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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
Montreal, Quebec H3M 3A2
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
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
Peoples 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
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
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