CHATSWORTH, Calif., April 20, 2010 (GLOBE NEWSWIRE) -- IRIS International, Inc. (Nasdaq:IRIS), a leading manufacturer of automated in-vitro diagnostics systems and consumables for use in hospitals and commercial laboratories worldwide, today announced that it has released its Annual Letter to Shareholders in its 2009 Annual Report, which was mailed to Shareholders in advance of its Annual Meeting of Stockholders to be held at the Company's corporate headquarters at 9158 Eton Avenue, Chatsworth, Calif., on Friday, May 14, 2010, at 10:00 a.m. Pacific time. The letter, from Chairman, President and Chief Executive Officer, César García, highlights the achievements and activities of 2009 and early 2010, and planned initiatives and outlook for the balance of the year. The text of the Shareholder Letter follows:
Dear Shareholder:
We are pleased to report that following the resurgence in our iQ®200 instrument revenues and profits reported in the fourth quarter of 2009, we approach 2010 with renewed optimism after a year in which we experienced our first reduction in annual revenues since the launch of our iQ200 urinalysis platform in 2003. The perilous worldwide financial and economic meltdown of 2009, which not only affected IRIS, but most other public and private companies, resulted in the postponement of many hospital capital equipment purchase decisions during the first three quarters of 2009. While it is too early to tell if the uncertain economic landscape for the global capital equipment market is completely behind us, we are confident that the new IRIS product programs and other business initiatives we have put into place, combined with an improving capital equipment spending environment, should result in a gradual improvement of our core urinalysis business and return us to a growth path in 2010, and beyond.
We believe the economic crisis validated the strength of our razor-razorblade business model on which we have based our expansion program, as our recurring revenue stream from consumables and service grew 12% in 2009 and provided significant cash flow, minimizing our downside risk in this adverse economic climate. There are now more than 2600 iQ200 units in the field worldwide, each generating high margin recurring revenue. This installed customer base, combined with our debt-free, cash-heavy balance sheet, provided the basis for the continued investment in our new product developments and strengthening our worldwide marketing efforts for our current products. We have, in fact, invested some $50 million in our new product development pipeline during the past four years and we believe these high growth, high value opportunities will propel revenues and earnings to higher levels in the years ahead, beginning with our anticipated initial roll-outs later this year, while diversifying us into allied areas where our new products have the potential to provide paradigm shifts in medical diagnosis and treatment, and laboratory productivity. The benefit to our medical and research customers and to patients should be profound, with strong financial benefits to our shareholders as well for the risks they have taken in helping to transform the healthcare landscape.
Please permit me to summarize those issues in 2009 that directly affected your company, with the heaviest impact being felt in the first nine months of the year and then alleviating in the fourth quarter. I will then get to the more interesting events which point to the positive future of your company.
To begin with:
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A global reduction in capital equipment funding -- the primary reason for our reduction in revenues and earnings was a sudden drop in capital equipment sales during the first three quarters of 2009. These reductions primarily affected the instrument sales of our Iris Diagnostics Division and small equipment sales of our Sample Processing Division. Although we recovered significant ground in the fourth quarter of 2009, achieving the second best fourth quarter in company history, our fourth quarter performance did not totally offset the significant reduction in capital equipment sales experienced earlier in the year. IVD instruments sales ended 26% below prior year to $26 million, driving down our consolidated revenue 3% compared with the year before. However, it was satisfying to see our Iris Diagnostics Consumables and Service product lines increase 12% in 2009 over 2008, and our Sample Processing Division recovering in the second half and growing approximately 4% for the full year 2009, despite tough economic conditions. It is important to highlight that 2009 revenues grew across all reporting segments except sales of IVD instruments; thus, this revenue reduction does not represent a breakdown in our business model, but is a result of the massive global economic crisis of 2009.
- Uncertainty with the U.S. healthcare reform -- the pending healthcare reform legislation added uncertainty to the healthcare market in 2009 and although it is difficult to quantify its direct monetary impact, it exacerbated the delay in equipment purchases. We believe the recent approval of the U.S. healthcare reform initiative clarifies the scope of the changes in the healthcare system and, in the long term, should benefit IRIS as a result of increasing urinalysis testing with the addition of millions of new patients to the U.S. healthcare system, particularly since the new initiative stresses diagnostics and prevention through early detection for which we are uniquely positioned.
- IVD industry consolidation -- the consolidation of IVD manufacturers that began in 2006 ultimately affected some of our key distributors who saw some of their most important product lines moving to the direct sales channels of the acquiring companies. Thus, with a smaller product portfolio, their ability to economically compete was reduced. Several key distributors therefore had to temporarily downsize their distribution resources, affecting their focus on our product lines. To address this issue, IRIS in 2009 initiated an expansion of its direct sales program in Europe by acquiring its German and UK distribution businesses, to reinvigorate these underperforming territories. This initiative, while initially dilutive, is expected to result in greater direct sales with higher profit margins, and lays the foundation for launching new products in Europe.
- Significant changes in product clearance policies by the FDA -- the implementation of higher hurdles for 510(k) clearances by the U.S. FDA adversely affected the regulatory clearance of our prognostic ultra-sensitive prostate specific NADiA® ProsVue™ assay and our iChem® VELOCITY™ automated chemistry analyzer in 2010. We plan to submit 510(k) applications for these products to the FDA in the second quarter of 2010 and are hopeful that our revised regulatory approaches will prove to be successful in attaining clearance for these significant product opportunities in 2010. U.S. commercialization of these new products will be initiated upon anticipated market clearance during the second half of the year.
- iChem VELOCITY reliability problems -- during the first half of 2009, we encountered significant quality problems with this product, which was launched in the international market in September 2008. We initiated corrective actions and retrofitted affected instruments at a significant cost during the second half of 2009. By the end of the year, we began experiencing much higher reliability and higher product utilization as evidenced by the increased demand for urine test strips and, going into the first quarter of 2010, we experienced very high demand for the iChem VELOCITY from our international distributors.
Despite the challenges faced in 2009, IRIS has continued to generate significant profits, accumulate significant cash and maintain a debt-free balance sheet, even after investing $50 million in new product opportunities over the last four years, and investing in a $15 million stock repurchase program.
We believe IRIS's performance should not be measured solely by the earnings of its current core businesses, as we have been investing heavily in the creation of high growth, high value opportunities, which will diversify IRIS into new and large market segments. Our new product pipeline includes products that will begin to roll-out in 2010, and generate a continuum of new product releases over the next five years, as follows:
Five New Products Launches in 2009 & 2010:
We have continued our emphasis in new product development initiatives and five new products are being introduced between the fourth quarter 2009 and the fourth quarter 2010. This emphasis on new products is reflected in our increased R&D spending. Revenues from the first of these new products should begin to gain momentum during the second half of 2010, and begin to favorably affect our revenues and earnings in 2011, and beyond.
- Morphology and Related Products
- iChem VELOCITY and iRICELL®: Our data collection for a re-submission of the iChem VELOCITY 510(k) is progressing per plan and we are targeting 510(k) submission with the U.S. FDA
of the iChem VELOCITY and iRICELL® urinalysis workstation during the second quarter of 2010, with clearance and initiation of sales in the U.S. planned for the second half of 2010.
- Improved iQ Models: We are planning to globally introduce two new models of our iQ urine microscopy analyzer in the second half of 2010, which will deliver significant workflow enhancements to the laboratory.
- 3GEMS™ Urinalysis and Hematology: Our Next Generation Morphology Program, 3GEMS™, is a platform from which IRIS is developing two separate product lines: a next-generation urinalysis system to succeed the iQ, and a novel hematology image-based product to compete in a large new market segment for IRIS. The 3GEMS hematology is nearing the end of its feasibility stage and we plan to initiate formal product development in earnest in 2010, while at the same time beginning the initial development of the 3GEMS next generation urinalysis platform. As part of this program, we dedicated more resources and have reorganized and expanded our Iris Diagnostics Division Research & Development group to support the simultaneous design of the two new product platforms. Our increased R&D spending in 2010 reflects our commitment to these two important programs. We continue to work with and pursue additional product development partners which add complementary expertise to our R&D teams.
- Molecular Diagnostics
- NADiA ProsVue: Research and development of our NADiA ProsVue ultra-sensitive prostate specific antigen assay was essentially completed in 2007. Since that time, we have been addressing evolving regulatory requirements to attain U.S. clearance of a prognostic claim for the identification of post-prostatectomy patients at low risk of cancer recurrence.
We are pleased to report our pivotal retrospective study of 300 patients, randomly selected from more than 30,000 banked serum specimens, is approaching its final stages. The preliminary results are encouraging and we expect to complete a 510(k) submission with the FDA in the second quarter of 2010. During this prolonged regulatory process, we have strengthened our prognostic claim and we expect to justify a high reimbursement for our NADiA ProsVue assay considering its increased clinical utility and the expected savings in patient treatment costs. We estimate a potential $140 million addressable U.S. market opportunity for NADiA ProsVue, our first NADiA-platform application to be developed and with the smallest addressable market of those we are targeting. We are exploring several potential channels to commercialize our NADiA ProsVue assay in the U.S., which may include a combination of partnerships and direct sales efforts by IRIS.
- NADiA HIV: Our NADiA HIV development has steadily progressed and testing is in process with retained samples obtained from the Institute of Human Virology, Maryland.
- NADiA Her-2/neu: Our NADiA Her-2/neuresearch is in the early stages of development and as a first step we have proven the capability of our Bubble Isolation Technology to reliably capture cancer cells in blood. In conclusion, our investment in molecular diagnostics is resulting in disruptive technology with the development of uniquely differentiated products that will improve patient care and command high value.
- Sample Processing
- Ovatube™: In the fourth quarter of 2009, we initiated the staged roll-out of our Ovatube™ fecal parasite specimen collection and processing device developed by our Sample Processing Division. Although sales will be through our network of independent veterinary distributors, this is the first product being marketed directly to veterinarians by IRIS. The Ovatube addresses a need for a simpler and more precise diagnosis of fecal parasites in domesticated animals; an application that generates 25 million tests annually in the U.S. alone.
- CytoFuge™: Our Sample Processing Division also introduced a new cytological centrifuge, CytoFuge™ 12, in the first quarter 2010. This new product targets the high-volume cytological laboratory, thus increasing the potential sales of a higher value, proprietary disposable specimen concentrator associated with this product application.
In 2009, we reorganized and enhanced several functions within the company. In addition to the reorganization of our Iris Diagnostics R&D, including the appointment of a new Vice President, Research and Development, we reorganized our regulatory affairs team and added a Vice President of Corporate Regulatory Affairs, a newly created position. We also reorganized the commercial organization of our Iris Diagnostics Division, streamlining and investing in the sales and distribution channels in Europe, Asia and Latin America, and added management staff in the U.S. to cope with the longer sales cycles experienced in 2009, a trend we anticipate continuing but plan to mitigate with increased activities related to sales funnel development. I believe we now have a strong, proactive management team in place, focused on the achievement of more predictable business outcomes.
The recent acquisition of our distributor's assets in UK, Ireland and Germany, combined with our successful French direct commercial team, creates a very strong European presence. Although the increase in our international direct commercial organization is dilutive in 2010, we believe this is an initiative of strategic importance because it lays the foundation to increase operating margins over time and provides a direct sales channel for new products, in particular, our NADiA ProsVue. In addition, we replaced our distributors in China and Japan during the second half of 2009, and we are already experiencing active efforts in selling our existing products in these previously underserved large markets. We are establishing stronger ties with our new Asian partners to accelerate the penetration of our existing products in these important markets and to better relate to and serve the local requirements in anticipation of our new products in development.
We continue our efforts to identify potential acquisitions of synergistic companies or product lines, but we will only pursue those with a high potential to accelerate the implementation of our new product initiatives or increase our critical mass and fit our strategy, thus increasing our financial leverage.
IRIS International is a dynamic organization that adapts quickly to the constantly evolving business environment and we have not rested during the bad times. In fact, the recent economic crisis motivated us to realign and streamline our business and build a stronger team. We expect 2010 to bring a gradual economic recovery to our business segment. The expected economic recovery combined with our new product launches gives us confidence in our financial outlook for 2010 and in the future. In spite of our significant investment in new product and expanded commercial initiatives in 2010, we plan to grow earnings between 14% and 20% in 2010, on revenue growth ranging between 8% and 12%.
Finally, we are proud and confident in the continuing growth of our existing product solutions and expect to continue launching new products that advance healthcare with better patient outcomes at reduced cost and higher productivity in the markets we serve.
On behalf of our more than 300 employees, the IRIS management team and Board of Directors, I thank you for your continued confidence in supporting our strategic direction, and look forward to reporting progress in the business initiatives we have undertaken.
Sincerely,
César M. García
Chairman, President & Chief Executive Officer
About IRIS International, Inc.
IRIS International is a leading global in vitro diagnostics company focused on products that analyze particles and living cell forms and structures, or morphology of a variety of body fluids. The Company's products leverage its strengths in flow imaging technology, particle recognition and automation to bring efficiency to hospital and commercial laboratories. The initial applications for its technology have been in the urinalysis market and the Company is the leading worldwide provider of automated urine microscopy and chemistry systems, with an installed base of more than 2,600 systems in more than 50 countries. The Company is expanding its core imaging and morphology expertise into related markets and is developing applications in hematology and urinary tract infections. In addition, the Company is developing molecular diagnostic tests based on its Nucleic Acid Detection Immunoassay, or NADiA®, platform, with applications in oncology and infectious disease. For more information visit www.proiris.com.
SAFE HARBOR PROVISION
This press release contains forward-looking statements made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, the Company's views on future financial performance, market growth, capital requirements, regulatory developments, new product introductions and acquisitions, and are generally identified by phrases such as "thinks," "anticipates," "believes," "estimates," "expects," "intends," ,"plans," and similar words. Forward-looking statements are not guarantees of future performance and are inherently subject to uncertainties and other factors which could cause actual results to differ materially from the forward-looking statement. These statements are based upon, among other things, assumptions made by, and information currently available to, management, including management's own knowledge and assessment of the Company's industry, R&D initiatives, competition and capital requirements. Other factors and uncertainties that could affect the Company's forward-looking statements include, among other things, the following: identification of feasible new product initiatives, management of R&D efforts and the resulting successful development of new products and product platforms; obtaining regulatory approvals for new and enhanced products; acceptance by customers of the Company's products; integration of acquired businesses; substantial expansion of international sales; reliance on key suppliers; the potential need for changes in long-term strategy in response to future developments; future advances in diagnostic testing methods and procedures; potential changes in government regulations and healthcare policies, both of which could adversely affect the economics of the diagnostic testing procedures automated by the Company's products; rapid technological change in the microelectronics and software industries; and competitive factors, including pricing pressures and the introduction by others of new products with similar or better functionality than our products. These and other risks are more fully described in the Company's filings with the Securities and Exchange Commission, including the Company's most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q, which should be read in conjunction herewith for a further discussion of important factors that could cause actual results to differ materially from those in the forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.