitzgerald. The effectiveness of our senior leadership team generally, and any further transition as a result of these changes, could have a significant impact on our results of operations. Management transition is often difficult and inherently causes some loss of institutional knowledge, which could negatively affect our results of operations and financial condition. Our ability to execute our business strategies may be adversely affected by the uncertainty associated with these transitions. We may not be able to attract or retain a sufficient number of qualified employees in the future due to the intense competition for qualified personnel among medical products and other life science businesses.
If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that will adversely affect our ability to effectively manufacture, sell and market our products, to meet the demands of our strategic partners in a timely fashion, or to support research, development and clinical programs. Although we believe we will be successful in attracting and retaining qualified personnel, competition for experienced scientists and other personnel from numerous companies and academic and other research institutions may limit our ability to do so on acceptable terms.
Significant interruptions in production at our principal manufacturing facilities and/or third-party manufacturing facilities would adversely affect our business and operating results.
Products manufactured at our facilities in Bray, County Wicklow, Ireland, Jamestown and Buffalo, New York and Kansas City, Missouri accounted for the majority of our revenues during the fiscal year ended December 31, 2023. Our global supply of these products and services is dependent on the uninterrupted and efficient operation of these facilities. In addition, we currently rely on a small number of third-party manufacturers to produce certain of our diagnostic products and product components. 2023 continued to see significant interruptions to international supply chains which may continue for some time to come. If we do not negotiate long-term contracts, our suppliers will likely not be required to provide us with any guaranteed minimum production levels. As a result, we cannot assure you that we will be able to obtain sufficient quantities of product in the future. In addition, our reliance on third-party suppliers involves a number of risks, including, among other things:
| • | contract manufacturers or suppliers may fail to comply with regulatory requirements or make errors in manufacturing that could negatively affect the efficacy or safety of our products or cause delays in shipments of our products; |
| • | we or our contract manufacturers and suppliers may not be able to respond to unanticipated changes in customer orders, and if orders do not match forecasts, we or our suppliers may have excess or inadequate inventory of materials and components; |
| • | we or our contract manufacturers and suppliers may be subject to price fluctuations due to a lack of long-term supply arrangements for key components; |
| • | we or our contract manufacturers and suppliers may lose access to critical services and components, resulting in an interruption in the manufacture, assembly and shipment of our systems; |
| • | we may experience delays in delivery by our contract manufacturers and suppliers due to changes in demand from us or their other customers; |
| • | fluctuations in demand for products that our contract manufacturers and suppliers manufacture for others may affect their ability or willingness to deliver components to us in a timely manner; |
| • | our suppliers or those of our contract manufacturer may wish to discontinue supplying components or services to us for risk management reasons; |
| • | we may not be able to find new or alternative components or reconfigure our system and manufacturing processes in a timely manner if the necessary components become unavailable; and |
| • | our contract manufacturers and suppliers may encounter financial hardships unrelated to our demand, which could inhibit their ability to fulfil our orders and meet our requirements. |
The operations of our facilities or these third-party manufacturing facilities could be adversely affected by fire, power failures, natural or other disasters, such as earthquakes, floods, pandemics, or terrorist threats. Although we carry insurance to protect against certain business interruptions at our facilities, some pieces of manufacturing equipment are difficult to replace and could require substantial replacement lead-time. There can be no assurance that such coverage will be adequate or that such coverage will continue to remain available on acceptable terms, if at all.
If any of these risks materialize, it could significantly increase our costs and impact our ability to meet demand for our products and/or services. If we are unable to satisfy commercial demand for our products in a timely manner, our ability to generate revenue would be impaired, market acceptance of our products could be adversely affected, and customers may instead purchase or use our competitors’ products. In addition, we could be forced to secure new or alternative contract manufacturers or suppliers. Securing a replacement contract manufacturer or supplier could be difficult. The introduction of new or alternative manufacturers or suppliers also may require design changes to our products that are subject to FDA and/or other regulatory clearances or approvals.
We may also be required to assess the new manufacturer’s compliance with all applicable regulations and guidelines, which could further impede our ability to manufacture our products in a timely manner. As a result, we could incur increased production costs, experience delays in deliveries of our products, suffer damage to our reputation, and experience an adverse effect on our business and financial results. Any significant interruption in our or third-party manufacturing capabilities could materially and adversely affect our operating results.
Our inability to manufacture products in accordance with applicable specifications, performance standards or quality requirements could adversely affect our business.
The materials and processes used to manufacture our products must meet detailed specifications, performance standards and quality requirements to ensure our products will perform in accordance with their label claims, our customers’ expectations and applicable regulatory requirements.
As a result, our products and the materials used in their manufacture or assembly undergo regular inspections and quality testing. Factors such as defective materials or processes, mechanical failures, human errors, environmental conditions, changes in materials or production methods by our vendors, and other events or conditions could cause our products or the materials used to produce or assemble our products to fail inspections and quality testing or otherwise not perform in accordance with our label claims or the expectations of our customers.
Any failure or delay in our ability to meet the applicable specifications, performance standards, quality requirements or customer expectations could adversely affect our ability to manufacture and sell our products or comply with regulatory requirements. These events could, in turn, adversely affect our revenues and results of operations.
Our revenues are highly dependent on a network of distributors worldwide.
We currently distribute our product portfolio through distributors in approximately 100 countries worldwide. Our continuing economic success and financial security is dependent on our ability to secure effective channels of distribution on favourable trading terms with suitable distributors.
The loss or termination of our relationship with these key distributors could significantly disrupt our existing business unless suitable alternatives were quickly found or lost sales to one distributor are absorbed by another distributor. Finding a suitable alternative to a lost or terminated distributor may pose challenges in our industry’s competitive environment, and another suitable distributor may not be found on satisfactory terms, if at all. For instance, some distributors already have exclusive arrangements with our competitors, and others do not have the same level of penetration into our target markets as our existing distributors. If total revenue from these or any of our other significant distributors were to decrease in any material amount in the future or we are not successful in timely transitioning business to new distributors, our business, operating results and financial condition could be materially and adversely affected.
Our success depends on our ability to service and support our products directly or in collaboration with our strategic partners.
To the extent that we or our strategic partners fail to maintain a high-quality level of service and support for diagnostic products, there is a risk that the perceived quality of our products will be diminished in the marketplace. Likewise, we may fail to provide the level, quantity or quality of service expected by the marketplace. This could result in slower adoption rates and lower than anticipated utilisation of our products which could have a material adverse effect on our business, financial condition and results of operations.
Our ability to protect our information systems and electronic transmissions of sensitive data from data corruption, cyber-based attacks, security breaches or privacy violations is critical to the success of our business.
We are highly dependent on information technology networks and systems, including the Internet, to securely process, transmit and store electronic information, including personal information of our customers. Security breaches of this infrastructure, including physical or electronic break-ins, computer viruses, malware attacks by hackers and similar breaches, can cause all or portions of our websites to be unavailable, create system disruptions, shutdowns, erasure of critical data and software or unauthorised disclosure of confidential information. We invest in security technology to protect our data against risks of data security breaches and cyber-attacks and we have implemented solutions, processes, and procedures to help mitigate these risks, such as encryption, virus protection, security firewalls and comprehensive information security and privacy policies. However, despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. We have been the victim of cyber-attacks but these have had no material impact on our operations. The age of our information technology systems, as well as the level of our protection and business continuity or disaster recovery capability, varies from site to site, and there can be no guarantee that any such plans, to the extent they are in place, will be effective. In addition, a security breach or privacy violation that leads to disclosure of personal information, including but not limited to employee or consumer information (including personally identifiable information or protected health information) could harm our reputation, compel us to comply with disparate state breach notification laws and otherwise subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue. If we are unable to prevent further security breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted, we may be subject to legal claims or proceedings, or we may suffer loss of reputation, financial loss and other regulatory penalties because of lost or misappropriated information, including sensitive consumer data, which could have a material adverse impact on our business, financial condition and results of operations. While we currently expend resources to protect against cyber-attacks and security breaches, hackers and other cyber criminals are using increasingly sophisticated and constantly evolving techniques, and we may need to expend additional resources to continue to protect against potential security breaches or to address problems caused by such attacks or any breach of our safeguards. In addition, a data security breach could distract management or other key personnel from performing their primary operational duties.
In addition, the interpretation and application of consumer and data protection laws in the United States, Europe and elsewhere are often uncertain, contradictory and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices. If so, this could result in government-imposed fines or orders requiring that we change our data practices, which could have an adverse effect on our business. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.
Section 3305 of FDORA (Food and Drug Omnibus Reform Act of 2022) aims to ensure cybersecurity of medical devices and requires manufacturers of cyber devices, when making a premarket submission to FDA, to provide a plan to monitor and address any post-market cybersecurity vulnerabilities; create and maintain procedures to ensure the device and related systems are cybersecure; provide a software bill of materials; and comply with any other requirements FDA may develop to ensure the device and related systems are cybersecure. This provision makes a failure to comply with these requirements a prohibited act. We have carried out the appropriate cybersecurity assessments for any of our relevant products in accordance with FDA, AAMI and ANSI requirements and standards in place at time of approval.
Our sales and operations are subject to the risks of fluctuations in currency exchange rates.
A substantial portion of our operations are based in Ireland and Europe is one of our main sales territories. As a result, changes in the exchange rate between the U.S. Dollar and the Euro can have significant effects on our results of operations. In addition, in markets where we invoice in U.S. Dollars but where the local currency has weakened, we have been required to reduce our pricing in order to preserve our competitiveness. We have an exposure to the Canadian Dollar through our Canadian operations and to the Brazilian Real through our Brazilian subsidiary. We also have revenues and costs denominated in British Sterling.
The ongoing geopolitical uncertainty, inflation and central bank actions may lead to greater volatility in currency exchange rates globally. In the future, we may enter into hedging instruments to manage our currency exchange rate risk. However, our attempts to hedge against these risks may not be successful. If we are unable to successfully hedge against unfavourable foreign currency exchange rate movements, our consolidated financial results may be adversely impacted.
Tax matters, including disagreements with taxing authorities, the changes in corporate tax rates and imposition of new taxes could impact our results of operations and financial condition.
We are subject to regular reviews, examinations, and audits by tax authorities in a number of jurisdictions across the world with respect to our taxes. Although we believe our tax estimates are reasonable, if a taxing authority disagrees with the positions we have taken, we could face additional tax liability, including interest and penalties. There can be no assurance that payment of such additional amounts upon final adjudication of any disputes will not have a material impact on our results of operations and financial position.
A significant portion of our business is located in the U.S. and is subject to income and other taxes in the U.S. and our operations, plans and results are affected by tax and other initiatives. Changes to the U.S. tax code could have a significant impact on our profitability. Changes to the tax code could also affect our valuation of deferred tax assets and liabilities. Any such change in valuation would have a material impact on our income tax expense and deferred tax balances.
Public health emergencies, epidemics or pandemics, such as the emergence and spread of the Covid‑19 pandemic, have the potential to significantly impact our operations through a decrease in demand for our products, interruption to business and a reduction in staff availability.
The Covid‑19 pandemic has had a material impact on the healthcare industry and specifically the medical diagnostics sector in which we operate. The reduced but continuing uncertainty around the global pandemic could have an adverse effect on our operating results, cash flows, financial condition and/or prospects. The situation with the Covid-19 pandemic remains fluid and uncertain.
The global spread of Covid‑19 and the public healthcare measures implemented by governments, such as quarantines and the temporary closure of businesses led and could again in the future lead to fewer patients presenting themselves for medical check-ups resulting in a fall in demand for certain of our products which may or may not be offset by increased demand within our Covid-19 related portfolio of products. Furthermore, funding allocated to combatting Covid-19 may result in a reduction or a postponement in the funding available for other diseases, conditions and disorders that our products are used to diagnose.
We operate in a labour‑intensive industry where employees’, contractors’ and customers’ activities can be adversely impacted by the availability of people to produce, manufacture or install our products. Covid-19 lead to the temporary closure of our manufacturing sites and associated furloughing of some staff. Furthermore, Covid-19 reduced our ability to visits customers and suppliers and required some of our staff to work from home in line with public health measures. Any significant loss of employee resources for a sustained period of time due to lockdown restrictions, self‑isolation or sickness as a result of a public health emergency could impact our ability to produce, manufacture and deliver goods. Similarly, our customer facing activities could be adversely impacted by similar employee availability issues.
Increasing scrutiny and changing expectations from investors, lenders, customers and other market participants with respect to our Environmental, Social and Governance, or ESG, policies may impose additional costs on us or expose us to additional risks.
Companies across all industries are facing increasing scrutiny relating to their ESG policies. Investors, lenders and other market participants are increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments. The increased focus and activism related to ESG may hinder our access to capital, as investors and lenders may reconsider their capital investment allocation as a result of their assessment of our ESG practices. If we do not adapt to or comply with investor, lender or other industry shareholder expectations and standards, which are evolving, or if we are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, we may suffer from reputational damage and the business, financial condition and the price of our company’s ADS’s could be materially and adversely affected.
Risks Related to Government Regulations
Clinical trials necessary to support future premarket submissions will be expensive and will require enrolment of suitable patients who may be difficult to identify and recruit. Delays or failures in our clinical trials will prevent us from commercializing any modified or new products and will adversely affect our business, operating results and prospects.
Initiating and completing clinical trials necessary to support approval of future products under development, is time consuming and expensive and the outcome uncertain. Moreover, the results of early clinical trials are not necessarily predictive of future results, and any product we advance into clinical trials may not have favorable results in later clinical trials.
Conducting successful clinical studies will require the enrolment of patients who may be difficult to identify and recruit. Patient enrolment in clinical trials and completion of patient participation and follow-up depends on many factors, including the size of the patient population, the nature of the trial protocol, and the availability of appropriate clinical trial investigators. Patients may not participate in our clinical trials if they choose to participate in contemporaneous clinical trials of competitive products.
Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy are required and we may not adequately develop such protocols to support clearance and approval. Further, the FDA and/or other regulatory authorities may require us to submit data on a greater number of patients than we originally anticipated and/or for a longer follow-up period or change the data collection requirements or data analysis applicable to our clinical trials. Any challenges to patient enrolment may cause an increase in costs and delays in the approval and attempted commercialization of our products or result in the failure of the clinical trial. In addition, despite considerable time and expense invested in our clinical trials, FDA and/or other regulatory authorities may not consider our data adequate to demonstrate safety and efficacy. Such increased costs and delays or failures could adversely affect our business, operating results and prospects.
Our facilities and our clinical investigational sites operate under procedures that govern the conduct and management of FDA-regulated clinical studies under 21 CFR Parts 50, 56 and 812, and Good Clinical Practices. Although the majority of our in-vitro diagnostic (“IVD”) clinical studies meet the definition of exempted investigations under 21 Part 812 and are exempt from the Investigational Device Exemption (“IDE”) regulations in 21 CFR Part 812, we are still required to meet the requirements of 21 CFR Parts 50 and 56 for informed consent and Institutional Review Board (“IRB”) approval. The medical device products in our portfolio namely our continuous glucose monitoring (“CGM”), are also subject to the same regulations and, as they are invasive, are not exempted from the obligations set out in FDA 21 CFR Part 812. FDA may conduct Bioresearch Monitoring (“BiMo”) inspections of us and/or our clinical sites to assess compliance with FDA regulations, our procedures, and the clinical protocol. If the FDA were to find that we or our clinical investigators are not operating in compliance with applicable regulations, we could be subject to the above FDA enforcement action as well as refusal to accept all or part of our data in support of a 510(k) or PMA and/or we may need to conduct additional studies.
In relation to World Health Organisation (WHO) qualification, our IVD clinical studies are required to meet all the requirements of the TSS-1: Human Immunodeficiency Virus (HIV) rapid diagnostic tests for professional use. If we are not operating in compliance with this regulation, we could be subject to WHO enforcement action. In addition, our IVD clinical studies are required to meet the requirements of:
| • | WMA Declaration of Helsinki – Ethical Principles for Medical Research Involving Human Subjects (2013); |
| • | ICH Harmonised Guidelines - Integrated Addendum to ICH E6 (R2) Guideline for Good Clinical Practice (Nov 2016); |
| • | ISO 20916:2019 In vitro diagnostic medical devices — Clinical performance studies using specimens from human subjects — Good study practice; and |
| • | ISO 14155:2020: Clinical investigation of medical devices for human subjects – Good clinical practice. |
If the third parties on whom we rely to conduct our pre-clinical studies and clinical trials and to assist in pre-clinical development do not perform as contractually required or expected, we may not be able to obtain regulatory approval or commercialize our products.
We may not have the ability to independently conduct our pre-clinical studies and clinical trials for our products and we may rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories to conduct such trials. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if these third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our pre-clinical or clinical protocols or regulatory requirements or for other reasons, our pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize, our products on a timely basis, if at all, and our business, operating results and prospects may be adversely affected. Furthermore, our third-party clinical trial investigators may be delayed in conducting our clinical trials for reasons outside of their control.
The results of our clinical trials may not support our product candidate claims.
Even if our clinical trials are completed as planned, we cannot be certain that their results will support our product candidate claims or that the FDA or other regulatory authorities will agree with our conclusions regarding them. The clinical trial process may fail to demonstrate that our product candidates are safe and effective for the proposed indicated uses, which could cause us to abandon a product candidate and may delay development of others. Any delay or termination of our clinical trials will delay the filing of our product submissions and, ultimately, our ability to commercialize our product candidates and generate revenues.
We may be subject to fines, penalties or injunctions if we are determined to be promoting the use of our products for unapproved or “off-label” uses.
Our promotional materials must comply with FDA and other applicable laws and regulations. We believe that the specific uses for which our products are marketed fall within the scope of the indications for use that have been cleared or approved by the FDA or other relevant regulatory authorities. However, the FDA and/or the other relevant regulatory authorities could disagree and require us to stop promoting our products for those specific uses until we obtain clearance or approval for them. In addition, if the FDA or other relevant regulatory authorities determines that our promotional materials constitute promotion of an unapproved use, it could demand that we modify our promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine and criminal penalties.
It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our promotional materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged and adoption of the products would be impaired.
The FDA recently modified its policy of enforcement discretion with respect to our laboratory developed tests. We could incur substantial costs and delays associated with trying to obtain premarket clearance or other approvals.
Historically, the FDA has generally exercised its enforcement discretion and not enforced applicable regulations with respect to laboratory developed tests (“LDTs”), although reagents, instruments, software or components provided by third parties and used to perform LDTs may be subject to FDA regulation. The FDA defines the term “laboratory developed test” as an in vitro diagnostics (“IVD”) test that is intended for clinical use and designed, manufactured and used within a single laboratory. Until 2014, the FDA exercised enforcement discretion such that it did not enforce provisions of the Food, Drug, and Cosmetic Act, or FDA Act, with respect to LDTs. In July 2014, due to the increased proliferation of LDTs for complex diagnostic testing, and concerns with several high-risk LDTs related to lack of evidentiary support for claims and erroneous results, the FDA provided notice that it intended to issue draft guidance to collect information from laboratories regarding their current LDTs and newly developed LDTs through a notification process.
On September 29, 2023, the FDA proposed a new rule which was adopted on April 29, 2024, which amends the FDA’s regulations to make explicit that IVDs are devices under the Federal Food, Drug, and Cosmetic Act, including when the manufacturer of the IVD is a laboratory. Along with this amendment, the FDA has announced a policy under which it intends to provide greater oversight of LDTs, through a phaseout of its general enforcement discretion approach to LDTs. The FDA believes adoption will also advance responsible innovation by both laboratory and non-laboratory IVD manufacturers alike by better assuring the safety and effectiveness of IVDs offered as LDTs and removing a disincentive for non-laboratory manufacturers to develop novel tests. The new regulation subjects LDTs to a more stringent regulatory framework, including premarket clearance or approval requirements, quality system regulations ("QSR”), and post-market surveillance obligations. Failure to comply with these and other FDA regulations could result in legal actions, including fines and penalties.
FDA premarket review, including clearance or approval, for our current or future LDTs (either alone or together with sample collection devices), products or services we may develop, or if we decide to voluntarily pursue FDA clearance or approval, may require us to stop selling our LDTs while we work to obtain such FDA clearance or approval. Our business would be negatively affected until such review was completed and clearance to market or approval was obtained. The regulatory process may involve, among other things, successfully completing additional clinical studies and submitting premarket notification or filing a premarket approval application with the FDA and the process can be costly. There can be no assurance that any tests, products or services we may develop in the future will be cleared or approved on a timely basis, if at all, nor can there be assurance that labelling claims will be consistent with our current claims or adequate to support continued adoption of for our LDTs. If our LDTs are allowed to remain on the market but there is uncertainty in the marketplace about our tests, if we are required by the FDA to label them investigational and we cannot offer the LDTs for diagnostic purposes, or if labelling claims, the FDA allows us to make are limited, orders may decline and adversely affect our results of operations, cash flow and business.
Ongoing compliance with FDA regulations would increase the cost of conducting our business, and subject us to heightened regulation by the FDA and penalties for failure to comply with these requirements.
If we fail to maintain regulatory approvals and clearances, or are unable to obtain, or experience significant delays in obtaining, regulatory clearances or approvals for our future products or product enhancements, our ability to commercially distribute and market these products could suffer.
Our medical device products and operations are subject to rigorous government regulation in the United States by the FDA, and numerous other federal, state and foreign governmental authorities, as well as and by comparable regulatory authorities in other jurisdictions such as the HPRA in Ireland. In particular, we are subject to strict governmental controls on the development, manufacture, labelling, storage, testing, advertising, promotion, marketing, distribution and import and export of our products. In addition, we or our distributors are often required to register with and/or obtain clearances or approvals from foreign governments or regulatory bodies before we can import and sell our products in foreign countries. The clearance and approval process for our products, while variable across countries, is generally lengthy, time consuming, detailed and expensive.
The process of obtaining and maintaining regulatory clearances or approvals to market a medical device can be costly and time consuming, and we may not be able to obtain these clearances or approvals on a timely basis, if at all. In particular, the FDA permits commercial distribution of a new medical device only after the device has received clearance under Section 510(k) of the Federal Food, Drug, and Cosmetic Act (“FDCA”), or is the subject of an approved premarket approval application (“PMA”) unless the device is specifically exempt from those requirements. The FDA will clear marketing of a lower risk medical device through the 510(k) process if the manufacturer demonstrates that the new product is substantially equivalent to other 510(k)-cleared products. High risk devices deemed to pose the greatest risk, such as life-sustaining, life-supporting, or implantable devices, or devices not deemed substantially equivalent to a previously cleared device, require the approval of a PMA.
The PMA process is more costly, lengthy and uncertain than the 510(k) clearance process. A PMA application must be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturing and labelling data, to demonstrate to the FDA’s satisfaction the safety and efficacy of the device for its intended use. The 510(k) clearance process usually takes from three to 12 months, but it can take longer. The process of obtaining PMA approval is much more costly and uncertain than the 510(k) clearance process. It generally takes from one to three years, or even longer, from the time the PMA application is submitted to the FDA, until an approval is obtained. There is no assurance that we will be able to obtain FDA clearance or approval for any of our new products on a timely basis, or at all.
In the United States, many of our currently commercialized products have received pre-market clearance under Section 510(k) of the FDCA. If the FDA requires us to go through a lengthier, more rigorous examination for future products or modifications to existing products than we had expected, our product introductions or modifications could be delayed or cancelled, which could cause our sales to decline. In addition, the FDA may determine that future products will require the more costly, lengthy and uncertain PMA process.
The FDA can delay, limit or deny clearance or approval of a device for many reasons, including:
| • | our inability to demonstrate to the FDA’s satisfaction that our products are safe and effective for their intended users; |
| • | insufficient data from our pre-clinical studies and clinical trials to support clearance or approval, where required; and |
| • | the failure of the manufacturing process or facilities we use to meet applicable requirements. |
In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay approval or clearance of our products under development or impact our ability to modify our currently cleared products on a timely basis. Furthermore, regulatory authorities, including the FDA, may not agree with our interpretation of its policies and regulations which may lead to enforced modifications, restrictions, discontinuation, etc. of some of our products, even if they were previously approved.
Our continued success is dependent on our ability to develop and market new or updated products, some of which are currently awaiting clearance or approval from the applicable regulatory authorities. There is no certainty that such clearance or approval will be granted or, even once granted, will not be revoked during the continuing review and monitoring process. Further, regulatory authorities, including the FDA, may not approve or clear our future products for the indications that are necessary or desirable for successful commercialization. A regulatory authority may impose requirements as a condition to granting a marketing authorisation, may include significant restrictions or limitations as part of a marketing authorisation it grants and may delay or refuse to authorise a product for marketing, even though a product has been authorised for marketing without restrictions or limitations in another country or by another agency. Failure to receive clearance or approval for our new products, or commercially undesirable limitations on our clearances or approvals, would have an adverse effect on our ability to expand our business. Modifications made to our products may invalidate previously granted regulatory approvals which may lead to revised regulatory clearances, enforced modifications, restrictions, discontinuation, etc. of some of our products.
Additionally, changes in the FDA’s review of certain clinical diagnostic products referred to as laboratory developed tests, which are tests developed by a single laboratory for use only in that laboratory, could affect some of our customers who use our instruments for laboratory developed tests. In the past, the FDA has chosen to not enforce applicable regulations and has not reviewed such tests for approval. However, the FDA has issued draft guidance that it may begin enforcing its medical device requirements, including premarket submission requirements, to such tests. Any delay in, or failure to receive or maintain, clearance or approval for our products could prevent us from generating revenue from these products and adversely affect our business operations and financial results.
Failure to comply with FDA or other regulatory requirements may require us to suspend production of our products or institute a recall which could result in higher costs and a loss of revenues.
Even after we obtain clearance or approval for our medical devices, we are still subject to ongoing and extensive post market regulatory requirements. Regulation by the FDA and other federal, state and foreign regulatory agencies, such as the HPRA in E.U., impacts many aspects of our operations, and the operations of our suppliers and distributors, including manufacturing, labelling, packaging, adverse event reporting, storage, advertising, promotion, marketing, record keeping, import and export. For example, the manufacture of medical devices must comply with the FDA’s Quality System Regulation (“QSR”), which covers the methods and documentation of the design, testing, production, control, quality assurance, labelling, packaging, sterilization, storage and shipping of our products. Our manufacturing facilities and those of our suppliers and distributors are, or can be, subject to periodic regulatory inspections by the FDA to assess compliance with the QSR and other regulations, and by other comparable foreign regulatory authorities with respect to similar requirements in other jurisdictions. The FDA and foreign regulatory agencies may require post-marketing testing and surveillance to monitor the performance of approved products or place conditions on any product clearances or approvals that could restrict the commercial applications of those products. The failure by us or one of our suppliers to comply with applicable statutes and regulations administered by the FDA and other regulatory bodies, or the failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in, among other things, any of the following enforcement actions:
| • | untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; |
| • | unanticipated expenditures to address or defend such actions; |
| • | customer notifications for repair, replacement and refunds; |
| • | recall, detention or seizure of our products; |
| • | operating restrictions or partial suspension or total shutdown of production; |
| • | refusing or delaying our requests for 510(k) clearance or premarket approval of new products or modified products; |
| • | withdrawing 510(k) clearances on PMA approvals that have already been granted; |
| • | refusal to grant export approval for our products; or |
Other regulatory authorities have similar sanctions in their respective jurisdictions.
If any of these actions were to occur, they may harm our reputation and cause our product sales and profitability to suffer and may prevent us from generating revenue. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with all applicable regulatory requirements which could result in our failure to produce our products on a timely basis and in the required quantities, if at all.
Even if regulatory clearance or approval of a product is granted, such clearance or approval may be subject to limitations on the intended uses for which the product may be marketed and reduce our potential to successfully commercialize the product and generate revenue from the product. If the FDA determines that our promotional materials, labelling, training or other marketing or educational activities constitute promotion of an unapproved use, it could request that we cease or modify our training or promotional materials or subject us to regulatory enforcement actions. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our training or other promotional materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.
In addition, we may be required to conduct costly post-market testing and surveillance to monitor the safety or effectiveness of our products, and we must comply with medical device reporting requirements, including the reporting of adverse events and malfunctions related to our products. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements such as QSR, may result in changes to labelling, restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, a requirement to repair, replace or refund the cost of any medical device we manufacture or distribute, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties which would adversely affect our business, operating results and prospects.
In the ordinary course of business, we must frequently make subjective judgments with respect to compliance with applicable laws and regulations. If regulators subsequently disagree with the manner in which we have sought to comply with these regulations, we could be subjected to substantial civil and criminal penalties, as well as product recall, seizure or injunction with respect to the sale of our products. The assessment of any civil and criminal penalties against us could severely impair our reputation within the industry and any limitation on our ability to manufacture and market our products could have a material adverse effect on our business.
In addition to the FDA and other regulations described above, laws and regulations in some countries may restrict our ability to sell products in those countries. While we intend to comply with any applicable restrictions, there is no guarantee we will be successful in these efforts.
We must also comply with numerous laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, disposal of hazardous substances and labour or employment practices. Compliance with these laws or any new or changed laws regulating our business could result in substantial costs. Because of the number and extent of the laws and regulations affecting our industry, and the number of governmental agencies whose actions could affect our operations, it is impossible to reliably predict the full nature and impact of these requirements. To the extent the costs and procedures associated with complying with these laws and requirements are substantial or it is determined that we do not comply, our business and results of operations could be adversely affected.
Modifications to our products, may require new 510(k) clearances or pre-market approvals, or may require us to cease marketing or recall the modified products until clearances or approvals are obtained.
Any modification to a 510(k)-cleared device in the United States that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or, possibly, approval of a PMA. The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new clearances or approvals are necessary. If the FDA disagrees with our determination and requires us to submit new 510(k) notifications or PMAs for modifications to previously cleared products for which we conclude that new clearances or approvals are unnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties. Further, our products could be subject to recall if the FDA determines, for any reason, that our products are not safe or effective. Any recall or FDA requirement that we seek additional approvals or clearances could result in significant delays, fines, increased costs associated with modification of a product, loss of revenue and potential operating restrictions imposed by the FDA.
We are subject to export controls and economic sanctions laws, and our customers and distributors are subject to import controls that could subject us to liability if we are not in full compliance with applicable laws.
Certain of our products are subject to U.S. export controls and sanctions regulations and we would be permitted to export such solutions to certain destinations outside the U.S. only by first obtaining an export license from the U.S. government, or by utilizing an existing export license exception/General License, or after clearing U.S. government agency review. Obtaining the necessary export license or accomplishing a U.S. government review for a particular export may be time-consuming and may result in the delay or loss of sales opportunities.
Although we take precautions to prevent our products from being provided in violation of U.S. export control and economic sanctions laws, our products may have been in the past, and could in the future be, provided inadvertently in violation of such laws. If we were to fail to comply with U.S. export law requirements, U.S. customs regulations, U.S. economic sanctions or other applicable U.S. laws, we could be subject to substantial civil and criminal penalties, including fines, incarceration for responsible employees and managers and the possible loss of export or import privileges. U.S. export controls, sanctions and regulations apply to our distributors as well as to us. Any failure by our distributors to comply with such laws, regulations or sanctions could have negative consequences, including reputational harm, government investigations and penalties.
Changes or new versions of our products or changes in export and import regulations may create delays in the introduction of our products into international markets, prevent our distributors from deploying our products globally or, in some cases, prevent the export or import of our products to certain countries, governments or persons altogether. In addition, any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential international customers. Any decreased use of our principal products or limitation on our ability to export or sell such products would likely adversely affect our business, financial condition and operating results.
We are subject to anti-corruption, anti-bribery and similar laws, and non-compliance with such laws can subject us to criminal penalties or significant fines and harm our business and reputation.
We are subject to anti-corruption and anti-bribery and similar laws, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the Foreign Corrupt Practices Act, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the U.K. Bribery Act 2010 and other anti-corruption, anti-bribery and anti-money laundering laws in countries in which we conduct activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly and prohibit companies and their employees and agents from promising, authorizing, making, offering, soliciting, or accepting, directly or indirectly, improper payments or other improper benefits to or from any person whether in the public or private sector. As we increase our international sales and business, our risks under these laws may increase. Noncompliance with these laws could subject us to investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, adverse media coverage and other consequences. Any investigations, actions or sanctions could adversely affect our business, results of operations and financial condition.
Changes in healthcare regulation could affect our revenues, costs and financial condition.
In the United States in recent years, there have been numerous initiatives at the federal and state level for comprehensive reforms affecting the payment for, the availability of and reimbursement for healthcare services. These initiatives have ranged from proposals to fundamentally change federal and state healthcare reimbursement programs, including providing comprehensive healthcare coverage to the public under government-funded programs, to minor modifications to existing programs. One example is the Patient Protection and Affordable Care Act, the Federal healthcare reform law enacted in 2010 (the “Affordable Care Act”). Similar reforms may occur internationally.
Third party payors, such as Medicare and Medicaid in the United States, have reduced their reimbursements for certain medical products and services. Our business is impacted by the level of reimbursement available for clinical tests from third party payors. In the United States payment for many diagnostic tests furnished to Medicare fee-for-service beneficiaries is made based on the Medicare Clinical Laboratory Fee Schedule (CLFS), a fee schedule established and adjusted from time to time by the Centers for Medicare and Medicaid Services (CMS). Some commercial payors are guided by the CLFS in establishing their reimbursement rates. Laboratories and clinicians may decide not to order or perform certain clinical diagnostic tests if third party payments are inadequate, and we cannot predict whether third party payors will offer adequate reimbursement for tests utilizing our products to make them commercially attractive. Legislation, such as the Affordable Care Act, as amended by the Health Care and Education Reconciliation Act and the Middle Class Tax Relief and Job Creation Act of 2012, has reduced the payments for clinical laboratory services paid under the CLFS. In addition, the Medicare for All Act of 2021 (M4A) has made significant changes to the way Medicare will pay for clinical laboratory services, which has further reduced reimbursement rates.
Legislative and regulatory bodies are likely to continue to pursue healthcare reform initiatives in many forms and may continue to reduce funding in an effort to lower overall federal healthcare spending. The U.S. government recently enacted legislation that eliminated what is known as the “individual mandate” under the Affordable Care Act and may enact other changes in the future. The ultimate content and timing of any of these types of changes in other healthcare reform legislation and the resulting impact on us are impossible to predict. If significant reforms are made to the healthcare system in the U.S., or in other jurisdictions, those reforms may increase our costs or otherwise have an adverse effect on our financial condition and results of operations.
Our laboratory business could be harmed from the loss or suspension of a licence or imposition of a fine or penalties under, or future changes in, the law or regulations of the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”), or those of other state or local agencies.
Our laboratory operated by our subsidiary Immco Diagnostics Inc. is subject to CLIA, which is administered by CMS and extends federal oversight to virtually all clinical laboratories by requiring that they be certified by the federal government or by a federally-approved accreditation agency. CLIA is designed to ensure the quality and reliability of clinical laboratories by, among other things, mandating specific standards in the areas of personnel qualifications, administration, and participation in proficiency testing, patient test management, quality control, quality assurance and inspections. Laboratories must undergo on-site surveys at least every two years, which may be conducted by the Federal CLIA program or by a private CMS approved accrediting agency such as the College of American Pathologists, among others. The sanction for failure to comply with CLIA requirements may be suspension, revocation or limitation of a laboratory’s CLIA certificate, which is necessary to conduct business, as well as significant fines and/or criminal penalties.
We are also subject to regulation of laboratory operations under state clinical laboratory laws of New York and of certain other states from where we accept specimens. State clinical laboratory laws may require that laboratories and/or laboratory personnel meet certain qualifications, specify certain quality controls or require maintenance of certain records. For example, California requires that we maintain a licence to conduct testing in California, and California law establishes standards for our day-to-day laboratory operations, including the training and skill required of laboratory personnel and quality control.
In some respects, notably with respect to qualifications of testing personnel, California’s clinical laboratory laws impose more rigorous standards than does CLIA. Certain other states, including Florida, Maryland, New York and Pennsylvania, require that we hold licences to test specimens from patients residing in those states, and additional states may require similar licences in the future. Potential sanctions for violation of these statutes and regulations include significant fines and the suspension or loss of various licences, certificates and authorisations, which could adversely affect our business and results of operations.
We are also subject to various federal and state laws targeting fraud and abuse in the healthcare industry.
If we fail to comply with federal and state health care laws, including fraud and abuse, false claims, physician payment transparency and privacy and security laws, we could face substantial penalties and our business, operations and financial condition could be adversely affected. We are subject to anti-kickback laws, self-referral laws, false claims laws, and laws constraining the sales, marketing and other promotional activities of manufacturers of medical devices by limiting the kinds of financial arrangements we may enter into with physicians, hospitals, laboratories and other potential purchasers of our products. The laws that may affect our ability to operate include, but are not limited to:
| • | the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and wilfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation; in addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act; |
| • | the Physician Self-Referral Law, also known as the “Stark Law”, which provides for strict liability for referrals by physicians to entities with which they or their immediate family members have a financial arrangement for certain designated health services, including clinical laboratory services provided by our CLIA-certified laboratory owned and operated by our subsidiary Immco Diagnostics Inc., that are reimbursable by federal healthcare programs, unless an exception applies. Penalties for violating the Stark Law include denial of payment, civil monetary penalties of up to fifteen thousand dollars per claim submitted, and exclusion from federal health care programs, as well as a penalty of up to one-hundred thousand dollars for attempts to circumvent the law; |
| • | federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other federal third-party payers that are false or fraudulent. Suits filed under the False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government and such individuals, commonly known as “whistleblowers”, may share in any amounts paid by the entity to the government in fines or settlement. When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties for each separate false claim. Often, to avoid the threat of treble damages and penalties under the False Claims Act, which in 2020 were $11,665 to $23,331 per false claim, companies will resolve allegations in a settlement without admitting liability to avoid the potential treble damages. Any such settlement could materially affect our business, financial operations, and reputation; |
| • | the federal Civil Monetary Penalties Law, which prohibits, among other things, offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier; |
| • | federal criminal laws that prohibit executing a scheme to defraud any federal healthcare benefit program or making false statements relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation; |
| • | the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; |
| • | the federal Physician Payment Sunshine Act, which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the CMS, information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and requires applicable manufacturers to report annually to the government ownership and investment interests held by the physicians described above and their immediate family members and payments or other “transfers of value” to such physician owners. Manufacturers are required to submit reports to CMS by the 90th day of each calendar year. We cannot assure you that we have and will successfully report all transfers of value by us, and any failure to comply could result in significant fines and penalties. Failure to submit the required information may result in civil monetary penalties up to an aggregate of $150,000 per year (and up to an aggregate of $1 million per year for “knowing failures”) for all payments, transfers of value or ownership or investment interests not reported in an annual submission, and may result in liability under other federal laws or regulations; |
| • | federal and state laws governing the certification and licensing of clinical laboratories, including operational, personnel and quality requirements designed to ensure that testing services are accurate and timely, and federal and state laws governing the health and safety of clinical laboratory employees; |
| • | the U.S. Foreign Corrupt Practices Act, or the FCPA, which prohibits corporations and individuals from paying, offering to pay or authorising the payment of anything of value to any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity; the U.K. Bribery Act, which prohibits both domestic and international bribery, as well as bribery across both public and private sectors; and bribery provisions contained in the German Criminal Code, which makes the corruption and corruptibility of physicians in private practice and other healthcare professionals a criminal offense; and |
| • | analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any payor, including commercial insurers; state laws that require device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. |
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbours available under such laws, it is possible that some of our business activities, including our relationships with physicians and other healthcare providers, some of whom may recommend, purchase and/or order our tests, our sales and marketing efforts and certain arrangements with customers, including those where we provide our instrumentation for free in exchange for minimum purchase requirements of our reagents, and our billing and claims processing practices, could be subject to challenge under one or more of such laws. By way of example, some of our consulting arrangements with physicians do not meet all of the criteria of the personal services safe harbour under the federal Anti-Kickback Statute. Accordingly, they do not qualify for safe harbour protection from government prosecution. A business arrangement that does not substantially comply with a safe harbour, however, is not necessarily illegal under the Anti-Kickback Statute, but may be subject to additional scrutiny by the government. We are also exposed to the risk that our employees, independent contractors, principal investigators, consultants, vendors and distributors may engage in fraudulent or other illegal activity. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.
To enforce compliance with the federal laws, the U.S. Department of Justice (“DOJ”), has recently increased its scrutiny of interactions between health care companies and health care providers, which has led to a number of investigations, prosecutions, convictions and settlements in the health care industry. Dealing with investigations can be time and resource consuming and can divert management’s attention from the business. In addition, settlements with the DOJ or other law enforcement agencies have forced healthcare providers to agree to additional compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.
Many of the existing requirements are new and have not been definitively interpreted by state authorities or courts, and available guidance is limited. In addition, changes in or evolving interpretations of these laws, regulations, or administrative or judicial interpretations, may require us to change our business practices or subject our business practices to legal challenges, which could have a material adverse effect on our business, financial condition and results of operations.
We have not yet developed a comprehensive compliance program that establishes internal controls to facilitate adherence to the rules and program requirements to which we are or may become subject. Although the development and implementation of such compliance programs can mitigate the risk of investigation, prosecution, and penalties assessed for violations of these laws, or any other laws that may apply to us, the risks cannot be entirely eliminated.
If our operations are found to be in violation of any of the laws described above or any other laws and regulations that apply to us, we could receive adverse publicity, face enforcement action and be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and our results of operations.
Compliance with regulations governing public company corporate governance and reporting is complex and expensive.
Many laws and regulations impose obligations on public companies, which have increased the scope, complexity and cost of corporate governance, reporting and disclosure practices. Our implementation of certain aspects of these laws and regulations has required and will continue to require substantial management time and oversight and may require us to incur significant additional accounting and legal costs. We continually evaluate and monitor developments with respect to new and proposed rules and cannot predict or estimate the ultimate amount of additional costs we may incur or the timing of such costs. These laws and regulations are also subject to varying interpretations, in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Although we are committed to maintaining high standards of corporate governance and public disclosure, if we fail to comply with any of these requirements, legal proceedings may be initiated against us, which may adversely affect our business.
Risks Related to Our Intellectual Property
We may be unable to protect or obtain proprietary rights that we utilise or intend to utilise.
In developing and manufacturing our products, we employ a variety of proprietary and patented technologies. In addition, we have licenced, and expect to continue to licence, various complementary technologies and methods from academic institutions and public and private companies. We cannot provide any assurance that the technologies that we own or licence provide protection from competitive threats or from challenges to our intellectual property. In addition, we cannot provide any assurances that we will be successful in obtaining licences or proprietary or patented technologies in the future, or that licences granted to us by third parties will not be granted to other third parties who could potentially compete with us.
Filing, prosecuting and defending patents covering our current and future products throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we may obtain patent protection, but where patent enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued or licenced patents and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
The scope of the patent protection we obtain may not be sufficiently broad to compete effectively in our markets; our patent applications could be rejected or the existing patents could be challenged; and trade secrets and confidential know-how could be obtained by competitors.
Trinity Biotech currently owns a number of active patents, some with protection across multiple countries. These patents have remaining patent lives ranging from approximately less than 1 year to 17 years. We may fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. The patent applications that we own, or in-licence, may fail to result in issued patents with claims that cover our current products or any future products in the United States or in other foreign countries. There is no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application.
We can provide no assurance that third parties will not challenge the validity, enforceability or scope of the patents Trinity Biotech may apply for, or obtain, which may result in such patents being narrowed, invalidated, or held unenforceable. Any successful opposition to these patents or any other patents owned by or licenced to us could deprive us of rights necessary for the successful commercialization of any products covered by those patents.
Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product under patent protection could be reduced. We can provide no assurance that our patents will continue to be commercially valuable.
Trade secrets and confidential know-how are important to our scientific and commercial success. Although we seek to protect our proprietary information through confidentiality agreements and other contracts, we can provide no assurance that others will not independently develop the same or similar information or gain access to our proprietary information.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees on any issued patent are due to be paid to the United States Patent and Trademark Organization (“USPTO”) and other foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign national or international patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of patent rights include, but are not limited to, failure to timely file national and regional stage patent applications based on our international patent application, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalise and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our current or future products, our competitors might be able to enter the market, which would have an adverse effect on our business.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
Depending on actions by the U.S. Congress, the federal Courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we have licenced or that we might obtain in the future. Similar changes could happen to patent laws outside of the United States which would have the same consequences.
For example, the United States has enacted and implemented wide-ranging patent reform legislation, which could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defence of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The United States Patent Office developed regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defence of our issued patents, all of which could have an adverse effect on our business and financial condition.
Additionally, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained.
Product infringement claims by other companies could result in costly disputes and could limit our ability to sell our products.
Litigation over intellectual property rights is prevalent in the diagnostic industry, including patent infringement lawsuits, interferences, derivation and administrative law proceedings, inter party review, and post-grant review before the USPTO, as well as oppositions and similar processes in foreign jurisdictions.
As the market for diagnostics continues to grow and the number of participants in the market increases, we may increasingly be subject to patent infringement claims. It is possible that a third-party may claim infringement against us. For example, because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our products may infringe. The biosensor industry, including the CGM industry, is a highly innovative area with a number of industry participants developing intellectual property portfolios over many years. As such there can be no guarantee that the technology acquired from Waveform or further developed by us, will not infringe on other parties existing IP portfolios.
Defence of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of managerial and financial resources from our business. Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialise one or more of our products. The pendency of any litigation may cause our distributors and customers to reduce or terminate purchases of our products. If found to infringe, we may have to pay substantial damages, including treble damages and attorneys’ fees for wilful infringement, obtain one or more licences from third parties, pay royalties or redesign our affected products, which may be impossible or require substantial time and monetary expenditure. Any substantial loss resulting from such a claim could cause our revenues to decrease and have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse effect on our business.
If we need to obtain a licence as a result of litigation, we cannot predict whether any such licence would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need to obtain licences from third parties to advance our research or allow commercialisation of our products. We may fail to obtain any of these licences at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialise one or more of our products, which could harm our business significantly.
We may be involved in lawsuits to enforce our patents, the patents of our licensors or our other intellectual property rights, which could be expensive, time consuming and unsuccessful.
Competitors may infringe or otherwise violate our patents, the patents of our licensors or our other intellectual property rights. To counter infringement or unauthorised use, we may be required to file legal claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a Court may decide that a patent of ours or our licensors is not valid or is unenforceable or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defence proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing. The initiation of a claim against a third party may also cause the third party to bring counter claims against us such as claims asserting that our patents are invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement or lack of statutory subject matter. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant material information from the USPTO, or made a materially misleading statement, during prosecution. Third parties may also raise similar validity claims before the USPTO in post-grant proceedings such as ex parte re-examinations, inter partes review, or post-grant review, or oppositions or similar proceedings outside the United States, in parallel with litigation or even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable.
We cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. For the patents and patent applications that we have licenced, we may have limited or no right to participate in the defence of any licenced patents against challenge by a third party. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of any future patent protection on our current or future products. Such a loss of patent protection could harm our business.
We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. Our business could be harmed if in litigation the prevailing party does not offer us a licence on commercially reasonable terms. Any litigation or other proceedings to enforce our intellectual property rights may fail, and even if successful, may result in substantial costs and distract our management and other employees.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have an adverse effect on the price of our ADSs.
Risks Related to Ownership of our ADSs
At March 31, 2024 MiCo and Perceptive owned approximately 23.6% and 19.0% respectively of the voting share capital of our Company, which may give each of these shareholders a significant influence over our management and affairs and may deter a change in control or other transaction that may otherwise be favorable to our shareholders.
At March 31, 2024 MiCo owned 2.2 million of our ADSs, which represents approximately 23.6% of the outstanding voting share capital of our Company (29.9% on a fully diluted basis, including shares issuable upon conversion of the Company’s Redeemable Unsecured Convertible Loan Note issued to MiCo (the “Convertible Note”)). Based on its public filings, we understand that on December 20, 2023, Mainstream Holdings Ltd. became the sole shareholder of MiCo as a result of a share purchase agreement with MiCo Co. Ltd. and MiCoBioMed Co. Ltd. Under the terms of the Convertible Note and the purchase agreement for those ADSs, MiCo is entitled to nominate a total of four individuals, three of whom must be independent of MiCo, for consideration by the nomination committee of the board of directors of the Company for appointment as directors for as long as MiCo continues to hold qualifying amounts of ADSs or principal value of the Convertible Note or converted ADSs, as applicable. Because of its ownership interest and right to nominate directors, MiCo may have significant influence over our management and affairs and over matters requiring shareholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our Company or our assets, for the foreseeable future. This concentration of ownership may also delay, deter or prevent a change in control, and may make some transactions more difficult or impossible to complete without the support of MiCo, regardless of the impact of such transactions on our other shareholders. The interests of MiCo may differ from the interests of other shareholders and thus result in corporate decisions that are disadvantageous to other shareholders.
On January 30, 2024, Perceptive, our principal lender, acquired 1.8 million of our ADSs which represents approximately 19.0% of the outstanding voting share capital of our Company. Perceptive also owns warrants to purchase an additional 1.0 million ADSs with an exercise price of US$2.20 per ADS, subject to adjustment. Because of its ownership interest and its position as the Company’s principal lender, Perceptive may have significant influence over our management and affairs for the foreseeable future. This concentration of ownership may also delay, deter or prevent a change in control, and may make some transactions more difficult or impossible to complete without the support of Perceptive, regardless of the impact of such transactions on our other shareholders.
Our failure to meet the continued listing requirements of Nasdaq could result in a de-listing of our ADSs and penny stock trading.
There can be no assurance that we will be able to continue to meet all of the criteria necessary for Nasdaq to allow us to remain listed. If we fail to satisfy the applicable continued listing requirement and be in non-compliance after notice and the applicable grace period ends, Nasdaq may commence delisting procedures against our Company (during which we may have additional time of up to six months to appeal and correct our non-compliance).
On April 19, 2023, we received a deficiency letter from the Listing Qualifications Department of Nasdaq notifying us that for the preceding 30 consecutive business days, our ADSs did not maintain a minimum closing bid price of $1.00 (“Minimum Bid Price Requirement”) per ADS as required by Nasdaq Listing Rule 5450(a)(1). We effected an ADS Ratio Change on February 23, 2024, pursuant to which the ADS to A Ordinary Share ratio changed from one ADS representing four A Ordinary Shares to one ADS representing 20 A Ordinary Shares to enable the Company to regain compliance with the $1.00 Nasdaq minimum bid price requirement, and facilitate investment from a broader pool of potential investors. On March 8, 2024, the Listing Qualifications Department of Nasdaq notified us that we regained compliance with Listing Rule 5450(a)(1). However, there can be no assurance that our ADSs will continue to meet the Minimum Bid Price Requirement.
The Company received a deficiency letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) on November 21, 2023. The letter notified the Company that, for the preceding 30 consecutive business days, the market value of publicly held shares ("MVPHS") had remained below the minimum US$15 million threshold required for continued listing on The Nasdaq Global Select Market pursuant to Nasdaq Listing Rule 5450(b)(3)(c) (the “MVPHS Requirement”). On July 16, 2024, the Company met with the Nasdaq Hearings Panel (the “Panel”) to discuss its plan to regain compliance with the MVPHS Requirement and requested an extension until October 31, 2024, to demonstrate compliance. On August 1, 2024, the Panel granted the Company an extension until October 31, 2024, to meet the MVPHS Requirement.
If our ADSs are ultimately delisted from Nasdaq, our ADSs would likely then trade only in the over-the-counter market and the market liquidity of our ADSs could be adversely affected and their market price could decrease. If our ADSs were to trade on the over-the-counter market, selling our ADSs could be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be delayed, and we could face significant material adverse consequences, including: a limited availability of market quotations for our securities; reduced liquidity with respect to our securities; a determination that our shares are a “penny stock,” which will require brokers trading in our securities to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our securities; a reduced amount of news and analyst coverage for our Company; and a decreased ability to issue additional securities or obtain additional financing in the future. These factors could result in lower prices and larger spreads in the bid and ask prices for our ADSs and would substantially impair our ability to raise additional funds and could result in a loss of institutional investor interest and fewer development opportunities for us.
We are a foreign private issuer under the rules and regulations of the SEC and are therefore exempt from a number of rules under the Exchange Act and are permitted to file less information with the SEC than a domestic U.S. reporting company, which reduces the level and amount of disclosure that you receive.
As a foreign private issuer under the Exchange Act, we are exempt from certain rules under the Exchange Act, including the proxy rules, which impose certain disclosure and procedural requirements for proxy solicitations. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic U.S. companies with securities registered under the Exchange Act; and are not required to comply with Regulation FD, which imposes certain restrictions on the selective disclosure of material information. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our ADSs. Accordingly, you receive less information about our company than you would receive about a domestic U.S. company and are afforded less protection under the U.S. federal securities laws than you would be afforded in holding securities of a domestic U.S. company.
As a foreign private issuer whose ADSs are listed on NASDAQ, we are permitted to follow certain home country corporate governance practices instead of certain requirements of the NASDAQ listing rules. Among other things, as a foreign private issuer we may also follow home country practice with regard to, the composition of the board of directors, director nomination procedure, compensation of officers and quorum at shareholders’ meetings. In addition, we may follow our home country law, instead of the NASDAQ listing rules, which require that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company. Accordingly, our shareholders may not be afforded the same protection as provided under NASDAQ’s corporate governance rules. In addition, as foreign private issuer, we are not required to file quarterly reviewed financial statements. A foreign private issuer that elects to follow a home country practice instead of such requirements must submit to NASDAQ in advance a written statement from an independent counsel in such issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s laws.
We may be classified as a passive foreign investment company, or PFIC, which would subject our U.S. investors to adverse tax rules.
U.S. holders of our ADSs may face income tax risks. Based on the composition of our income, assets (including the value of our goodwill, going-concern value or any other unbooked intangibles, which may be determined based on the price of the A Ordinary Shares), and operations, we believe we will not be classified as a “passive foreign investment company”, or PFIC, for the 2023 taxable year. However, because PFIC status is based on our income, assets and activities for the entire taxable year, it is not possible to determine whether we will be characterized as a PFIC for our current taxable year or future taxable years until after the close of the applicable taxable year. Moreover, we must determine our PFIC status annually based on tests that are factual in nature, and our status in the current year and future years will depend on our income, assets and activities in each of those years and, as a result, cannot be predicted with certainty as of the date hereof. Furthermore, fluctuations in the market price of our A Ordinary Shares may cause our classification as a PFIC for the current or future taxable years to change because the aggregate value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles, generally will be determined by reference to the market price of our shares from time to time (which may be volatile). The IRS or a Court may disagree with our determinations, including the manner in which we determine the value of our assets and the percentage of our assets that are passive assets under the PFIC rules. Therefore, there can be no assurance that we will not be a PFIC for the current taxable year or for any future taxable year. Our treatment as a PFIC could result in a reduction in the after-tax return to U.S. Holders (as defined below under Item 10E. “Additional Information – Taxation”) of our ADSs and would likely cause a reduction in the value of such shares. A foreign corporation will be treated as a PFIC for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive income,” or (2) at least 50% of the average value of the corporation’s gross assets produce, or are held for the production of, such “passive income.” For purposes of these tests, “passive income” includes dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business. If we are treated as a PFIC, U.S. Holders of ADSs would be subject to a special adverse U.S. federal income tax regime with respect to the income derived by us, the distributions they receive from us, and the gain, if any, they derive from the sale or other disposition of their ADSs. U.S. Holders should carefully read Item 10E. “Additional Information – Taxation” for a more complete discussion of the U.S. federal income tax risks related to owning and disposing of ADSs.
The market price of our ADSs has been, and may continue to be, highly volatile, and such volatility could cause the market price of our ADSs to decrease and could cause you to lose some or all of your investment in our ADSs.
The stock market in general and the market prices of the ADSs on Nasdaq, in particular, are or will be subject to fluctuation, and changes in these prices may be unrelated to our operating performance. During the first quarter of 2024, the market price of our ADSs fluctuated from a high of US$3.05 per ADS to a low of US$1.98 per ADS, and the price of our ADSs continues to fluctuate. We anticipate that the market prices of our securities will continue to be subject to wide fluctuations. The market price of our securities may be subject to a number of factors, including:
| • | announcements of new products by us or others; |
| • | announcements by us of significant acquisitions, disposals, strategic partnerships, in-licensing, |
| • | joint ventures or capital commitments; |
| • | the developments of the businesses and projects of our various subsidiaries; |
| • | expiration or terminations of licences, research contracts or other collaboration agreements; |
| • | public concern as to the safety of the products we sell; |
| • | the volatility of market prices for shares of companies with whom we compete; |
| • | developments concerning intellectual property rights or regulatory approvals; |
| • | variations in our and our competitors’ results of operations; |
| • | changes in revenues, gross profits and earnings announced by us; |
| • | changes in estimates or recommendations by securities analysts, if the ADSs are covered by analysts; |
| • | fluctuations in the share price of our publicly traded subsidiaries; |
| • | changes in government regulations or patent decisions; and |
| • | general market conditions and other factors, including factors unrelated to our operating performance. |
These factors may materially and adversely affect the market price of our securities and result in substantial losses by our investors.
We expect we will need additional capital in the future. If additional capital is not available, we may not be able to continue to operate our business pursuant to our business plan or we may have to discontinue our operations entirely.
We expect we will require additional capital in the future. If we continue to incur losses, we will need significant additional financing, which we may seek through a combination of private and public equity offerings, debt financings, and asset sales, etc. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be diluted, and the terms of any such offerings may include liquidation or other preferences that may adversely affect the then existing shareholders rights. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt or making capital expenditures. If we raise additional funds through collaboration, strategic alliance or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates, or grant licences on terms that are not favorable to us.
Future sales of our ADSs could reduce the market price of the ADSs.
Substantial sales of our ADSs may cause the market price of our ADSs to decline. Sales by us or our security holders of substantial amounts of our ADSs, or the perception that these sales may occur in the future, could cause a reduction in the market price of our ADSs. The issuance of any additional ADSs, or any securities that are exercisable for or convertible into our ADSs, may have an adverse effect on the market price of our ADSs and will have a dilutive effect on our existing holders of ADSs.
The conversion of our outstanding share options and warrants would dilute the ownership interest of existing shareholders.
The total share options exercisable as at June 30, 2024, are convertible into American Depository Shares (ADSs), 1 ADS representing 20 A Ordinary Shares. The exercise of the outstanding share options will likely occur only when the conversion price is below the trading price of our ADSs and will dilute the ownership interests of existing shareholders. For instance, if all of the vested and exercisable options outstanding at June 30, 2024 were exercised, the Company would have to issue 24,029,255 additional A Ordinary Shares (1,201,463 ADSs). Similarly, if all of the outstanding warrants to purchase A Ordinary Shares at June 30, 2024 were exercised, the Company would have to issue 21,200,000 A Ordinary Shares (1,060,000 ADSs).
It could be difficult for U.S. holders of ADSs to enforce any securities laws claims against us, our officers or our directors in Irish Courts.
At present, no treaty exists between the United States and Ireland for the reciprocal enforcement of foreign judgments. Therefore, a final judgment for the payment of money rendered by any U.S. federal or state Court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically be recognized or enforceable in Ireland. A judgment of the U.S. Courts will be enforced by the Irish Courts, by way of separate action in Ireland, if the following general requirements are met:
| • | the debt is for a liquidated or defined sum; |
| • | the procedural rules of the U.S. Court must have been observed and the U.S. Court must have had jurisdiction in relation to the particular defendant according to Irish conflict of law rules (the submission to jurisdiction by the defendant would satisfy this rule); and |
| • | the judgment must be final and conclusive and the decree must be final and unalterable in the U.S. Court which pronounces it. A judgment can be final and conclusive even if it is subject to appeal or even if an appeal is pending. If the effect of lodging an appeal under the applicable law is to stay execution of the judgment, it is possible that, in the meantime, the judgment should not be actionable in Ireland. It remains to be determined whether final judgment given in default of appearance is final and conclusive. |
However, the Irish Courts may, in certain circumstances refuse to enforce a judgment of the U.S. Courts which meets the above requirements including:
| • | if the judgment was obtained or alleged to have been obtained by fraud; |
| • | if the process and decision of the U.S. Courts were contrary to natural or constitutional justice under the laws of Ireland and if the enforcement of the judgment in Ireland would be contrary to natural or constitutional justice; |
| • | if the judgment is contrary to Irish public policy or involves certain United States laws which will not be enforced in Ireland or constitute the enforcement of a judgment of a penal or taxation nature; |
| • | if jurisdiction cannot be obtained by the Irish Courts over the judgment debtors in the enforcement proceedings by personal service in Ireland or outside Ireland under Order 11 of the Irish Superior Courts Rules; or |
| • | if the judgment is not consistent with a judgment of an Irish Court in respect of the same matter. |
We have no plans to pay dividends on our ADSs, and ADS holders may not receive funds without selling the ADSs.
We do not expect to pay any cash dividends on our ADSs for the foreseeable future. We currently intend to retain any additional future earnings to finance our operations and growth and, therefore, we have no plans to pay cash dividends at this time. Any future determination to pay cash dividends will be at the discretion of our board of directors and will be dependent on our earnings, financial condition, operating results, capital requirements, any contractual restrictions, and other factors that our board of directors deems relevant. Accordingly, ADS holders may have to sell some or all of the ADSs in order to generate cash from your investment. You may not receive a gain on your investment when you sell the ADSs and may lose the entire amount of your investment.
The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to direct the voting of your A Ordinary Shares underlying the ADSs.
Holders of ADSs do not have the same rights as our registered shareholders. As a holder of the ADSs, you will not have any direct right to attend general meetings of our shareholders, cast any votes at such meetings or otherwise exercise the rights of registered shareholders set out in our articles of association or in Irish law. You will only be able to exercise the voting rights which attach to the A ordinary shares underlying the ADSs indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. Under the deposit agreement with the depositary, you may vote only by giving voting instructions to the depositary, as the registered holder of the A Ordinary Shares underlying the ADSs. If the depositary asks for your instructions, then upon receipt of such voting instructions, it will try to vote the underlying A Ordinary Shares in accordance with these instructions. If we do not instruct the depositary to ask for your instructions, the depositary may still vote in accordance with instructions you give, but it is not required to do so. You will not be able to directly exercise any right to vote with respect to the underlying A Ordinary Shares unless you withdraw the shares underlying your ADSs and become the registered holder of such shares prior to the record date for the general meeting. When a general meeting is convened, you may not receive sufficient advance notice of the meeting to enable you to withdraw the shares underlying the ADSs and become the registered holder of such shares prior to the record date for such general meeting to allow you to attend the general meeting and to vote directly with respect to any specific matter or resolution to be considered and voted upon at the general meeting. Where any matter is to be put to a vote at a general meeting, upon our instruction, the depositary will notify you of the upcoming vote and deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure you can direct the depositary to vote the A Ordinary Shares underlying your ADSs in accordance with your instructions. In addition, the depositary and its agents are not responsible for failing to carry out your voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to direct how the shares underlying the ADSs are voted and you may have no legal remedy if the shares underlying the ADSs are not voted as you instructed.
Year ended December 31, 2023 compared to the year ended December 31, 2022
Revenues
Trinity Biotech’s revenues for the year ended December 31, 2023 were US$56.8 million compared to revenues of US$62.5 million for the year ended December 31, 2022, which represents a decrease of US$5.7 million or 9.1%.
The decrease is mainly due to lower sales of our PCR Viral Transport Media (“VTM”) products (US$1.8 million), lower laboratory services revenue (US$1.8 million) following the loss of our transplant testing service contract and haemoglobins revenues were 8% lower due to the continued decrease in revenues for our legacy haemoglobinopathies product, the Ultra II instrument and due to the deferral of year end shipments of products at sub-optimal pricing as we renegotiated contract terms with a key customer in line with the new management team’s focus on profitability.
The following table sets forth selected sales data for each of the periods indicated.
| | | Year ended December 31, | |
| |
|
| 2023 US$’000 | | | | 2022 US$’000 | | | % Change | |
| Revenues | | | | | | | | | | | |
| Clinical laboratory goods | | | 42,288 | | | | 46,036 | | | | (8.1 | )% |
| Clinical laboratory services | | | 5,453 | | | | 7,272 | | | | (25.0 | )% |
| Point-of-Care | | | 9,091 | | | | 9,213 | | | | (1.3 | )% |
| | | | | | | | | | | | | |
| | | | 56,832 | | | | 62,521 | | | | (9.1 | )% |
Clinical Laboratory Goods
Clinical Laboratory goods revenues decreased by US$3.7 million in 2023, which represents a decrease of 8.1%. The decrease is mainly due to a decrease of US$1.8 million in sales for our COVID-19 VTM products as public health PCR testing programs for COVID-19 have largely been discontinued. We have retained the capability to flex manufacture volumes should market conditions warrant it. The remainder of the decrease in clinical laboratory goods revenues is largely due to our haemoglobin business, sales of which declined by 8% due to the continued downward trend in revenues for our legacy haemoglobinopathies product, the Ultra II instrument and due to the deferral of shipments in the fourth quarter of 2023 of products at sub-optimal pricing as we renegotiated contract terms with a key customer. In Q1, 2024, we agreed upon revised terms. Our replacement for the Ultra II instrument, the Premier Resolution, obtained FDA approval in August 2023.
Clinical Laboratory Services
Our New York reference laboratory offers laboratory-testing services for autoimmune disorders, such as Sjogren’s syndrome, hearing loss, celiac disease, lupus, rheumatoid arthritis and systemic sclerosis. Revenues for the laboratory decreased by 25.0% to US$5.5 million. The laboratory had provided transplant testing services to a local healthcare provider for a number of years, however in early 2023 that healthcare provider informed us that it was moving to a different service provider and this resulted in lost revenues for the laboratory beginning in the second quarter of 2023. This decrease was partly offset by higher services revenue for our proprietary Sjogren’s syndrome test which increased by 3% in 2023 compared to 2022.
Point-of-Care
Point-of-Care revenues decreased 1.3% from US$9.2 million in 2022 to US$9.1 million in 2023. There was a slight decrease in sales of HIV tests in Africa which was largely offset by an increase in revenues for the syphilis point-of-care test in U.S. Included in our HIV point-of-care revenues is US$0.4m for our new Trinscreen test, which commenced its first shipments in December 2023.
Revenues by Geographical Region
The following table sets forth selected sales data, analysed by geographic region, based on location of customer:
| | |
| Year ended December 31, | |
| |
|
| 2023 US$‘000 | | | | 2022 US$‘000 | | | % Change | |
| Revenues | | | | | | | | | | | |
| Americas | | | 32,282 | | | | 35,557 | | | | (9.2 | )% |
| Asia/Africa | | | 18,909 | | | | 20,401 | | | | (7.3 | )% |
| Europe | | | 5,641 | | | | 6,563 | | | | (14.0 | )% |
| | | | | | | | | | | | | |
| Total | | | 56,832 | | | | 62,521 | | | | (9.1 | )% |
In the Americas, revenues decreased US$3.3 million or 9.2%, mainly due to a US$1.8 million decrease in sales of our VTM products which were used in the COVID-19 testing programs in U.S. and Canada. The other main contributor to the drop in revenues in Americas was a US$1.8 million decrease in revenues for our New York laboratory due to the loss of a transplant testing service contract. Offsetting these decreases was strong growth in our haemoglobins business, particularly in Brazil, where revenues increased by 13% in 2023 compared to 2022.
In Asia/Africa, revenues decreased by 7.3%, or US$1.5 million compared to 2022. The decrease was primarily due to lower haemoglobins revenues in Asia. In 2022, there was particularly strong demand for our diabetes products in Asia with year-on-year revenue growth in 2022 of 36%, boosted by high instrument sales. Haemoglobins revenues in Asia decreased in 2023 compared to 2022 due to lower number of instruments sold and due to the deferral of year end shipments of haemoglobins products at sub-optimal pricing as we renegotiated contract terms with a key customer in line with our new management team’s focus on profitability.
In Europe, revenues decreased by US$0.9 million, or 14.0% compared to 2022. The decrease was mainly caused by lower demand from our main European haemoglobins distributor due to customer attrition in their installed base following tendering processes in Western Europe
Cost of sales, gross profit and gross margin
Total cost of sales decreased by US$7.9 million from US$45.3 million for the year ended December 31, 2022 to US$37.4 million, for the year ended December 31, 2023, a decrease of 17.4%. This resulted in a gross profit for 2023 of US$19.5 million compared to a gross profit for 2022 of US$17.3 million. The gross margin of 34.2% in 2023 compares to a gross margin of 27.6% in 2022.
The gross profit for the year ended December 31, 2022 reflected significant excess inventory and obsolescence charges of US$4.7 million recorded in Q3 2022, consisting of VTM inventory write down (US$3.5 million) Tri-stat inventory write down (US$0.3 million) and other inventory write downs (US$0.9 million). The remainder of the reduction in gross margin in the year ended December 31, 2023 compared to year ended December 31, 2022 is largely due to sales mix changes, inflationary increases in the price of raw materials which cannot always be passed onto customers in the form of higher prices due to contract terms.
Other operating income
Other operating income decreased from US$0.3 million for the year ended December 31, 2022 to US$0.1 million for the year ended December 31, 2023. The other operating income for 2023 relates to a transition services agreement with the acquirer of Fitzgerald Industries. The income for 2022 consisted of government grants in relation to R&D activities and there was no equivalent in 2023.
Research and development expenses
Research and development expenses increased from US$4.1 million for the year ended December 31, 2022 to US$4.4 million for the year ended December 31, 2023, an increase of 6% mainly due to lower capitalisation of payroll costs into product development intangible assets.
Selling, general and administrative expenses
Selling, general and administrative expenses increased for the year ended December 31, 2023 by US$4.2 million to US$31.2 million when compared to the year ended December 31, 2022, representing an increase of 15.5%. A significant element of the US$4.2 million increase relates to:
| i) | technical advisory, legal and professional fees were higher in 2023 compared to 2022 by US$1.6 million primarily due to costs associated with the acquisition of the biosensor assets of Waveform (which closed in January 2024) and other corporate development and corporate finance activities as we continue to assess strategic opportunities for inorganic growth and balance sheet optimization, |
| ii) | an increase of US$1.5 million in foreign exchange losses largely relating to the accounting requirement to mark to market euro-denominated lease liabilities for right-of-use assets, and |
| iii) | higher non-cash share-based payments expense of US$0.3 million mainly due to the full year effect of options granted in 2022. |
Impairment charges
Impairment charges increased from US$5.8 million for the year ended December 31, 2022 to US$11.1 million for the year ended December 31, 2023. There are a number of factors taken into account in calculating the impairment, including the Company’s period-end share price, calculation of the cost of capital, and future projected cash flows for individual cash-generating units in the business. In addition, the Group examines individual development project assets for indicators of impairment.
The impairment charges for the year ended December 31, 2023 relate to Immco Diagnostics Inc (US$10.8 million) and Trinity Biotech Do Brasil (US$0.3 million). As the Company has previously reported, Immco’s laboratory had for a number of years provided transplant testing services to a local healthcare provider. However, in early 2023 that healthcare provider informed Immco that it was moving to a different service provider, and this resulted in lost revenues for the laboratory beginning in the second quarter of 2023. Additionally, the expected level of laboratory services revenue arising from its proposed partnership with imaware, Inc (“imaware”) did not materialise. As a result, Immco’s value in use, defined as the present value of its future cash flows, fell below the value of the carrying amount of its assets, other than inventories, accounts receivable, cash and cash equivalents and deferred tax assets as at June 30, 2023 (US$10.7 million) and at December 31, 2023 (US$0.1 million).
Included within the Immco impairment is a full impairment of the financial assets associated with the Group’s investment in imaware. To date the Group has paid US$0.7 million of a proposed US$1.5 million investment to imaware. As the investment agreement provided for a total investment of US$1.5 million, this amount was recognised in the balance sheet as at March 31, 2023. Given the uncertainty over the future of imaware’s performance and thus the value of this investment, management decided to impair the entire US$1.5 million at June 30, 2023. The Group has not to date paid the additional US$0.8 million to imaware which remains on our balance sheet as an accrued payable.
Similarly, Trinity Biotech do Brasil’s value in use was below the value of its relevant assets, and an impairment was provided for as at June 30, 2023 (US$0.1 million) and as at December 31, 2023 (US$0.2 million).
The impairment charges for the year ended December 31, 2022 related to impaired intangible assets relating to R&D projects (US$4.6 million) and impairment losses identified for three cash generating units, namely Trinity Biotech Do Brasil (US$0.5 million), Clark Laboratories Inc. (US$0.4 million) and Biopool US Inc (US$0.4 million). For further details, see Item 18, Notes 11, 12, 13 and 17.
Operating Loss
Operating loss for the year ended December 31, 2023 was US$27.0 million, compared to an operating loss of US$19.3 million in the year ended December 31, 2022. The higher loss was mainly attributable to decreased revenues, lower other operating income, higher impairment charges and higher indirect costs, partly offset by a higher gross margin.
Financial expenses
Financial expenses in the year ended December 31, 2023 were US$11.1 million compared to US$24.7 million in the year ended December 31, 2022, a decrease of US$13.6 million, broken down as follows:
| | | Year ended December 31, 2023 | | | Year ended December 31, 2022 | |
| | | US$m | | | US$m | |
| Interest on senior secured term loan | | | 8.4 | | | | 9.8 | |
| Interest on convertible note | | | 1.1 | | | | 0.7 | |
| Penalty for early partial settlement of term loan | | | 0.9 | | | | 3.5 | |
| Lease interest | | | 0.6 | | | | 0.7 | |
| Loss on disposal of exchangeable notes | | | 0.0 | | | | 9.7 | |
| Interest on exchangeable notes | | | 0.0 | | | | 0.4 | |
| Other non-cash financial expense | | | 0.0 | | | | 0.1 | |
| Total | | | 11.1 | | | | 24.7 | |
Note: table contains rounded numbers
The decrease of US$13.6 million in 2023 compared to 2022 is mainly due to two material expenses incurred in the year ended December 31, 2022, which were a loss of US$9.7 million on the disposal of the Exchangeable Notes and an early repayment penalty of just under US$3.5 million.
Interest on the senior secured term loan, comprising cash and non-cash interest, decreased from US$9.8 million in 2022 to US$8.4 million for 2023 mainly due to a lower term loan balance, although this was partly offset by the impact of higher prevailing interest rates during 2023. Interest on the convertible note, comprising cash and non-cash interest, increased from US$0.7 million in 2022 to US$1.1 million in 2023 due to the full year effect (the convertible note was issued in Q2 2022). An early repayment penalty of US$0.9 million was incurred in Q2, 2023 because of an early partial settlement of the term loan of US$10.1 million. Interest on the exchangeable notes decreased from US$0.4 million in 2022 to US$8,000 in 2023 because 99.7% of the exchangeable notes were retired during Q1, 2022.
Financial income
Financial income for the year ended December 31, 2023 was US$1.2 million compared to US$0.3 million for the year ended December 31, 2022. In both years, the financial income related to a fair value adjustment for the derivative liability related to warrants granted to the Group’s principal lender.
Income tax credit
The Company recorded a tax credit on continuing operations of US$59,000 for the year ended December 31, 2023 compared to a tax credit of US$0.2 million for the year ended December 31, 2022. The 2023 tax credit consists of approximately US$264,000 of current tax charge and US$323,000 of a deferred tax credit. The 2022 tax credit consists of US$280,000 of current tax credit and US$86,000 of a deferred tax charge. For further details on the Group’s tax charge please refer to Item 18, Note 7 and Note 14 to the consolidated financial statements.
Loss before tax from continuing operations
The loss before tax for continuing operations for the year ended December 31, 2023 was US$36.9 million, in comparison to US$43.8 million for the year ended December 31, 2022.
Profit from discontinued operations
The discontinued operations comprise Fitzgerald Industries which was divested in April 2023 and the discontinued cardiac point-of-care business on the Meritas platform. Profit for the period from discontinued operations totalled US$12.9 million, largely attributable to the gain of US$12.7 million on the divesture of Fitzgerald Industries. The gain comprises proceeds of approximately US$30 million offset by transaction costs of US$1.3 million with net assets eliminated on disposal of US$16.3 million. For further details, see Item 18, Note 8.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TRINITY BIOTECH PLC
Opinion
We have audited the group and parent company financial statements of Trinity Biotech plc, which comprise the consolidated statement of operations, the consolidated statement of comprehensive income, the consolidated and parent company statements of financial position, the consolidated and parent company statements of changes in equity and the consolidated and parent company statements of cash flows for the financial year ended December 31, 2023, and the related notes to the financial statements, including the summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the financial statements is Irish law and International Financial Reporting Standards (IFRS) as adopted by the European Union.
In our opinion:
| • | the consolidated financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union, of the assets, liabilities and financial position of the group as at December 31, 2023 and of its financial performance and cash flows for the financial year then ended; |
| • | the parent company financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union, of the assets, liabilities and financial position of the parent company as at December 31, 2023 and of its cash flows for the financial year then ended; and |
| • | the financial statements have been properly prepared in accordance with the requirements of the Companies Act 2014. |
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (Ireland) (‘ISAs (Ireland)) and applicable law. Our responsibilities under those standards are further described in the ‘Responsibilities of the auditor for the audit of the financial statements’ section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Ireland, including the Ethical Standard for Auditors (Ireland) issued by the Irish Auditing and Accounting Supervisory Authority (IAASA), and the ethical pronouncements established by Chartered Accountants Ireland, applied as determined to be appropriate in the circumstances for the entity. We have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the entity’s ability to continue as a going concern basis of accounting included the following:
| • | We examined the directors’ assessment on going concern and performed an independent assessment of the inputs and assumptions used by the directors in preparing their assessment on going concern by comparing the assumptions and estimates used elsewhere in the preparation of the financial statements; |
| • | We reviewed the increase in the existing loan facility and the acquisition of WaveForm assets in January 2024; |
| • | We evaluated the directors’ assessment of any liquidity issues with the group and parent company by reviewing if the group and parent company has sufficient liquidity sources from operating activities for at least 12 months from the date of approval of the financial statements; |
| • | We made enquiries with the Directors and reviewed board minutes available up to and including the date of authorisation of the financial statements in order to understand the future plans of the group and parent company; |
| • | We assessed the adequacy of the disclosures with respect to the going concern assumption; and |
| • | We obtained a signed letter of representation from the Directors that it is appropriate to prepare the financial statements on a going concern basis and that the Directors have considered various financing options to meet its repayment obligations regarding the exchangeable notes over the next 12 months. |
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group and parent company’s ability to continue as a going concern for a period of at least 12 months from the date when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TRINITY BIOTECH PLC (CONTINUED)
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current financial period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and the directing of efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and therefore we do not provide a separate opinion on these matters.
Overall audit strategy
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the Directors made subjective judgements, for example, valuation of goodwill, capitalization of development costs and impairment considerations regarding intangible assets and property, plant and equipment. We also addressed the risk of management override of internal controls, including evaluating whether there was any evidence of potential bias that could result in a risk of material misstatement due to fraud.
How we tailored the audit scope
Trinity Biotech plc develops, acquires, manufactures and markets medical diagnostic products for the clinical laboratory and point-of-care segments of the diagnostic market. The group is also a significant provider of raw materials to the life sciences and research industries. Revenues are mainly generated from the clinical laboratory segment and from customers residing outside of the Republic of Ireland.
In establishing the overall approach to our audit we assessed the risk of material misstatement at a group level, taking into account the nature, likelihood and potential magnitude of any misstatement. As part of our risk assessment, we considered the control environment in place at the company and the group.
In assessing the risk of material misstatement to the group financial statements and to ensure we had adequate quantitative coverage of significant accounts in the financial statements, we selected nine components covering entities across Europe and the Americas, which represent the principal business units within the group.
Of the nine components selected, we performed an audit of the complete financial information of six components (“full scope components”) which were selected based on their size and risk characteristics. For the remaining three components (“specific scope components”), we performed audit procedures on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in the financial statements either because of size of these accounts of their risk profile.
The reporting components within which audit procedures were conducted accounted for 100% of the group’s revenue and 94.3% of the group’s total assets.
Materiality and audit approach
The scope of our audit is influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, such as our understanding of the entity and its environment, the history of misstatements, the complexity of the group and the reliability of the control environment, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the group to be 1.5% of revenues earned from third-party sources at December 31, 2023. We have applied this benchmark because revenues are the primary measure used by shareholders in assessing performance of the entity. In situations where entities are in a showing fluctuating profit and losses (as is the case for the group), revenues are the generally accepted auditing benchmark. For the parent company only financial statements, we used 2% of total assets as basis of materiality. The parent company holds group’s investments and is not in itself profit-oriented. The strength of the balance sheet is the key measure of financial health that is important to shareholders.
We have set performance materiality at 70% of materiality, having considered our prior year experience of the risk of misstatements, business risks and fraud risks associated with the entity and its control environment. This is to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements in the financial statements exceeds materiality for the financial statements as a whole.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TRINITY BIOTECH PLC (CONTINUED)
Key audit matters (continued)
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above 5% of materiality, as well as differences below that threshold, which in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
Significant matters identified
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are set out below as significant matters together with an explanation of how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole. This is not a complete list of all risks identified by our audit.
Impairment of intangible assets and property, plant and equipment
Description of significant matter:
Refer to Notes 11 and 12 to the financial statements. As at December 31, 2023 prior to impairment analysis, the intangible assets of the Company totalled $22.1 million and property, plant and equipment of the Company totalled $5.7 million. The Company recognised $9.6 million impairment during the year ended December 31, 2023 comprising $5.8m relating to intangible assets and $3.8m relating to property, plant and equipment.
The Company’s evaluation of the carrying value of intangible assets and property, plant and equipment for impairment involves the comparison of the recoverable amount of each cash generating unit (CGU) to their carrying value. The Company used the value-in-use approach, which deploys a discounted cash flow model to estimate the recoverable amount.
This requires management to make significant estimates and assumptions related to discount rates, short-term forecasts of future revenues and margins, and long-term growth rates which drive net cash flows. Changes in these assumptions could have a significant impact on the recoverable amount, the amount of any impairment charge, or both.
The principal consideration for our determination that impairment of intangible assets and property, plant and equipment was a key audit matter was the significant judgements made by management to estimate the recoverable value of certain CGUs and the difference between their recoverable amounts and carrying values. We focused on CGUs with significant non-current assets (collectively the “selected CGUs”).
This required a high degree of auditor judgement and an increased extent of effort, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions as described above.
Audit response to significant matter:
Our audit procedures related to the assumptions, as described above, used by management to estimate the recoverable amounts of the selected CGUs included the following, among others:
| • | We evaluated the design of relevant controls over management’s selection of the discount rates, short-term forecasts of future revenues and margins, and long-term growth rates used to determine the recoverable amount of each selected CGU. |
| • | We identified relevant CGUs with significant non-current assets. |
| • | We agreed the underlying cash flow forecasts to the Board approved projections and we evaluated management’s ability to accurately forecast future revenues and margins by: |
| • | performing a look-back analysis and comparing actual results to management’s historical forecasts; and |
| • | assessing the reasonableness of the impact of new products, new partnerships and other macroeconomic activity on short-term cash flows. |
| • | We assessed the reasonableness of the valuation model used by the group compared to generally accepted valuation practices and accounting standards. |
| • | We tested the source information underlying the determination of the discount rates through the use of observable inputs from independent external sources. |
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TRINITY BIOTECH PLC (CONTINUED)
Key audit matters (continued)
| • | We compared the long-term growth rates, used by management to estimate cash flows in order to calculate a terminal value at that point, to independent external sources to assess the reasonableness of these rates. |
| • | We performed sensitivity analyses around significant management assumptions, such as discount rate and growth rate, to account for uncertainties around assumptions in the valuation model. |
Based on the procedures performed, we have determined management’s assumptions used in their assessment of impairment of intangible assets and property, plant and equipment associated with selected CGUs to be reasonable. We concluded that the related disclosures provided in the consolidated financial statements are appropriate.
Other information
Other information comprises information included in the annual report, other than the financial statements and the auditor’s report thereon, including the Directors’ report. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies in the financial statements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Matters on which we are required to report by the Companies Act 2014
| • | We have obtained all the information and explanations which we consider necessary for the purposes of our audit. |
| • | In our opinion the accounting records of the group and parent company were sufficient to permit the financial statements to be readily and properly audited. |
| • | The financial statements are in agreement with the accounting records. |
| • | In our opinion the information given in the Directors’ report is consistent with the financial statements. Based solely on the work undertaken in the course of our audit, in our opinion, the Directors’ report has been prepared in accordance with the requirements of the Companies Act 2014. |
Matters on which we are required to report by exception
Based on our knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the Directors’ report.
Under the Companies Act 2014 we are required to report to you if, in our opinion, the disclosures of Directors’ remuneration and transactions specified by sections 305 to 312 of the Act have not been made. We have no exceptions to report arising from this responsibility.
Responsibilities of management and those charged with governance for the financial statements
As explained more fully in the Directors’ responsibilities statement, management is responsible for the preparation of the financial statements which give a true and fair view in accordance with IFRS as adopted by the European Union, and for such internal control as they determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the group or parent company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the group and parent company’s financial reporting process.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TRINITY BIOTECH PLC (CONTINUED)
Responsibilities of the auditor for the audit of the financial statements (continued)
The objectives of an auditor are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (Ireland) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Irish Auditing and Accounting Supervisory Authority’s website at: http://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f-a98202dc9c3a/Description_of_auditors_responsibilities_for_audit.pdf. This description forms part of our auditor’s report.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatement in the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs (Ireland).
The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
Based on our understanding of the group, parent company and industry, we identified that the principal risks of non-compliance with laws and regulations related to compliance with Stock Exchange Listing Rules, Data Privacy law, Employment Law, Environmental Regulations, and Health & Safety legislation, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2014 and Irish tax legislation. The Audit Engagement Partner considered the experience and expertise of the engagement team, including using specialists for the assessment the design effectiveness of Information Technology General Controls (ITGCs), to ensure that the team had appropriate competence and capabilities to identify or recognise non-compliance with the laws and regulation. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to manipulate financial performance and management bias through judgements and assumptions in significant accounting estimates, in particular in relation to significant one-off or unusual transactions. We apply professional scepticism through the audit to consider potential deliberate omission or concealment of significant transactions, or incomplete/inaccurate disclosures in the financial statement.
In response to these principal risks, our audit procedures included but were not limited to:
| • | enquiries of management, board and Audit Committee on the policies and procedures in place regarding compliance with laws and regulations, including consideration of known or suspected instances of non-compliance and whether they have knowledge of any actual, suspected or alleged fraud; |
| • | inspection of the group and parent company regulatory and legal correspondence and review of minutes of board meetings during the year to corroborate inquiries made; |
| • | gaining an understanding of the entity’s current activities, the scope of authorisation and the design effectiveness of its control environment to mitigate risks related to fraud; |
| • | discussion amongst the engagement team in relation to the identified laws and regulations and regarding the risk of fraud, and remaining alert to any indications of non-compliance or opportunities for fraudulent manipulation of financial statements throughout the audit; |
| • | identifying and testing journal entries to address the risk of inappropriate journals and management override of controls; |
| • | designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing |
| • | challenging assumptions and judgements made by management in their significant accounting estimates, including impairment assessment of intangible assets and property, plant and equipment, and capitalisation of internal development costs; and |
| • | review of the financial statement disclosures to underlying supporting documentation and inquiries of management. |
The primary responsibility for the prevention and detection of irregularities including fraud rests with those charged with governance and management. As with any audit, there remains a risk of non-detection or irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations or override of internal controls.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TRINITY BIOTECH PLC (CONTINUED)
The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the group and parent company’s members, as a body, in accordance with section 391 of the Companies Act 2014. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
STEPHEN MURRAY
For and on behalf of
Grant Thornton
Chartered Accountants & Statutory Audit Firm
Dublin
4 September 2024
CONSOLIDATED STATEMENT OF OPERATIONS
| | | | | | Year ended December 31 | |
| | | Notes | | | 2023 Total US$‘000 | | | 2022 Total US$‘000 | | | 2021 Total US$‘000 | |
| | | | | | | | | | | | | |
| Revenues | | | 2 | | | | 56,832 | | | | 62,521 | | | | 81,149 | |
| Cost of sales | | | | | | | (37,382 | ) | | | (45,253 | ) | | | (47,695 | ) |
| | | | | | | | | | | | | | | | |
| Gross profit | | | | | | | 19,450 | | | | 17,268 | | | | 33,454 | |
| Other operating income | | | 4 | | | | 141 | | | | 343 | | | | 4,428 | |
| Research and development expenses | | | | | | | (4,379 | ) | | | (4,138 | ) | | | (4,497 | ) |
| Selling, general and administrative expenses | | | | | | | (31,152 | ) | | | (26,983 | ) | | | (22,503 | ) |
| Impairment charges | | | 5 | | | | (11,105 | ) | | | (5,839 | ) | | | (6,944 | ) |
| | | | | | | | | | | | | | | | |
| Operating (loss)/profit | | | | | | | (27,045 | ) | | | (19,349 | ) | | | 3,938 | |
| Financial income | | | 6 | | | | 1,171 | | | | 303 | | | | 1,223 | |
| Financial expenses | | | 6 | | | | (11,053 | ) | | | (24,734 | ) | | | (7,085 | ) |
| | | | | | | | | | | | | | | | |
| Net financing expense | | | | | | | (9,882 | ) | | | (24,431 | ) | | | (5,862 | ) |
| | | | | | | | | | | | | | | | |
| Loss before tax | | | 9 | | | | (36,927 | ) | | | (43,780 | ) | | | (1,924 | ) |
| Total income tax credit | | | 2, 7 | | | | 59 | | | | 194 | | | | 74 | |
| | | | | | | | | | | | | | | | |
| Loss for the year on continuing operations | | | 2 | | | | (36,868 | ) | | | (43,586 | ) | | | (1,850 | ) |
| | | | | | | | | | | | | | | | |
| Profit for the year on discontinued operations | | | 8 | | | | 12,850 | | | | 2,577 | | | | 2,725 | |
| | | | | | | | | | | | | | | | |
| (Loss)/profit for the year (all attributable to owners of the parent) | | | 2 | | | | (24,018 | ) | | | (41,009 | ) | | | 875 | |
| | | | | | | | | | | | | | | | |
| Basic (loss)/profit per ADS (US Dollars) – continuing operations | | | 10 | | | | (4.81 | ) | | | (6.46 | ) | | | (0.44 | ) |
| Diluted (loss)/profit per ADS (US Dollars) – continuing operations | | | 10 | | | | (4.81 | ) | | | (6.46 | ) | | | (0.44 | ) |
| | | | | | | | | | | | | | | | |
| Basic (loss)/profit per A Ordinary Share (US Dollars) –continuing operations | | | 10 | | | | (0.24 | ) | | | (0.32 | ) | | | (0.02 | ) |
| Diluted (loss)/profit) per A Ordinary Share (US Dollars) – continuing operations | | | 10 | | | | (0.24 | ) | | | (0.32 | ) | | | (0.02 | ) |
| | | | | | | | | | | | | | | | | |
| Basic (loss)/profit per ADS (US Dollars) – group | | | 10 | | | | (3.14 | ) | | | (6.08 | ) | | | 0.21 | |
| Diluted (loss)/profit per ADS (US Dollars) – group | | | 10 | | | | (3.14 | ) | | | (6.08 | ) | | | 0.16 | |
| | | | | | | | | | | | | | | | | |
| Basic (loss)/profit per A Ordinary Share (US Dollars) – group | | | 10 | | | | (0.16 | ) | | | (0.30 | ) | | | 0.01 | |
| Diluted (loss)/profit) per A Ordinary Share (US Dollars) – group | | | 10 | | | | (0.16 | ) | | | (0.30 | ) | | | 0.01 | |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
| | | | | | Year ended December 31 | |
| | | Notes | | | 2023 US$‘000 | |
| 2022 US$‘000 | | | 2021 US$‘000 | |
| (Loss)/profit for the year | | | 2 | | | | (24,018 | ) | | | (41,009 | ) | | | 875 | |
| Other comprehensive profit/(loss) | | | | | | | | | | | | | | | | |
| Items that will be reclassified subsequently to profit or loss | | | | | | | | | | | | | | | | |
| Foreign exchange translation differences | | | | | | | 69 | | | | (396 | ) | | | (86 | ) |
| | | | | | | | | | | | | | | | | |
| Other comprehensive profit/(loss) | | | | | | | 69 | | | | (396 | ) | | | (86 | ) |
| | | | | | | | | | | | | | | | | |
| Total Comprehensive (Loss)/profit (all attributable to owners of the parent) | | | | | | | (23,949 | ) | | | (41,405 | ) | | | 789 | |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| | | | | | At December 31 | |
| | | Notes | | | 2023 US$‘000 | | | 2022 US$‘000 | |
| ASSETS | | | | | | | | | | | |
| Non-current assets | | | | | | | | | | | |
| Property, plant and equipment | | | 11 | | | | 1,892 | | | | 5,682 | |
| Goodwill and intangible assets | | | 12 | | | | 16,270 | | | | 35,269 | |
| Deferred tax assets | | | 14 | | | | 1,975 | | | | 4,218 | |
| Derivative financial instruments | | | 23 | | | | 178 | | | | 128 | |
| Other assets | | | 15 | | | | 79 | | | | 139 | |
| | | | | | | | | | | | | |
| Total non-current assets | | | | | | | 20,394 | | | | 45,436 | |
| | | | | | | | | | | | | |
| Current assets | | | | | | | | | | | | |
| Inventories | | | 16 | | | | 19,933 | | | | 22,503 | |
| Trade and other receivables | | | 17 | | | | 13,901 | | | | 15,753 | |
| Income tax receivable | | | | | | | 1,516 | | | | 1,834 | |
| Cash and cash equivalents | | | 18 | | | | 3,691 | | | | 6,578 | |
| | | | | | | | | | | | | |
| Total current assets | | | | | | | 39,041 | | | | 46,668 | |
| | | | | | | | | | | | | |
| TOTAL ASSETS | | | 2 | | | | 59,435 | | | | 92,104 | |
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| EQUITY AND LIABILITIES | | | | | | | | | | | | |
| Equity attributable to the equity holders of the parent | | | | | | | | | | | | |
| Share capital | | | 19 | | | | 1,972 | | | | 1,963 | |
| Share premium | | | | | | | 46,619 | | | | 46,458 | |
| Treasury shares | | | 19 | | | | (24,922 | ) | | | (24,922 | ) |
| Accumulated deficit | | | | | | | (48,644 | ) | | | (26,695 | ) |
| Translation reserve | | | 19 | | | | (5,706 | ) | | | (5,775 | ) |
| Equity component of convertible note | | | 19, 23 | | | | 6,709 | | | | 6,709 | |
| Other reserves | | | 19 | | | | 23 | | | | 86 | |
| | | | | | | | | | | | | |
| Total deficit | | | | | | | (23,949 | ) | | | (2,176 | ) |
| | | | | | | | | | | | | |
| Current liabilities | | | | | | | | | | | | |
| Income tax payable | | | | | | | 279 | | | | 28 | |
| Trade and other payables | | | 21 | | | | 12,802 | | | | 15,375 | |
| Provisions | | | 22 | | | | 50 | | | | 50 | |
| Exchangeable notes and other borrowings | | | 23 | | | | 210 | | | | 210 | |
| Lease liabilities | | | 24 | | | | 1,694 | | | | 1,676 | |
| | | | | | | | | | | | | |
| Total current liabilities | | | | | | | 15,035 | | | | 17,339 | |
| | | | | | | | | | | | | |
| Non-current liabilities | | | | | | | | | | | | |
| Senior secured term loan | | | 23 | | | | 40,109 | | | | 44,301 | |
| Derivative financial liability | | | 23 | | | | 526 | | | | 1,569 | |
| Convertible Note | | | 23 | | | | 14,542 | | | | 13,746 | |
| Lease liabilities | | | 24 | | | | 10,872 | | | | 12,267 | |
| Deferred tax liabilities | | | 14 | | | | 2,300 | | | | 5,058 | |
| | | | | | | | | | | | | |
| Total non-current liabilities | | | | | | | 68,349 | | | | 76,941 | |
| | | | | | | | | | | | | |
| TOTAL LIABILITIES | | | 2 | | | | 83,384 | | | | 94,280 | |
| | | | | | | | | | | | | |
| TOTAL EQUITY AND LIABILITIES | | | | | | | 59,435 | | | | 92,104 | |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| | | Share capital
A Ordinary
Shares
US$’000 | | | Share
premium
US$’000 | | | Treasury
Shares
US$’000 | | | Translation
reserve
US$’000
| | | Equity Component of Convertible Note US$’000 | | | Other
reserves
US$’000 | | | Accumulated
(deficit)/surplus
US$’000
| | | Total
US$’000 | |
| Balance at January 1, 2021 | | | 1,213 | | | | 16,187 | | | | (24,922 | ) | | | (5,293 | ) | | | - | | | | 23 | | | | 10,573 | | | | (2,219 | ) |
| Profit for the period | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 875 | | | | 875 | |
| Other comprehensive income | | | - | | | | - | | | | - | | | | (86 | ) | | | - | | | | - | | | | - | | | | (86 | ) |
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| Total comprehensive loss | | | - | | | | - | | | | - | | | | (86 | ) | | | - | | | | - | | | | 875 | | | | 789 | |
| Share-based payments (Note 20) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,111 | | | | 1,111 | |
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| Balance at December 31, 2021 | | | 1,213 | | | | 16,187 | | | | (24,922 | ) | | | (5,379 | ) | | | - | | | | 23 | | | | 12,559 | | | | (319 | ) |
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| Balance at January 1, 2022 | | | 1,213 | | | | 16,187 | | | | (24,922 | ) | | | (5,379 | ) | | | - | | | | 23 | | | | 12,559 | | | | (319 | ) |
| Loss for the period | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (41,009 | ) | | | (41,009 | ) |
| Other comprehensive loss | | | - | | | | - | | | | - | | | | (396 | ) | | | - | | | | - | | | | - | | | | (396 | ) |
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| Total comprehensive loss | | | - | | | | - | | | | - | | | | (396 | ) | | | - | | | | - | | | | (41,009 | ) | | | (41,405 | ) |
| Shares issued in the year (Note 19) | | | 750 | | | | 30,271 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 31,021 | |
| Shares to be issued | | | - | | | | - | | | | - | | | | - | | | | - | | | | 63 | | | | - | | | | 63 | |
| Equity component of convertible note (Note 19) | | | - | | | | - | | | | - | | | | - | | | | 6,709 | | | | - | | | | - | | | | 6,709 | |
| Share-based payments (Note 20) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,755 | | | | 1,755 | |
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| Balance at December 31, 2022 | | | 1,963 | | | | 46,458 | | | | (24,922 | ) | | | (5,775 | ) | | | 6,709 | | | | 86 | | | | (26,695 | ) | | | (2,176 | ) |
| Balance at January 1, 2023 | | | 1,963 | | | | 46,458 | | | | (24,922 | ) | | | (5,775 | ) | | | 6,709 | | | | 86 | | | | (26,695 | ) | | | (2,176 | ) |
| Loss for the period | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (24,018 | ) | | | (24,018 | ) |
| Other comprehensive income | | | - | | | | - | | | | - | | | | 69 | | | | - | | | | - | | | | - | | | | 69 | |
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| Total comprehensive loss | | | - | | | | - | | | | - | | | | 69 | | | | - | | | | - | | | | (24,018 | ) | | | (23,949 | ) |
| Shares issued in the year (Note 19) | | | 9 | | | | 161 | | | | - | | | | - | | | | - | | | | (63 | ) | | | - | | | | 107 | |
| Share-based payments (Note 20) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,069 | | | | 2,069 | |
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| Balance at December 31, 2023 | | | 1,972 | | | | 46,619 | | | | (24,922 | ) | | | (5,706 | ) | | | 6,709 | | | | 23 | | | | (48,644 | ) | | | (23,949 | ) |
CONSOLIDATED STATEMENT OF CASH FLOWS
| | | | | | Year ended December 31, | |
| | | Notes | | | 2023 US$‘000 | | | 2022 US$‘000 | | | 2021 US$‘000 | |
| Cash flows from operating activities | | | | | | | | | | | | |
| (Loss)/profit for the year | | | | | | (24,018 | ) | | | (41,009 | ) | | | 875 | |
| Adjustments to reconcile net profit/(loss) to cash provided by operating activities: | | | | | | | | | | | | | | | |
| Depreciation | | | 9, 11 | | | | 831 | | | | 1,410 | | | | 1,827 | |
| Amortisation | | | 9,12 | | | | 946 | | | | 923 | | | | 917 | |
| Income tax credit | | | 7 | | | | (59 | ) | | | (192 | ) | | | (167 | ) |
| Financial income | | | 6 | | | | (1,171 | ) | | | (303 | ) | | | (1,223 | ) |
| Financial expense | | | 6 | | | | 11,053 | | | | 24,745 | | | | 7,097 | |
| Share-based payments (net of capitalized amounts) | | | 20 | | | | 2,069 | | | | 1,755 | | | | 1,100 | |
| Foreign exchange gains on operating cash flows | | | | | | | 238 | | | | (76 | ) | | | (251 | ) |
| Loss/(gain) on disposal or retirement of property, plant and equipment | | | 9 | | | | - | | | | 2 | | | | (1 | ) |
| Movement in inventory provision | | | 16 | | | | 2,291 | | | | 7,391 | | | | 5,589 | |
| Impairment of prepayments | | | 5, 17 | | | | - | | | | 482 | | | | 583 | |
| Impairment of property, plant and equipment | | | 5, 11 | | | | 3,772 | | | | 733 | | | | 2,508 | |
| Impairment of intangible assets | | | 5, 12 | | | | 5,833 | | | | 4,624 | | | | 3,853 | |
| Impairment of financial assets | | | 5, 13 | | | | 1,500 | | | | - | | | | - | |
| Gain on sale of business | | | 8 | | | | (12,718 | ) | | | - | | | | - | |
| Other non-cash items | | | | | | | 257 | | | | 269 | | | | (5,317 | ) |
| | | | | | | | | | | | | | | | | |
| Operating cash flows before changes in working capital | | | | | | | (9,176 | ) | | | 754 | | | | 17,390 | |
| Decrease/(increase) in trade and other receivables | | | | | | | 1,047 | | | | (966 | ) | | | 6,236 | |
| Increase in inventories | | | | | | | (971 | ) | | | (877 | ) | | | (4,406 | ) |
| (Decrease)/increase in trade and other payables | | | | | | | (2,769 | ) | | | 181 | | | | (7,591 | ) |
| | | | | | | | | | | | | | | | | |
| Cash (used in)/generated from operations | | | | | | | (11,869 | ) | | | (908 | ) | | | 11,629 | |
| Interest paid | | | | | | | - | | | | - | | | | (11 | ) |
| Interest received | | | | | | | - | | | | 2 | | | | 1 | |
| Income taxes received/(paid) | | | | | | | 312 | | | | (15 | ) | | | 1,619 | |
| | | | | | | | | | | | | | | | | |
| Net cash (used in)/generated by operating activities | | | | | | | (11,557 | ) | | | (921 | ) | | | 13,238 | |
| | | | | | | | | | | | | | | | | |
| Cash flows from investing activities | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Payments to acquire intangible assets | | | | | | | (1,901 | ) | | | (4,876 | ) | | | (6,879 | ) |
| Acquisition of property, plant and equipment | | | | | | | (803 | ) | | | (1,101 | ) | | | (1,812 | ) |
| Payments to acquire financial asset | | | 13 | | | | (700 | ) | | | - | | | | - | |
| Proceeds from sale of business (net of transaction costs) | | | 8 | | | | 28,160 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | |
| Net cash generated by/(used in) investing activities | | | | | | | 24,756 | | | | (5,977 | ) | | | (8,691 | ) |
| | | | | | | | | | | | | | | | | |
| Cash flows from financing activities | | | | | | | | | | | | | | | | |
| Issue of ordinary share capital including share premium (net of issuance costs) | | | 19 | | | | - | | | | 25,336 | | | | - | |
| Proceeds from shares to be issued | | | | | | | - | | | | 63 | | | | - | |
| Net proceeds from senior secured term loan | | | 23 | | | | 5,000 | | | | 80,015 | | | | - | |
| Proceeds from convertible note issued | | | 23 | | | | - | | | | 20,000 | | | | - | |
| Expenses paid in connection with debt financing | | | 23 | | | | (147 | ) | | | (2,356 | ) | | | (848 | ) |
| Purchase of exchangeable notes | | | 23 | | | | - | | | | (86,730 | ) | | | - | |
| Repayment of senior secured term loan | | | 23 | | | | (10,050 | ) | | | (34,500 | ) | | | - | |
| Penalty for early settlement of term loan | | | 23 | | | | (905 | ) | | | (3,450 | ) | | | - | |
| Repayment of other loan | | | | | | | - | | | | (23 | ) | | | - | |
| Interest paid on senior secured term loan | | | | | | | (7,314 | ) | | | (6,424 | ) | | | - | |
| Interest paid on convertible note | | | | | | | (300 | ) | | | (199 | ) | | | - | |
| Proceeds from Paycheck Protection loans | | | | | | | - | | | | - | | | | 1,764 | |
| Interest paid on exchangeable notes | | | 28 | | | | (8 | ) | | | (1,293 | ) | | | (3,996 | ) |
| Payment of lease liabilities | | | 28 | | | | (2,318 | ) | | | (2,761 | ) | | | (2,939 | ) |
| | | | | | | | | | | | | | | | | |
| Net cash used in financing activities | | | | | | | (16,042 | ) | | | (12,322 | ) | | | (6,019 | ) |
| | | | | | | | | | | | | | | | | |
| Decrease in cash and cash equivalents and short-term investments | | | | | | | (2,843 | ) | | | (19,220 | ) | | | (1,472 | ) |
| Effects of exchange rate movements on cash held | | | | | | | (44 | ) | | | (112 | ) | | | 55 | |
| Cash and cash equivalents and short-term investments at beginning of year | | | | | | | 6,578 | | | | 25,910 | | | | 27,327 | |
| | | | | | | | | | | | | | | | | |
| Cash and cash equivalents and short-term investments at end of year | | | 18 | | | | 3,691 | | | | 6,578 | | | | 25,910 | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023
| 1. | BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES |
The principal accounting policies adopted by Trinity Biotech plc (“the Company”) and its subsidiaries (together the “the Group”) are set out below.
| i) | General information
Trinity Biotech is a commercial stage biotechnology company focused on diabetes management solutions and human diagnostics, including wearable biosensors. The Company develops, acquires, manufactures and markets diagnostic systems, including both reagents and instrumentation, for the point-of-care and clinical laboratory segments of the diagnostic market. The products are used to detect infectious diseases and to quantify the level of Haemoglobin A1c and other chemistry parameters in serum, plasma and whole blood and the Company intends to develop a range of biosensor devices and related services, starting with a continuous glucose monitoring product. |
| ii) | Statement of compliance |
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) both as issued by the International Accounting Standards Board (“IASB”) and as subsequently adopted by the European Union (“EU”) (together “IFRS”). The IFRS applied are those effective for accounting periods beginning January 1, 2023. Consolidated financial statements are required by Irish law to comply with IFRS as adopted by the EU which differ in certain respects from IFRS as issued by the IASB. These differences predominantly relate to the timing of adoption of new standards by the EU. However, in relation to the 2023 consolidated financial statements there are no differences regarding the effective date of new IFRS relevant to Trinity Biotech as issued by the IASB and as adopted by the EU. In relation to prior periods presented, none of the differences are relevant in the context of Trinity Biotech and the consolidated financial statements comply with IFRS both as issued by the IASB and as adopted by the EU.
The consolidated financial statements have been prepared in United States Dollars (US$), rounded to the nearest thousand, under the historical cost basis of accounting, except for derivative financial instruments, certain balances arising on acquisition of subsidiary entities and share-based payments which are initially recorded at fair value. Derivative financial instruments are also subsequently revalued and carried at fair value.
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and amounts reported in the financial statements and accompanying notes. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in Note 30.
The directors have considered the Group’s current financial position and cash flow projections, taking into account all known events and developments, the directors believe that the Group will be able to continue its operations for at least the next 12 months from the date of this report and that it is appropriate to continue to prepare the consolidated financial statements on a going concern basis.
The directors have considered the Group’s current financial position and cash flow projections, taking into account all known events and developments including the amendment and restatement of the term loan with Perceptive, the acquisition of Waveform assets, the divestiture of the Fitzgerald Industries life sciences supply business, and the success of the commercial launch of the Trinscreen HIV product. Additionally, we have undertaken a number of initiatives aimed at improving the financial performance of the existing business by building on our existing revenue base and eliminating unnecessary overhead and complexity. Our directors believe that the Group will be able to continue its operations for at least the next 12 months from the date of this report, and that it is appropriate to continue to prepare the consolidated financial statements on a going concern basis. There are no material debt maturities until 2026.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023
| 1. | BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. The accounting policies have been applied consistently by all Group entities. The comparative information agrees with the amounts and other disclosures presented in the prior period consolidated financial statements or, when appropriate, have been restated.
| iv) | Basis of consolidation |
Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. A change in the ownership interest of a subsidiary without a change in control is accounted for as an equity transaction. The Group currently holds a majority of voting rights in all entities in the Group and as a result there are no non-controlling interests reflected in the consolidated financial statements.
Transactions eliminated on consolidation
Intra-group balances and any unrealised gains or losses or income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements.
| v) | Property, plant and equipment |
Owned assets
Items of property, plant and equipment are stated at cost less any accumulated depreciation and any impairment losses (see Note 1(viii)). The cost of self-constructed assets includes the cost of materials, direct labour and attributable overheads. It is not Group policy to revalue any items of property, plant and equipment.
Depreciation is charged to the statement of operations on a straight-line basis to write-off the cost of the assets over their expected useful lives as follows:
| • Leasehold improvements | 5-15 years |
| | |
| • Buildings | 50 years |
| | |
| • Office equipment and fittings | 10 years |
| | |
| • Computer equipment | 3-5 years |
| | |
| • Plant and equipment | 5-15 years |
Land is not depreciated. The residual values, if not insignificant, useful lives and depreciation methods of property, plant and equipment are reviewed and adjusted if appropriate on a prospective basis, at each balance sheet date. There were no changes to useful lives in the year.
The Group considers whether a contract is or contains a lease. A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration’. To apply this definition the Group assesses whether the contract meets three key evaluations which are whether:
| • | the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group |
| • | the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract |
| • | the Group has the right to direct the use of the identified asset throughout the period of use. The Group assess whether it has the right to direct ‘how and for what purpose’ the asset is used throughout the period of use. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023
| 1. | BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).
The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist.
At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group’s incremental borrowing rate. Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised. Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments. When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.
The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term. On the statement of financial position, right-of-use assets have been included in property, plant and equipment and lease liabilities have been included in separate lines within the current liabilities and non-current liabilities sections.
Leased assets - as lessor
The Group’s accounting policy under IFRS 16 has not changed from the comparative period. As a lessor, the Group classifies its leases as either operating or finance leases. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of the underlying asset, and classified as an operating lease if it does not.
In respect of business combinations that have occurred since January 1, 2004 (being the transition date to IFRS), goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired.
In respect of acquisitions prior to this date, goodwill is included on the basis of its deemed cost, which represents the amount recorded under the old basis of accounting, Irish GAAP, (“Previous GAAP”). Save for retrospective restatement of deferred tax as an adjustment to retained earnings in accordance with IAS 12, Income Taxes, the classification and accounting treatment of business combinations undertaken prior to the transition date were not reconsidered in preparing the Group’s opening IFRS balance sheet as at January 1, 2004.
To the extent that the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired exceeds the cost of a business combination, the identification and measurement of the related assets, liabilities and contingent liabilities are revisited accompanied by a reassessment of the cost of the transaction, and any remaining balance is immediately recognised in the statement of operations.
At the acquisition date, any goodwill is allocated to each of the cash-generating units expected to benefit from the combination’s synergies. Following initial recognition, goodwill is stated at cost less any accumulated impairment losses.
| vii) | Intangibles, including research and development (other than goodwill) |
An intangible asset, which is an identifiable non-monetary asset without physical substance, is recognised to the extent that it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably. The asset is deemed to be identifiable when it is separable (that is, capable of being divided from the entity and sold, transferred, licenced, rented or exchanged, either individually or together with a related contract, asset or liability) or when it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the Group or from other rights and obligations.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023
| 1. | BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Intangible assets acquired as part of a business combination are capitalised separately from goodwill if the intangible asset meets the definition of an asset and the fair value can be reliably measured on initial recognition. Subsequent to initial recognition, these intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses (Note 1(viii)). Intangible assets with definite useful lives are reviewed for indicators of impairment annually while intangible assets with indefinite useful lives and those not yet brought into use are tested for impairment at least annually, either individually or at the cash-generating unit level.
Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources to complete the development. The expenditure capitalised includes the cost of materials, direct labour and attributable overheads and third party costs. Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates.
The technical feasibility of a new product is determined by a specific feasibility study undertaken at the first stage of any development project. The majority of our new product developments involve the transfer of existing product know-how to a new application. Since the technology is already proven in an existing product which is being used by customers, this facilitates the proving of the technical feasibility of that same technology in a new product.
The results of the feasibility study are reviewed by a design review committee comprising senior managers. The feasibility study occurs in the initial research phase of a project and costs in this phase are not capitalised.
The commercial feasibility of a new product is determined by preparing a discounted cash flow projection. This projection compares the discounted sales revenues for future periods with the relevant costs. As part of preparing the cash flow projection, the size of the relevant market is determined, feedback is sought from customers and the strength of the proposed new product is assessed against competitors’ offerings. Once the technical and commercial feasibility has been established and the project has been approved for commencement, the project moves into the development phase.
All other development expenditure is expensed as incurred. Subsequent to initial recognition, the capitalised development expenditure is carried at cost less any accumulated amortisation and any accumulated impairment losses.
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the statement of operations as an expense as incurred.
Expenditure on internally generated goodwill and brands is recognised in the statement of operations as an expense as incurred.
Amortisation
Amortisation is charged to the statement of operations on a straight-line basis over the estimated useful lives of intangible assets, unless such lives are indefinite. Intangible assets are amortised from the date they are available for use in its intended market. The estimated useful lives are as follows:
| • Capitalised development costs | 15 years |
| | |
| • Patents and licences | 6-15 years |
| | |
| • Other (including acquired customer and supplier lists) | 6-15 years |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023
| 1. | BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
The Group uses a useful economic life of 15 years for capitalised development costs. This is a conservative estimate of the likely life of the products. The Group is confident that products have a minimum of 15 years life given the inertia that characterizes the medical diagnostics industry and the barriers to enter into the industry. The following factors have been considered in estimating the useful life of developed products:
| (a) | once a diagnostic test becomes established, customers are reluctant to change to new technology until it is fully proven, thus resulting in relatively long product life cycles. There is also reluctance in customers to change to a new product as it can be costly both in terms of the initial changeover cost and as new technology is typically more expensive. |
| (b) | demand for the diagnostic tests is enduring and robust within a wide geographic base. The diseases that the products diagnose are widely prevalent (HIV, Diabetes and Chlamydia being just three examples) in many countries. There is a general consensus that these diseases will continue to be widely prevalent in the future. Demand for biosensors is showing high growth in recent years due to the ease of use and the appeal of real time information. |
| (c) | there are significant barriers to new entrants in this industry. Patents and/or licences are in place for several of our products, though this is not the only barrier to entry. There is a significant cost and time to develop new products, it is necessary to obtain regulatory approval and tests are protected by proprietary know-how, manufacturing techniques and trade secrets. |
Certain trade names acquired are deemed to have an indefinite useful life as there is no foreseeable limit to the period over which these assets are expected to generate cash inflows for the Group.
Where amortisation is charged on assets with finite lives, this expense is taken to the statement of operations through the ‘selling, general and administrative expenses’ line.
Useful lives are examined on an annual basis and adjustments, where applicable, are made on a prospective basis.
The carrying amount of the Group’s assets, other than inventories, accounts receivable, cash and cash equivalents, short-term investments and deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount (being the greater of fair value less costs to sell and value in use) is assessed at each balance sheet date.
Fair value less costs to sell is defined as the amount obtainable from the sale of an asset or cash-generating unit in an arm’s length transaction between knowledgeable and willing parties, less the costs that would be incurred on disposal. Value in use is defined as the present value of the future cash flows expected to be derived through the continued use of an asset or cash-generating unit. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the future cash flow estimates have not yet been adjusted. The estimates of future cash flows exclude cash inflows or outflows attributable to financing activities. For an asset that does not generate largely independent cash flows, the recoverable amount is determined by reference to the cash-generating unit to which the asset belongs.
For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date at the cash-generating unit level. The goodwill and indefinite-lived assets were reviewed for impairment at June 30, 2022, December 31, 2022, June 30, 2023 and December 31, 2023. See Note 12.
In-process research and development (IPR&D) is tested for impairment on a bi-annual basis, and always at year end, or more frequently if impairment indicators are present, using projected discounted cash flow models. If IPR&D becomes impaired or is abandoned, the carrying value of the IPR&D is written down to its revised fair value with the related impairment charge recognised in the period in which the impairment occurs. If the fair value of the asset becomes impaired as the result of unfavorable data from any ongoing or future clinical trial, changes in assumptions that negatively impact projected cash flows, or because of any other information regarding the prospects of successfully developing or commercializing our programs, we could incur significant charges in the period in which the impairment occurs. The valuation techniques utilized in performing impairment tests incorporate significant assumptions and judgments to estimate the fair value, as described above. The use of different valuation techniques or different assumptions could result in materially different fair value estimates.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the statement of operations.
