September 28, 2007
Jim B. Rosenberg
Senior Assistant Chief Accountant
United States Securities and Exchange Commission
100 First Street N.E.
Washington D.C. 20549
RE: TRINITY BIOTECH PLC
FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
FILED MAY 8, 2007
FILE NO. 000-22320
Dear Mr. Rosenberg,
I am responding to your letter dated August 24, 2007. With respect to each of
your queries I have included the query as contained in your letter and given our
response directly below.
ITEM 18 FINANCIAL STATEMENTS, PAGE 54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
g) INTANGIBLES, INCLUDING RESEARCH AND DEVELOPMENT (OTHER THAN GOODWILL)
RESEARCH AND DEVELOPMENT, PAGE 63
1. PLEASE PROVIDE US A LIST OF THE ACTIVITIES (COMPLETED AND NOT COMPLETED) AND
THEIR CAPITALIZED AMOUNTS THAT COMPRISE THE $18,240,000 OF "DEVELOPMENT COSTS"
AT DECEMBER 31, 2006 AS INDICATED IN NOTE 11. FOR EACH ACTIVITY (COMPLETED AND
NOT COMPLETED TELL US THE DATE CAPITALIZED, THE NATURE OF THE ACTIVITY AND
ADDRESS HOW YOU MET EACH OF THE CRITERIA IN PARAGRAPH 57 OF IAS 38. FOR
ACTIVITIES NOT COMPLETED AT DECEMBER 31, 2006, ALSO TELL US THE NATURE AND
DOLLAR AMOUNT AND TIMING OF EFFORTS REMAINING TO BE COMPLETED.
TRINITY BIOTECH PLC RESPONSE
Under IFRS as adopted by the EU, Trinity Biotech Plc (`the Company') writes off
research and development expenditure as incurred, with the exception of
expenditure on projects whose outcome has been assessed with reasonable
certainty as to technical feasibility, commercial viability and recovery of
costs through future revenues. Such expenditure is capitalised at cost within
intangible assets as Development Costs and as at December 31, 2006 the total
amount capitalized was $18,240,000.
The following table includes a list of the significant projects that make up
this amount and the date on which the project was fully capitalised (except
where the project is incomplete). In summary all of the projects detailed below
relate to the development
1
of new or substantially improved diagnostic test kits or supporting diagnostic
instrumentation.
PROJECT AMOUNT
CAPITALISED DATE FULLY
AT DECEMBER CAPITALISED*
31, 2006
$'000
- ------------------------------------------------------------------------------
UniGold HIV Point of Care 3,804 2005
- ------------------------------------------------------------------------------
Destiny Max 3,303 Incomplete
- ------------------------------------------------------------------------------
HIV Western Blot 2,135 Incomplete
- ------------------------------------------------------------------------------
Tri-Stat Point of Care A1c 1,269 Incomplete
- ------------------------------------------------------------------------------
Flu Direct Fluorescent Assay 965 Incomplete
- ------------------------------------------------------------------------------
Captia 647 2005
- ------------------------------------------------------------------------------
Destiny Instrument (Plus and Opt versions) 569 2004
- ------------------------------------------------------------------------------
US Lyme 526 Incomplete
- ------------------------------------------------------------------------------
EU Lyme Western Blot 509 2005
- ------------------------------------------------------------------------------
D-Dimer Development 495 Incomplete
- ------------------------------------------------------------------------------
Legionella 487 Incomplete
- ------------------------------------------------------------------------------
Haemostasis Product Range Enhancement Project 428 2006
- ------------------------------------------------------------------------------
HBA1c - Haemoglobin 200 Incomplete
- ------------------------------------------------------------------------------
HSV Specific 184 2005
- ------------------------------------------------------------------------------
44 Kits 166 2005
- ------------------------------------------------------------------------------
Reagent/Instrument Application Development 153 2006
- ------------------------------------------------------------------------------
Other projects** 2,400
- ------------------------------------------------------------------------------
TOTAL 18,240
- ------------------------------------------------------------------------------
* As of December 31, 2006
**Other projects consist of a range of projects whose individual capitalised
amounts are individually less than $150,000. It consists of a combination of
projects which have been completed ($498,000) and are yet to be completed
($1,902,000).
With respect to the projects which have been completed the Company has commenced
amortising the costs over the expected life of the product. As at December 31,
2006 the amount amortised was $950,000.
In response to your query the following outlines the nature of the activities
being undertaken and how the criteria outlined in paragraph 57 of IAS 38 are
met.
NATURE OF THE ACTIVITY
The nature of the activities being undertaken in these projects are principally
(i) the development of new diagnostic kits. This mainly consists of
kits which test for conditions for which the Company does not
already possess a test. However, in some cases the Company also
develops an alternative test kit for a condition which the Company
already has a test kit in order to increase the range of products
which it can offer to customers.
(ii) the substantial improvement of existing products. These
improvements relate to the accuracy and/or functionality of an
existing test kit with a view to achieving additional sales.
2
CAPITALISATION CRITERIA PER PARAGRAPH 57 OF IAS 38
Technical feasibility of completing the asset so that it will be available for
use or sale
The Company carefully selects the development projects which it undertakes. One
of the key criteria for selection is the project's technical feasibility. Given
the finite availability of resources, only those projects which are considered
technically feasible are undertaken. For the most part the Company uses
technology that it already possesses with a view to expanding the range of
products that operate off a particular platform e.g. the Company's Western Blot
Lyme and Unigold HIV Point of care products form the basis for the new HIV
Western Blot project. Given the detailed knowledge of the technology and its
potential applications the Company is in a position to determine with a high
degree of certainty whether a project is technically feasible or not. The
ultimate determination is made by the Group Head of Research and Development who
has a long history of working in the diagnostics industry and who has an
in-depth knowledge of the technology at the Group's disposal. To date the
Company has not had a situation whereby it was unable to complete a project
after it had been determined to be technically feasible.
Intention to complete the intangible asset and use or sell it
The Company only undertakes projects that it intends to complete. Each project
has a defined objective to develop a new or substantially improved product for
sale to end user customers in the healthcare sector.
Ability to use or sell the intangible asset
The identification of development projects arises from the identification of a
market opportunity and/or gap in the Company's portfolio of diagnostic test
kits. Thus at the outset of the project it is assessed whether there is a market
for the product. This assessment is based on the detailed knowledge of the
market place which is contained within the Company's Sales and Marketing
function by the central and local sales personnel and dedicated product
managers. In some cases this knowledge will be supplemented with market
information supplied by third parties.
In the case of substantial improvements to existing products the Company already
has a very detailed knowledge of the market place and hence the ability to sell
the product. In particular, the Company has a knowledge of customers' demands
for improvements which it monitors closely, especially in the context of
advances being made by competitors in the industry.
Once projects are completed the Company sells the products to end user customers
in the healthcare sector. The Company has direct sales forces in 4 countries,
covering 65% of the world diagnostics market, and an extensive network of
approximately 300 distributors in a further 75 countries, all of which serve as
outlets for its products. The Company typically sells newly developed products
to its existing customer base in existing markets.
3
How the intangible asset will generate probable future economic benefits
Once developed, new or substantially improved products generate future economic
benefits for the Company through their sales to customers within the healthcare
sector. On average the Company's products have a gross margin of approximately
48%.
At the inception of each project (and annually thereafter) an assessment is made
as to whether the future economic benefits will be sufficient to recover the
ultimate cost of the development project. The total expected cost of the project
is calculated at inception based on the level of internal and external resources
expected to be applied to the project. Based on its knowledge of the market the
Company calculates the projected sales of the new/substantially improved
product. Using a combination of gross margins already being earned by similar
products and expectation of the likely cost of production the expected gross
margin percentage for the product is estimated. Given the variations which can
occur in both sales levels and gross margin percentage the Company adopts a
conservative approach when calculating these figures. The Company then
calculates the gross margin expected to be earned for each of the first five
years after the product is launched. The cashflows are discounted using a
discount rate which is reflective of the prevailing risk free rate as adjusted
for the uncertainties inherent in the product and market in question. These
discounted cashflows are then compared to the total expected cost of the project
to ensure that these costs are at least fully recovered.
Availability of adequate technical, financial and other resources to complete
the development and use or sell the intangible asset.
The Company has a significant number of product development specialists which
are located in the Company's facilities in Bray, Ireland, Jamestown, New York,
Carlsbad, California, Kansas City, Missouri and Lemgo, Germany. These
individuals are suitably qualified experts in their field. Given the depth of
expertise it possesses, the Company is not overly reliant on any single
individual for the completion of any project.
The funding for the projects is derived from the cash generated from the
Company's ongoing activities. The Company also has the ability to raise equity
and/or debt funding to support its development activities.
Ability to measure reliably the expenditure attributable to the intangible asset
during its development
The Company has put in place internal procedures for capturing costs during the
course of its projects. Internal staff costs are calculated based on the
completion of individual timesheets by the participants in the project. Based on
the time ascribed to the project an appropriate percentage of each individual's
salary cost and associated indirect costs is applied to the project. External
costs are captured as part of the Company's purchasing procedures whereby
individual purchases are coded to the relevant project/activity. This ensures
that all purchases are correctly allocated to the appropriate project.
4
SIGNIFICANT PROJECTS
In response to your query, please find enclosed specific details of the
Company's most significant projects. These are contained in Appendices 1 to 4 to
this letter as follows:
-------------------------------------------------------------------------
PROJECT APPENDIX DATE FULLY
CAPITALISED OR
INCOMPLETE
-------------------------------------------------------------------------
UniGold HIV Point of Care 1 2005
-------------------------------------------------------------------------
Destiny Max 2 Incomplete
-------------------------------------------------------------------------
HIV Western Blot 3 Incomplete
-------------------------------------------------------------------------
Tri-Stat Point of Care A1c 4 Incomplete
-------------------------------------------------------------------------
Details of these projects have been provided as in total they are the four most
significant projects undertaken by the Company and cumulatively represent 58% of
the amount capitalised as at December 31, 2006.
Each of the above appendices contains a description of the activity and the
method by which the projects were determined to have met the criteria contained
in paragraph 57 of IAS 38. In the case where the project was not complete as of
December 31, 2006 details of the estimated remaining effort and cost thereof
have been included. Of the remaining projects which account for 42% of the costs
capitalised 41% was in respect of projects which were completed as of December
2006. The remaining 59% was in respect of projects which were incomplete as at
December 31, 2006. In all cases these projects represent the development of new
or substantially improved diagnostic products. With respect to those projects
which were not complete as at December 31, 2006 they are expected to be
completed by December 31, 2009. The total expected cost to complete these
projects is approximately $4 million.
26. BUSINESS COMBINATIONS
2006 ACQUISITIONS, PAGE 96
2. TO ASSIST US IN EVALUATING, FOR US GAAP PURPOSES, YOUR ACCOUNTING FOR THE
HAEMOSTASIS PRODUCT LINE ACQUIRED FROM BIOMERIEUX AS A BUSINESS COMBINATION
UNDER SFAS141 RATHER THAN AS AN ASSET ACQUISITION, PLEASE PROVIDE US AN ANALYSIS
UNDER PARAGRAPH SIX OF EITF 98-3 TO DEMONSTRATE HOW THE HAEMOSTASIS PRODUCT LINE
CONSTITUTES A BUSINESS. YOUR ANALYSIS SHOULD INCLUDE A LIST OF INPUTS, PROCESSES
AND OUTPUTS THAT WERE TRANSFERRED IN ORDER TO CONTINUE NORMAL OPERATIONS AND
SUSTAIN A REVENUE STREAM. IF ANY ELEMENT OF INPUTS, PROCESSES AND OUTPUTS AS
LISTED UNDER EITF 98-3 IS MISSING PROVIDE US A DISCUSSION AS TO HOW THE MISSING
ELEMENT IS NOT REQUIRED IN CONTINUING NORMAL OPERATIONS.
TRINITY BIOTECH PLC RESPONSE
The Company has accounted for the June 2006 acquisition of bioMerieux activities
as a business combination in accordance with the provisions of SFAS141 and
considers
5
this to be a business as defined in EITF 98-3. Assets acquired were inventories,
property plant and equipment and certain identifiable intangibles assets
(customer relationships and acquired technology). In addition, the Company
acquired a significant level of goodwill, calculated as being approximately $21
million. This goodwill is principally attributable to synergies that are
expected to accrue to the Company, largely through an increase in scale, the
potential for product rationalisation and improved operating efficiencies in its
haemostasis activities. The above is summarised in the following table.
- -------------------------------------------------------------------------------
$m
- -------------------------------------------------------------------------------
Total assets acquired 26.0
- -------------------------------------------------------------------------------
Total liabilities acquired (2.6)
- -------------------------------------------------------------------------------
Fair value of net assets acquired 23.4
- -------------------------------------------------------------------------------
Goodwill arising on acquisition 21.0
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Consideration (including acquisition costs) 44.4
- -------------------------------------------------------------------------------
Under the criteria contained in paragraph 6 of EITF 98-3 the acquisition of the
haemostasis activities of bioMerieux is considered to be a business combination.
A summary of the basis of this consideration is given below:
INPUTS
a. Long lived assets, including intangible assets or rights to the use of
long-lived assets
As part of the acquisition the Company acquired the following long-lived
tangible assets
o certain production equipment; and
o an installed instrument base.
The production equipment consists of some of the plant and machinery which were
used by bioMerieux to manufacture the products acquired. The Company has not
acquired the manufacturing premises of bioMerieux, located in Durham, North
Carolina as this facility will continue to be used by bioMerieux for its other
product lines. The absence of the manufacturing premises was considered
insignificant as the plant in Durham, North Carolina did not possess any
particularly unique characteristics and could be replicated in another
haemostasis diagnostics manufacturing facility.
The installed instrument base consists of medical diagnostic instruments owned
by the Company but which are located at customer premises on foot of leasing
arrangements. These represent important assets to the Company as they provide
income, both in respect of leasing the instruments and through the sale of
associated reagents and consumables during the period of the lease.
b. Intellectual property
6
As part the acquisition, bioMerieux transferred the intellectual property
associated with the products to the Company. This included the assignment of a
number of patents. In addition to patent protected technology bioMerieux
provided all of the necessary information required for the production of the
products acquired. The Company has valued the acquired technology as part of the
accounting for this acquisition. For details of further know-how acquired from
bioMerieux see the Processes section below.
c. The ability to obtain access to necessary materials or rights
Under the acquisition agreement, a number of the supply contracts which
bioMerieux had entered into were assigned to the Company. In other cases the
Company was required to put in place its own supply agreements. As the Company
is to manufacture the products in a different location i.e. Bray, Ireland versus
Durham, North Carolina consideration of the use of a different supply network
was appropriate.
d. Employees
A small number of the employees of bioMerieux transferred to the Company
following acquisition. This mainly occurred in the UK and Germany. In such cases
these employees were involved in the direct selling and instrument servicing
aspects of the business. In addition, the Company acquired a small number of
technical personnel who had previously worked in the bioMerieux manufacturing
facility in North Carolina. The Company did not consider it a significant factor
that it did not acquire the full manufacturing work force from Durham as the
Company had already acquired the technical know how associated with the products
thus giving it the wherewithal to establish a workforce in an alternative
location. In addition, the Company did not consider it to be significant that it
did not acquire the full sales force as the characteristics of the existing
sales force was not unique to bioMerieux. Of greater value was the customer
relationships acquired (see below).
PROCESSES
e. The existence of systems, standards, protocols, conventions and rules that
act to define the processes necessary for the normal self-sustaining operations,
such as (i) strategic management processes, (ii) operational processes, and
(iii) resource management processes.
The Company acquired the know-how necessary to manufacture the products
acquired. In particular this included the quality system documentation which
includes
o manufacturing procedures;
o raw material documentation;
o equipment documentation;
o quality control procedures; and
o all other procedures required to meet quality and regulatory standards.
In addition the Company also received
o the full design history files for the products acquired which detailed
the full development and design of the products;
7
o all registration documentation and other regulatory applications.
The above documentation was considered to be the necessary process documentation
to enable the production of these products to be carried out.
The Company took over a limited amount of the bioMerieux strategic management
processes in the form of certain personnel from the manufacturing and sales and
marketing aspects of the business. The Company decided not to acquire the
resource management processes from bioMerieux as these processes could be easily
replicated as evidenced by the fact that all diagnostic companies such as
Trinity Biotech already possess such processes.
OUTPUTS
f. The ability to obtain access to the customers that purchase the outputs of
the transferred set.
The Company acquired Customer relationships in over 30 countries. The Company
was provided with extensive sales information covering all sales to customers by
product over a three year period. In addition, bioMerieux's beneficial interest
in its sales contracts was transferred to the Company. These customer
relationships have been valued as an intangible asset as part of the accounting
for this acquisition.
The Company did not acquire a distribution network as part of the acquisition.
This was not considered to be significant as there is a wide range of
alternative healthcare distributors operating in each of the significant markets
in which bioMerieux had a presence. This fact coupled with the customer
information ensured that any acquirer would have a route to market for the
products acquired. In 29 of the 33 countries in which bioMerieux operated
Trinity uses distributors for its own products (in the other 4 markets the
Company has its own direct selling forces).
CONCLUSION
The Company concluded that under the definition contained in EITF 98-3, the
haemostasis activities acquired from bioMerieux constituted a business and
accordingly applied the provisions of SFAS 141 in accounting for the business
combination. In summary this was based on the following:
1. the nature of the inputs, processes and outputs that were acquired (see
a. to f. above). In particular, in instances where there were any
missing elements the Company determined that these were minor as they
did not constitute sufficiently unique aspects of the business that
would prevent continuing normal operations. In addition, as the
transaction included a significant element of goodwill, it was
possible, in accordance with the guidance provided in EITF 98-3, to
assume that the missing elements were minor.
2. the Company acquired an integrated set of activities governing the
design of a differentiated product line, ability to continue to
manufacture the products in line with regulatory requirements and
access to end users of the products such that the activities would
continue to generate a revenue stream. The Company
8
acquired no single asset which represents such a significant proportion
of the overall assets acquired to suggest that the Company had acquired
an asset rather than a business.
As part of its response to your letter Trinity Biotech plc acknowledges the
following:
o Trinity Biotech plc is responsible for the adequacy and accuracy of
the disclosure in this filing;
o Staff comments or changes to disclosure in response to staff comments
do not foreclose the Commission from taking any action with respect
to the filing; and
o Trinity Biotech plc may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In the event that you have any queries please contact me or my colleague Kevin
Tansley at +353 1 2769800.
YOURS SINCERELY
/s/Rory Nealon
RORY NEALON
CHIEF FINANCIAL OFFICER
TRINITY BIOTECH PLC.
9
APPENDIX 1
PROJECT NAME: UNIGOLD HIV POINT OF CARE ($3,804,000 AS AT DECEMBER 31, 2006)
Nature of the activity
The purpose of this project was to develop a new rapid test for the detection of
HIV in the US market, which would meet FDA approval. It has been designed to be
suitable for use in the point of care market e.g. hospitals and other public
health facilities. The product was designed to be able to test for HIV using
whole blood (vennipuncture and fingerstick), serum and plasma.
This project is now complete. The costs associated with this project were
capitalised during the period from 2001 to 2005.
Capitalisation criteria per paragraph 57 of IAS 38
Technical feasibility of completing the asset so that it will be
available for use or sale
This product is based on the use of lateral flow technology. This is the
same technology used in the Company's UniGold HIV test for the African
market. In 2001 this product was being sold extensively in the African
market and hence the technology was already proven. The purpose of this
project was to develop a more sophisticated version of the UniGold HIV
test specifically with the US market in mind, which would meet FDA
requirements. Consequently, given the same base technology was being
employed, it was possible to determine at an early stage that the project
was technically feasible.
Intention to complete the intangible asset and use or sell it
The project was carried out with a view to it being seen through to
completion and with a view to selling the product in the point of care
segment of the market with the USA being identified as its key market. At
the inception of the project detailed project plans were put in place
outlining how the project would be brought to completion. During the
development phase the Company informed investors and customers of its
intention to develop the product.
Ability to use or sell the intangible asset
Upon completion, it was the Company's intention to launch the product for
sale in the US. During the period of development, the Company built up a
direct sales force in the US. One of the key objectives of this sales
force was to provide a route to market for this product. The stated
Centres for Disease Control (CDC) goals, including the reduction of
annual rate of infection by 50%, have resulted in rapid tests of this
nature being the preferred approach. Given the greater emphasis (and
consequently funding) for the use of rapid testing the Company had
identified a strong market demand for a product of this nature.
10
How the intangible asset will generate probable future economic benefits
At the time the product was being developed it had been assessed that the
market for this product would be approximately $40 million per annum.
Given the high quality and in particular the levels of accuracy
associated with this product, the Company was confident that it would
obtain a significant share of this market.
Since its launch this product has been continuously growing and the
Company has been successful in increasing its market share. In 2006
alone, sales revenues from this product exceeded the total expenditure
that was incurred on the project. With the increased funding being
channelled to HIV testing this is seen as a key growth opportunity for
the Company.
Availability of adequate technical, financial and other resources to
complete the development and use or sell the intangible asset.
The Company staffed this project with a team of internal professionals
who were capable of bringing this project to its conclusion. At various
stages, where required, third parties were also involved in the
development effort. This was particularly true with respect to clinical
trials. Given the importance of this product to the future growth of the
Company this project was prioritised in terms of the level of financial
and technical resources made available to it.
At the time of its development the expected funding for the project was
to come from the cash generated from the Company's ongoing activities.
During this period the Company also had access to equity and loan
capital.
Ability to measure reliably the expenditure attributable to the
intangible asset during its development
The Company put in place internal procedures for capturing costs during
the course of the project. Internal staff costs and associated indirect
costs were calculated based on the percentage of each individual's time
spent on the project. In addition specific external costs which at the
time were identified as being wholly relating to the project were also
capitalised.
11
APPENDIX 2
PROJECT NAME: DESTINY MAX ($3,303,000 AS AT DECEMBER 31, 2006)
Nature of the activity
The purpose of this project is to develop a high throughput haemostasis
instrument. This instrument will be used, in conjunction with existing
diagnostic test kits to conduct tests for blood disorders. It has been designed
to be suitable for use in large scale hospitals and laboratories.
The costs associated with this project were capitalised from 2005 and as of
December 31, 2006 the project was incomplete.
Capitalisation Criteria per paragraph 57 of IAS 38
Technical feasibility of completing the asset so that it will be
available for use or sale
The Destiny Max Instrument is largely based on the technology used in the
Destiny Plus, an existing haemostasis instrument currently being sold by
the Company in the medium throughput market. On the basis that the
technology is already proven the Company was able to determine the
technical feasibility of the project at an early stage in the product
development life cycle. In addition the Company has been successful in
developing a number of prototype devices which, as expected, confirmed
this determination. These prototypes have been recently demonstrated at
the AACC conference for diagnostics companies in San Diego in July of
this year and were well received by customers.
Intention to complete the intangible asset and use or sell it
At inception the Company's intention was to complete the project with a
view to selling the instrument to large hospitals and laboratories. Since
then the Company has announced to investors and customers its intention
to launch the instrument in 2008 and is currently making preparations to
commence the production process at its plant in Lemgo, Germany.
Ability to use or sell the intangible asset
At the time the project was initiated the Company intended that it would
to sell or lease manufactured instruments upon project completion. This
would be achieved through the Company's direct sales forces in 4
countries and an extensive distributor network in a further 75 countries
all of which would serve as outlets for this product.
The initial reaction from customers who have viewed the instrument at the
AACC has been extremely positive and we are confident that the project
will be a significant success. Since the acquisition of the bioMerieux
product line, the Destiny Max has been identified as the natural
successor of the MDA instrument (the bioMerieux high throughput
instrument).
12
How the intangible asset will generate probable future economic benefits
At the commencement of the project it was known that the instrument would
generate future economic benefits for the Company through the commercial
sale of instruments to large scale hospitals and laboratories and the
ensuing sales of reagents and consumables which run on these instruments.
Based on its economic projections at the time the Company determined that
the profits generated would ensure a quick payback (2-3 years) of the
final development costs of the instrument. This assessment was based on
future sales levels, expected gross margins and considered in the context
of the overall expected cost of the project. Specifically it was believed
that the introduction of this instrument would allow Trinity access to
the high throughput sector of the market place which accounts for
approximately 50% of all reagent and consumable sales in the haemostasis
market. Trinity already has an excellent reagent product line in place
which it currently sells to the low and medium throughput markets.
Availability of adequate technical, financial and other resources to
complete the development and use or sell the intangible asset.
From the outset the Company was in a position to staff this project with
a team of internal and external professionals who had previously
developed similar instruments and who were capable of bringing this
project to its conclusion. The funding for the project was expected to be
met by cash generated from the Company's ongoing activities.
Ability to measure reliably the expenditure attributable to the
intangible asset during its development
The Company had in place internal procedures for capturing costs from the
beginning of the project. Internal staff costs were to be calculated
based on the completion of individual timesheets by the participants in
the project. Based on time ascribed to the project an appropriate
percentage of each individual's salary cost and associated indirect costs
was to be applied to the project. External costs were to be captured as
part of the Company's purchasing procedures whereby individual purchases
would be coded to the relevant project/activity. This was to ensure that
all purchases would be correctly allocated to the appropriate project.
Remaining efforts to complete
As at December 31, 2006 this project was not complete. The following were the
key aspects of the project which remained to be completed at that date
o Finalisation of the design of the instrument;
o Final validation of the operation of the instrument;
o Preparation of and submission of regulatory documentation, including a
submission to the FDA which will be based on equivalence to the
existing range of Destiny instruments.
13
It is expected that the above activities will be completed during 2008 with a
cost of approximately $3.5 million over and above that already incurred up to
December, 31 2006.
14
APPENDIX 3
PROJECT NAME: HIV WESTERN BLOT ($2,135,000 AS AT DECEMBER 31, 2006)
Nature of the activity
The purpose of this project is to develop a Western Blot based test for
detecting antibodies to HIV. The product is specifically designed to be used as
a confirmatory test (as opposed to an initial screening test).
The costs associated with this project were capitalised from 2002 and as of
December 31, 2006 the project was incomplete.
Capitalisation criteria per paragraph 57 of IAS 38
Technical feasibility of completing the asset so that it will be
available for use or sale
The product is based on an existing Western Blot methodology which the
Company employs in other products in its current range. The Company is
also a proven expert in the field of HIV diagnosis with its existing
point of care product range. The Trinity Biotech manufacturing operation
in Carlsbad, California has a long history in Western blot products.
Given that the Company was using already proven technology in this
project it was able to determine at an early stage that the project was
technically feasible. The project, at the time of this letter, is nearing
completion. The Company intends to obtain FDA approval in early 2008 and
commence sales thereafter.
Intention to complete the intangible asset and use or sell it
At inception the Company's intention was to complete the project with a
view to selling the test kit to bloodbanks, large hospitals and
laboratories. An Investigational New Drug (IND) application was completed
and submitted to the CBER division of the FDA in June 2004 and this
application was approved in September 2004.
Clinical trials and product validation are planned in 2007. The Company's
intention is to launch the test kit in 2008 and is currently making
preparations to commence the production process at its plant in Carlsbad,
California.
Ability to use or sell the intangible asset
At the time the project was initiated the Company intended that it would
to sell the product to bloodbanks, large hospitals and laboratories. This
would be achieved through the Company's direct sales forces in 4
countries and an extensive distributor network in a further 75 countries
all of which will serve as outlets for this product.
How the intangible asset will generate probable future economic benefits
15
At the commencement of the project it was known that the product would
generate future economic benefits for the Company through the commercial
sales of the kits to bloodbanks, large sale hospitals and laboratories.
Based on its economic projections at the time the Company determined that
the profits generated would ensure a quick payback (within 2 years) of
the final development costs of the product. This assessment was based on
future sales levels, expected gross margins and considered in the context
of the overall expected cost of the project. It had been estimated that
the annual market for these kits is 500,000 confirmatory kits of which
Trinity expects to attain a significant share. There is currently only
one other Western Blot HIV test in the market.
Availability of adequate technical, financial and other resources to
complete the development and use or sell the intangible asset.
From the outset the Company staffed this project with a team of internal
and external professionals with previous expertise in Western Blot
technology and HIV detection and who would be capable of bringing this
project to its conclusion. The Company is currently at the clinical
trials stage and the project is nearing completion.
The funding for the project was expected to be met by cash generated from
the Company's ongoing activities.
Ability to measure reliably the expenditure attributable to the
intangible asset during its development
The Company had in place internal procedures for capturing costs from the
beginning of the project. Internal staff costs were to be calculated
based on the completion of individual timesheets by the participants in
the project. Based on time ascribed to the project an appropriate
percentage of each individual's salary cost and associated indirect costs
was to be applied to the project. External costs were to be captured as
part of the Company's purchasing procedures whereby individual purchases
would be coded to the relevant project/activity. This was to ensure that
all purchases would be correctly allocated to the appropriate project.
Remaining efforts to complete
As at December 31, 2006 this project was not complete. The following were the
key aspects of the project which remained to be completed at that date
o Finalisation of the design of the Western Blot test;
o Final Product Validation;
o Completion of clinical trials followed by the preparation of and
submission of regulatory documentation, including a submission to the
FDA.
It is expected that the above items will be completed during 2008 with
additional cost of c.$1,000,000 over and above that incurred up to December 31,
2006.
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APPENDIX 4
PROJECT NAME: TRI-STAT POINT OF CARE A1C ($1,269,000 AS AT DECEMBER 31, 2006)
Nature of the activity
The purpose of this project is to develop a compact instrument for the detection
of A1c. This instrument will be used, in conjunction with single use disposable
reagents, to conduct tests for diabetes. It has been designed to be suitable for
use in the point of care market e.g. diabetes clinics and doctors' surgeries.
The costs associated with this project were capitalised from 2005 and as of
December 31, 2006 the project was incomplete.
Capitalisation criteria per paragraph 57 of IAS 38
Technical feasibility of completing the asset so that it will be
available for use or sale
The Tri-stat instrument uses the Company's existing HLPC Boronate
affinity methodology which is employed in products already being sold by
the Company to the laboratory based market. On the basis that the
technology was already proven in the laboratory market the Company was
able to determine the technical feasibility of the project at an early
stage. In addition, the Company has been successful in developing a
number of prototype devices which, as expected, confirmed this
determination. The Company is currently in the 510K submission to the FDA
phase of the project.
Intention to complete the intangible asset and use or sell it
At inception the Company's intention was to complete the project with a
view to selling the instrument to the point of care segment of the market
e.g. diabetes clinics and doctors' surgeries. Since then the Company has
announced to investors and customers its intention to launch the
instrument during quarter 4, 2007 and is currently making preparations to
commence the production process at its plant in Kansas City, Missouri.
Ability to use or sell the intangible asset
At the time the project was initiated the Company intended that it would
to sell manufactured instruments and associated single use tests. This
would be achieved through the Company's direct sales forces in 4
countries and an extensive distributor network in a further 75 countries
all of which will serve as outlets for this product. The Company had
identified a strong market demand for a product of this nature. Based on
feedback from market participants the Company was confident that the
project would be successful.
How the intangible asset will generate probable future economic benefits
17
At the commencement of the project it was known that the product would
generate future economic benefits for the Company through the commercial
sales of instruments to the point of care market and the ensuing sales of
reagents which will run on these instruments. Based on its economic
projections at the time the Company determined that the profits generated
would ensure a quick payback (within 2-3 years) of the final development
costs of the instrument. This assessment was based on future sales
levels, expected gross margins and considered in the context of the
overall expected cost of the project. It had been estimated that the
annual market for such products would be approximately $150 million.
Specifically it was believed that the introduction of this instrument
would open access to the point of care portion of the market, which the
Company had not operated in to date. Based on the Company's current
estimates the Company is confident that it will be in a position to sell
the instrument at a very competitive price which will ensure the
commercial success of the product. The Company is also confident of
getting Home Use CLIA waiver from the FDA which will significantly
increase the reimbursement rate available to physicians over that
available in respect of the principal competitor product.
Availability of adequate technical, financial and other resources to
complete the development and use or sell the intangible asset.
From the outset the Company staffed this project with a team of internal
and external professionals who would be capable of bringing this project
to its conclusion. The funding for the project was expected to be met by
cash generated from the Company's ongoing activities.
Ability to measure reliably the expenditure attributable to the
intangible asset during its development
The Company had in place internal procedures for capturing costs from the
beginning of the project. Internal staff costs were to be calculated
based on the completion of individual timesheets by the participants in
the project. Based on time ascribed to the project an appropriate
percentage of each individual's salary cost and associated indirect costs
was to be applied to the project. External costs were to be captured as
part of the Company's purchasing procedures whereby individual purchases
would be coded to the relevant project/activity. This was to ensure that
all purchases would be correctly allocated to the appropriate project.
Remaining efforts to complete
As at December 31, 2006 this project was not complete. The following are the key
aspects of the project which remained to be completed at that stage.
o Finalisation of the design of the instrument;
o Final Validation of the operation of the instrument;
o Completion of clinical trials followed by the preparation of and
submission of regulatory documentation, including a submission to the
FDA.
18
It is expected that the above items will be completed during 2007 with
additional costs of $0.5 million over and above that incurred up to December 31,
2006.
19