SEC Company Response from TRINITY BIOTECH PLC (TRIB) (CIK 0000888721) (TRIB) — Sep 28, 2007
TRINITY BIOTECH PLC (TRIB) (CIK 0000888721)
Date: Sept. 28, 2007 · CIK: 0000888721 · Accession: 0000910662-07-000456
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 000-22320
Referenced dates: August 24, 2007
Letter
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
Show Raw Text
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<TEXT>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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