Interview with: Jacques Deforges, V.P., Finance & CFO - featuring: their instruments or platforms that laboratories use to perform tests and the reagents or the diagnostic kits that are the consumables for the platforms.

Adaltis Inc. (ADS-TSX)

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Adaltis is an in vitro diagnostic company that has built the plant, launched the products and established the distribution platform in high growth markets in China, Europe and several other emerging markets around the world

Diagnostic Systems

Adaltis Inc.

10,900 Hamon
, Quebec H3M 3A2

Phone: 514-335-9922

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Jacques Deforges
Vice President, Finance & CFO

Interview conducted by:
Lynn Fosse, Senior Editor
July 7, 2006

Jacques Deforges, Vice President, Finance and Chief Financial Officer

Mr. Deforges joined Adaltis Inc. in April 2005.  Prior to joining Adaltis, he served as Vice President and Chief Financial Officer of Celmed BioSciences, a Montreal-based Canadian biopharmaceutical company.  Previously, Mr. Deforges also served as Vice President and Chief Financial Officer of Boomerang Tracking Inc. He also served as Vice President and Corporate Treasurer of Teleglobe Inc. and Senior Manager, Corporate Banking, at National Bank of Canada. Mr. Deforges graduated from the École des Hautes Études Commerciales in Paris, France and later obtained an MBA from Concordia University in Montreal.

CEOCFO: Mr. Deforges, what attracted you to the company, and how has that vision developed over the past year?
Mr. Deforges: “I was attracted by the strategy and the business plan that was put forward by the management of the company. The main driver was to direct the business of the company towards emerging markets, most specifically China, which is a fast growing country.”

CEOCFO: How has that been accomplished over the past year?
Mr. Deforges: “Our strategy is based upon what we call our three pillars; this one was to establish a local high quality manufacturing environment in China, which we completed at the end of 2005; we now have a plant in Shanghai, which is in a producing region. The second pillar was to develop and launch new products to target emerging markets, which we have effectively completed at the end of 2005; early 2006; so we have launched new platforms in new regions. The second one was to establish a sales and marketing distribution in China, which we have also completed during the course of 2005. Therefore, we are now well advanced in establishing our three pillars that will allow us to achieve our goals in becoming a leading provider in emerging markets.”

CEOCFO: Will you tell us about the market in China and the overall competitive landscape; how it is growing and changing?
Mr. Deforges:China is a very different market compared to the US; the US is a very mature global market dominated by big players such as Beckman Coulter or DPC. In China, it is a totally different market, which is characterized by very high growth per year and the immediate growth rate is 25% per year. It is a market driven by a need for better healthcare systems. Therefore, the potential is very attractive for a company like us entering China. The competitive landscape is basically made of local Chinese producers that have generally lower quality products at much cheaper costs. On the other end of the spectrum big players such as Abbott Laboratories (NYSE: ABT) that import products to China, which bring better quality at a very high price. Our positioning is to be a high-quality producer at reasonable prices in China and we will achieve that position thanks to our Shanghai subsidiary.”

CEOCFO: Are the people in China looking for the quality or do they need to be convinced that they should be working with better material and equipment?
Mr. Deforges: “In a country that is experiencing an improvement in the quality of life; there is an increasing need for higher quality products. That is the reason for governmental regulations and the demand of the population. So yes, the revolution is already happening, whether it is an immigration policy towards higher quality products. We are positioning ourselves to be able to produce locally in China, very high quality products as good as the ones manufactured in the western world, but at a much lower cost. We expect to be in position to capture this trend in the market.”

CEOCFO: Is the Chinese government involved in what you are doing?
Mr. Deforges: “The Chinese government is indirectly involved in one of our main shareholders, and actually the largest shareholder of the company is an investment called CITIC Pacific Ltd., which is a conglomerate listed on the Hong Kong stock exchange, ticker CTPCY. Therefore, CITIC Pacific is a very big company in Hong Kong and the Chinese government at a level of about 30% in turn owns CITIC Pacific. Hence, indirectly the Chinese government is indirectly a shareholder of Adaltis and this is very helpful in terms of giving us access to the Chinese market and helping us set up our operations. Last year we announced that that we were granted a contract with the People’s Liberation Army; the Red Army of China for some of our products. Therefore, we have our strategic shareholder and CITIC Pacific is very instrumental in our success in the Chinese market.”

CEOCFO: You are in other foreign markets as well; will you tell us about your reach?
Mr. Deforges: “We are also active in Europe; we have considerable operations in Germany where we sell about 25% of our products. We also are in countries such as Brazil, India, Middle East and South East Asia; we sell in about 75 countries currently. Most of the time we operate through local distributors or partners that help us sell products. We expect that our base will be China, which it will help us to gain market share in these emerging markets as well as established markets. Interestingly enough, our plant in China has received the “CE” mark, which is the European authority certification that allows us to manufacture products in China and sell them in Europe. So it is a unique feature of our company.”

CEOCFO: What are the main products that you are supplying now and how do you see that three or four years down the line?
Mr. Deforges: “We are an in vitro diagnostic company in that we manufacture both instruments or platforms, which are basically the machine that the laboratories use to perform tests on the one-hand. On the other hand we manufacture the reagents or the diagnostic kits that are the consumables for the platforms. Therefore, we develop, manufacture and sell the 2 elements of the systems. This is going to be our core product going forward. We have launched a new product called Eclectica, which is a small, affordable platform that has been designed to fit the needs of the emerging market. We expect that Eclectica will become a very large contributor to our growth in the next two or three years.”

CEOCFO: Will you tell us about the financial picture of the company today?
Mr. Deforges: “The company is going through a transition period. We went public in December 2004 and raised $55 million Canadian through an IPO and over the course of 2004-2005 we have been investing in the plant in Shanghai, in our new products and in our sales and distribution platform. As a result, recently the plant came into operation and new products were launched; so now we are in the process where we are going to see our top line grow faster than it use to do in the past, and that top line increase will drive the profitability. Therefore, we are going to witness a change in our financial performance going from a money-losing situation to hopefully a profitable situation by the end of 2006, early 2007. In March of this year (2006), we did a refinancing of $15 million Canadian of which a third of it was a underwritten by our strategic shareholder, which I believe is evidence of their support of the company. We are fully funded until our cash break-even and hopefully 2007 will be a year of profit.”

CEOCFO: Is reaching potential investors a focus for you?
Mr. Deforges: “Yes, we have increased our efforts in investor relations in general and we have just hired a director of investor relations. We are going to be much more active on that front as we are now going to deliver our results on our business plan. Therefore, it is time to let the news be known by the public and investors in general and indeed we are going to be much more active and try to seek investors who would be interested by the growth potential of Adaltis.”

CEOCFO: In closing, why should investors be interested and what should they realize about the company that might not jump off the page when they first look?
Mr. Deforges: “In a nutshell, for an investor that would look at the company today compared to where it was a year-and-a-half ago around the time of the IPO, the investor would be capable to invest in a much better risk reward company profile. By that I mean that we have built the plant, launched the products, established the distribution platform and yet the stock price has decreased quite a lot since the IPO, so for a $3.00 investment in our stock, you can get a much better company. In addition, to counter Adaltis, with specific to the industry, you will see that we trade at the lowest end of the comps. I cannot find lower multiples in any other comparables; and yet we have a very high growth potential because of China making us a unique investment at this point.”


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“We are positioning ourselves to be able to produce locally in China, very high quality products as good as the ones manufactured in the western world, but at a much lower cost. We expect to be in position to capture this trend in the market.” - Jacques Deforges does not purchase or make
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