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Operator
Welcome to the AngioDynamics fiscal 2006 second quarter conference call. At this time all participants are in a listen-only mode. Following management's prepared remarks we will hold a Q&A session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today, December 19, 2005.
I would now like to turn the conference over to Jennifer Chase. Please go ahead.
Jennifer Chase - Marketing Communications Manager
Thank you. This is Jennifer Chase with AngioDynamics. Thank you all for participating in today's call. Joining me this afternoon from AngioDynamics are Eamonn Hobbs, President and Chief Executive Officer; and Joseph Gerardi, our Chief Financial Officer.
Earlier today AngioDynamics announced financial results for the second quarter of fiscal year 2006, which ended on November 26, 2005. If you have not received this news release or if you would like to be added to the Company's distribution list, please call Lippert/Heilshorn in New York at 212-838-3777 and speak with Nadia Fortilla (ph).
This call is being broadcast live over the Internet, and a recording of the call will be available for the next twelve months on the Company's Website at www.AngioDynamics.com. Instructions for listening to the replay are contained in today's news release. This call will follow the standard format, beginning with prepared remarks by management, and then we will open up the call to your questions.
Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risk and uncertainties regarding operations and future results of AngioDynamics. I encourage you to review the Company's past and future filings with the Securities and Exchange Commission, including without limitation the Company's Forms 10-K and 10-Q, which identify specific factors that may cause actual results for events to differ materially from those described in the forward-looking statements.
The contents of this conference call contain time-sensitive information that is accurate only as of the date of the live broadcast, December 19, 2005. AngioDynamics undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. With that said, I would like to turn the call over to Eamonn Hobbs.
Eamonn Hobbs - President and CEO
Good afternoon, everyone, and thank you for taking the time to participate in our second quarter financial results conference call. I am very excited about our fiscal second quarter financial performance, especially our record-breaking quarterly sales of $18.7 million. Our strong revenue growth of 30% is primarily due to robust sales from the Company's newest products, along with continued market share gains across our entire diversified product portfolio.
Our operating profit and gross profit were up 34% and 35%, respectively, over the second quarter of fiscal year 2005. Our gross profit margin reached 58%. Net earnings were up 60%, and our diluted earnings per share were at $0.13, up 44% compared to the same period last year.
We are very pleased with our second quarter results and anticipate several events that will continue to drive this momentum for the remainder of our fiscal year.
Before I give some color on the quarter and detail on our plans to support future growth, I will turn the call over to Joe Girardi, our CFO. Joe is going to share with you our financial results for our fiscal second quarter.
Joe Gerardi - CFO
I would also like to thank everyone for participating in today's conference call. This is a particularly gratifying quarter for us in terms of sales performance, as well as income, operating profit and gross profit improvements. I will comment on the results of the fiscal second quarter and six months ended November 26, 2005. I will present the highlights of the income statement and discuss how some of our key product lines have performed.
As Eamonn indicated, our net sales for the second quarter increased a solid 30% to $18.7 million, up from $14.4 million in the second quarter fiscal 2005. This increase reflects our strong growth across our newest product lines along with continued gains across our diversified product portfolio. All of the revenue gains were due to increase in unit sales volume.
Gross profit for the quarter was up 35% to $10.8 million compared with gross profit of $8 million for the prior year second quarter. Gross profit margin for the quarter was 58%, up from 56% in the comparable quarter in 2005. Favorable product mix resulted from increased sales of higher margin products including our Morpheus CT PICC, VenaCure disposal kits and EvenMore catheters accounted for all of the 200 basis point improvement.
Operating profit for the second quarter increased 34% to $2.4 million compared with $1.8 million for the second quarter of 2005. The operating profit increased to 13% of net sales, up from 12% in the second quarter of 2005. Selling, general and administrative expenses for the second quarter totaled $6.9 million or 37% of net sales, slightly above our guidance of 35 to 36%.
Non-reoccurring consulting fees incurred in conjunction with our initial efforts to comply with Section 404 of the Sarbanes-Oxley Act comprised $50,000 of this amount. Also, a one-time training expense incurred as part of our conversion to a new business enterprise system totaled another $50,000 of the increase. As revenues improve through the year, we expect the percentages will fall in line with annual guidance. This represents a 34% increase from SG&A expenses of $5.1 million in the prior year second quarter.
R&D expenses was $1.5 million or 8.3% of net sales for the current quarter compared to $1.1 million or 7.8% of net sales recorded in the 2005 second quarter. Overall, we expect R&D expenses to drop as a percent of sales in the upcoming quarters, which will bring us in line with our guidance of about 8.5%.
The effective tax rate for 2006 -- quarter was 37% compared with 43% for the second quarter of 2005. The decrease is attributed to the use of R&D tax credit carryforwards and contribution carryforwards during the quarter. We expect our effective tax rate for the fiscal year to be approximately 37% of the taxable income.
Taking a look at the bottom line, net income for the fiscal quarter was $1.7 million or $0.13 per diluted share. Compared with the prior year, this represents a 60% increase in net earnings and a 44% increase in diluted earnings per share.
We will continue to break out sales by product category on an annual basis. However, I would like to give you some insight into the performance of our premier product segments compared with the fiscal 2005 quarter.
Angiographic products increased 18% from the second quarter of fiscal 2005, with sales of $5.2 million for the second quarter of fiscal 2006. Sales of our hemodialysis product rose 24% or $960,000 over the prior year second quarter to $4.7 million. The Dura-Flow and EvenMore product dialysis catheters were responsible for essentially all of the increase in the hemodialysis product sales for the fiscal 2006 quarter.
Sales of our image-guided vascular access line increased, which includes our Morpheus CT PICC, was up 103% to $2.9 million compared with the 2005 fiscal second quarter. Morpheus CT PICC continues to be an important contributor of our net sales, contributing $2 million to the topline in the fiscal second quarter.
Sales of our VenaCure products grew 46% to $2.7 million, an $847,000 increase over the prior year second quarter. During fiscal 2006 second quarter we sold 27 lasers, which brings our total lasers sold in the field to 332. Sales of disposable kits increased 109% with -- to $1.9 million compared to the fiscal 2005 second quarter.
As of November 26, 2005, cash and short-term investments were $27.5 million, a decrease of $1.3 million during the fiscal quarter of 2006. This was due to a $1.5 million installment payment to obtain exclusive licensing rights to distribute Sotradecol from Bioniche Pharma Group Limited. Eamonn Hobbs will discuss the distribution agreement later in the conference call.
For the six months ended November 26, 2005 net sales were $35.1 million, up 28% from $27.5 million for the comparable 2005 period. The increase was due to expanded sales across our diversified product line, most notably, the Company's Morpheus CT PICC and VenaCure products.
Net income for the 26 week period ended November 26, 2005 was $2.9 million, up 64% from net income of $1.8 million in the comparable fiscal 2005 period. And diluted earnings per share increased to $0.23 from $0.15 for the prior year period.
Gross profit for the six months ended November 26, 2005 was $20.3 million or 58% of net sales compared with $15 million or 55% of net sales in the comparable period of 2005. Our cash flows were quite strong. We generated $2.4 million in cash from operation for the six months ended fiscal 2006 compared to $1.3 million for the same period last year.
With that summary, I would like to turn it back to Eamonn.
Eamonn Hobbs - President and CEO
We are very excited about our second quarter results in progress to date. I am especially proud of our record-breaking quarterly sales of $18.7 million for the current quarter. Sales growth from the Company's newest products in conjunction with marketshare gains across our diversified product line have contributed to our outstanding financial performance for the fiscal second quarter. We have made some significant strides during the current quarter, and this afternoon I would like to touch on some of the highlights.
The Company's broad line of angiographic catheters continues to grow at a double-digit rate, 18% over the prior year second quarter, contributing $5.2 million to the topline. The Mariner, our newest hydrophilic coated catheter, experienced almost $250,000 in sales, an increase of 68% for this fiscal second quarter compared to the same quarter last year. Our Soft-Vu and Sizing Catheters continue to show strong sales with $2.1 and $1.7 million in sales, respectively. We expect sales of the Mariner catheter to continue to increase significantly.
We're also very pleased with the $4.7 million in sales from our hemodialysis products, an increase of 24% or $906,000 compared to the same period last year. Both the Dura-Flow and EvenMore chronic dialysis catheters contributed significantly to this increase in the 2006 fiscal second quarter, and we believe they will continue to be strong performers for us.
Sales of our image-guided vascular access products increased $1.5 million for the past quarter to $3 million compared to $1.5 million for the same period last year. As Jill mentioned, sales of the Morpheus CT PICC contributed significantly to our overall growth in the second quarter. The uptake for our Morpheus CT PICC continues to be extremely strong with sales reaching $1.9 million for the fiscal second quarter.
The Morpheus CT PICC continues to receive excellent reviews from our physician customers, the interventional radiologists and vascular surgeons. Sales of the Morpheus CT PICC have outperformed our initial projections for the current quarter, and we anticipate that we will continue to have strong sales of the Morpheus CT PICC going forward.
Our VenaCure product line for the treatment of varicose veins continues to be a strong contributor to our top and bottom line. VenaCure contributed $2.7 million in our second fiscal quarter compared to $1.8 million in the same period last year, a 46% increase over the second quarter of fiscal 2006.
We sold 27 lasers in the fiscal second quarter, and our sales of our disposable kits, which provide a source of high margin recurring revenues, more than doubled over the second quarter of fiscal 2005. The 27 new laser systems sold in the current fiscal quarter is comparable to the 26 lasers sold in the second quarter of fiscal 2005. We have sold 332 lasers to date.
We continue to be excited by the quick uptake of our high-performance VenaCure disposable procedure kit. We experienced almost a $1 million increase in our VenaCure procedure kit sales in the fiscal second quarter of 2006 compared with the fiscal second quarter of 2005, which represents a 109% increase quarter over quarter. We foresee that our laser sales will continue to generate significant kit revenue going forward.
We continue to increase our gross profits, which were up 35% for the fiscal second quarter. We remain focused on maintaining high gross profit margins, which increased 200 basis points over the prior year quarter to 58%.
We are committed to expanding our sales force. We currently have 56 field sales professionals, including 47 sales territory managers, two specialty sales representatives and seven regional managers. We added one new sales territory this quarter, for a total of nine new sales territories since the second quarter of fiscal 2005.
We plan to add four more field sales representatives this fiscal year, for a total of 53 sales reps and seven regional managers by May 2006. We plan to increase our total number of dedicated field sales reps to 70 by 2008.
In order to expand our reach in the vein therapy marketplace, we announced on October 18, 2005 an agreement with Bioniche Pharma Group limited to distribute the drug Sotradecol for the treatment of small, uncomplicated varicose veins. The first commercial sale of Sotradecol took place earlier this month.
The distribution agreement gives AngioDynamics exclusive rights to market and distribute Sotradecol to interventional radiologists, vascular surgeons and general surgeons in the United States. Sotradecol is only FDA-approved sodium tetradecyl sulfate injection in the United States. Sotradecol has been shown to be an effective treatment of small, uncomplicated varicose veins in the lower extremities, such as spider veins.
It is used in sclerotherapy, a nonsurgical procedure to ablate veins. And estimated 1.7 million patients undergo sclerotherapy each year in the United States. We estimate that the current annual USA market for Sotradecol is in excess of $30 million in our exclusive field of interventional radiology and vascular and general surgery, with this market expected to grow to over $50 million by 2010.
There is only one other FDA-approved sclerosing agent, sodium morrhuate, which is very seldom used to do to its relative poor performance. Since Sotradecol is only physician-preferred sclerosing agent with FDA approval, we believe it will allow us to dominate the vein sclerosing marketplace in our field.
Sotradecol was marketed by Wyeth successfully in the United States for over 40 years until Wyeth discontinued the product in 1999, due to manufacturing issues. The Sotradecol name has tremendous brand awareness and is considered to be a superior sclerosing agent that is readily recognized by physicians. The return of Sotradecol to market has been anticipated by physicians, and we believe we will be in a strong market position as the exclusive source of Sotradecol for our customers in the United States.
Furthermore, we believe that we're at least two years away from potential competition with another Sotradecol-like drug, due to the manufacturing requirements for an FDA/GMP-approved sterile facility as well as the active pharmaceutical ingredient standard set by Bioniche Pharma Group, Limited.
The contract has an initial term of seven years and requires payment of a non-refundable fee of $2.3 million, of which $1.5 million has been paid. The balance of $800,000 is due at the end of February 2006. The contract also contains provisions for minimum annual purchase requirements. We anticipate maintaining a minimum of 50% gross margin on the Sotradecol product.
For the future, we're working to optimize our patented precision slit catheter technology for the delivery of Sotradecol for potential use in ablation of larger veins, including the great saphenous vein, which would expand the use of Sotradecol and the vein treatment market overall.
On Friday, December 16, 2005 we fully launched the TOTAL ABSCESSION general drainage catheter, which is designed to percutaneously drain abscesses and other fluid collections. The TOTAL ABSCESSION drainage catheter is available immediately for distribution in the United States and worldwide.
The TOTAL ABSCESSION catheter features a tamper-resistant locking mechanism known as the VAULT. This unique feature eliminates additional procedures to replace drainage catheters when the locking pigtail shape becomes unlocked during routine catheter maintenance. We believe that the VAULT locking mechanism represents significant value to both physicians and patients in terms of decreasing position time and improving patient comfort. The TOTAL ABSCESSION catheter permits aspiration while the pigtail is in either the locked or unlocked position, allowing the physician accuracy in placement and greater versatility for draining complex situations.
The physician response to the TOTAL ABSCESSION catheter was very favorable throughout our test markets. The VAULT locking mechanism was well-received and is seen as a clear improvement over existing devices. The TOTAL ABSCESSION catheter reflects our continued dedication and commitment to providing new, innovative improvement solutions to our physician customers, and we are very excited that this new catheter is now available worldwide.
Another new product, the Profiler PTA Balloon Catheter, was introduced into test markets during our fiscal second quarter, and the feedback to date has been very positive. We intend to release this new product to the national market in the near future.
I would like to now turn to the VNUS patent infringement lawsuit related to the VenaCure laser products. October 12, 2005, AngioDynamics and Vascular Solutions were added to a patent infringement suit originally filed by VNUS Medical Technologies, Inc., in the United States District Court for the Northern District of California, against Diomed, Incorporated.
The suit involves four patents principally related to endovascular treatment of varicose veins with RF technology and alleges infringement by the AngioDynamics VenaCure laser product. On December 9, 2005 we filed an answer to the complaint, denying the allegations of the VNUS complaint and setting forth our position that AngioDynamics does not infringe the patents in question and that the patents are invalid. We strongly believe that the patents cannot be enforced against our VenaCure products, and we plan to vigorously defend our position.
At this time I would also like to provide an update on the Diomed lawsuit. The Diomed vs. AngioDynamics lawsuit concerning the Navarro 777 (ph) patent is continuing as expected. Motions for summary judgment are due in late December, and typically reply briefs are submitted within a few months. If the judge determines that he can resolve the case on summary judgment, then the case may be decided by the middle of next year. If the judge determines that the case needs to go to trial, then we anticipate a trial could possibly occur by late summer of 2006.
biolitec, Inc., the supplier of our lasers, laser fibers and technology used in our VenaCure laser systems under a supply and distribution agreement, has notified us that it believes that is not required to indemnify AngioDynamics with respect to the patent infringement lawsuits filed against us by Diomed and VNUS.
We have been paying a premium to biolitec for these products, primarily in return for the indemnification provisions in the supply agreement covering third-party patent infringement actions, and we believe that biolitec's position is wrong. We're in discussions with biolitec management within the goal of avoiding a breach of contract and subsequent legal action to enforce our rights under the agreement.
Looking ahead, we're optimistic about the rest of this fiscal year and beyond. We are reiterating our financial guidance for fiscal year 2006 provided on October 18, 2005, and anticipate that our discussions with biolitec will not affect this financial guidance.
We expect net sales growth to exceed 26%, to (ph) at least $76 million compared with fiscal 2005. Year over year net income growth is expected to exceed 48%, to $6.7 million, which includes anticipated one-time charge totaling $366,000 net of income taxes to be incurred in conjunction with the Company's requirements to comply with Section 404 of the Sarbanes-Oxley Act of May 2006.
Without the effect of these one-time expenses, net income would be expected to reach $7.1 million or 56% net income growth from fiscal 2005. R&D and SG&A expenses should continue to be approximately 8.5% and 35% of net sales, respectively. The Company expects its effective tax rate to be approximately 37% for the fiscal year of 2006.
Gross profit margins have increased nicely according to our plans, and we see gross profit margins increasing in fiscal 2006 by at least 200 basis points, continuing on our goal to achieve gross profit margins in the low to mid-60% range by 2008.
As a final topic, I want to highlight our upcoming industry and investment conference calendar. On January 31, 2006 we will be presenting at the Brean Murray & Company Small Cap Institutional Investor Conference at the Grand Hyatt New York, in New York City. The conference runs January 31 through February 1 of next year.
We will also be participating in three important industry conferences, the Association for Vascular Access in Savannah, Georgia from January 12 through the 14; the International Symposium on Endovascular Therapy in Miami Beach, Florida from January 22 through 26; and the American Venous Forum in Miami, Florida from February 22 through 26.
That ends our formal remarks. Operator, we would like now to open the call to questions.
Operator
(OPERATOR INSTRUCTIONS). Phillip Nalbone with RBC.
Phillip Nalbone - Analyst
First, just a housekeeping question for Joe regarding the tax rate. I believe that the Company's previous guidance for the tax rate for the year was around 39%. Can you tell us what the variance is and why it's now expected to be a couple of points lower?
Joe Gerardi - CFO
Yes. We were able to utilize some R&D credits as well as some valuation credits that are going to bring us down to 37%.
Phillip Nalbone - Analyst
And is that a number for the year or for the next --
Joe Gerardi - CFO
Yes, it is.
Phillip Nalbone - Analyst
Okay, for the full year on a blended basis. Great. Eamonn, perhaps you can give us a little bit more color on the biolitec indemnification issue. Number one, what makes you believe that you will be able to sustain the indemnification clause? And number two, if not, what would be the likely impact on the numbers going forward? Have you tallied up what the litigation expense might be if you had to bear it on your own, and are there offsets to that?
Eamonn Hobbs - President and CEO
We are very confident that we are going to continue to be indemnified by biolitec, because in our contract reviews to date it's very clear to us that biolitec is contractually obligated to provide indemnification. And we pay quite a premium for that; in fact, if we were forced to purchase our components elsewhere at competitive prices, would be quite capable of more than making up for any shortfalls on legal expenses with the increased gross margin that is available to us.
Phillip Nalbone - Analyst
And what would that suggest in terms of any potential disruption in the leg vein business? If you needed to switch vendors, how readily available would alternative technologies the?
Eamonn Hobbs - President and CEO
They are quite readily available, and we don't anticipate any disruption in our ability to continue to grow that business and service our existing customers.
Phillip Nalbone - Analyst
And based on your efforts to negotiate this with biolitec, when would you expect to have some better visibility or a resolution to this issue?
Eamonn Hobbs - President and CEO
Well, this is a pretty acute issue. It hasn't been with us very long, so we're not very far along at all in our negotiations. In fact, our face-to-face negotiations have yet to begin, and hopefully will start this week. But we would anticipate that hopefully by our next conference call we would have this issue long behind us.
Phillip Nalbone - Analyst
Great. One more question and I will go back into the queue. Eamonn, I think you indicated that the market opportunity among the physicians in your call point for Sotradecol is $30 million. You seem to believe that you could capture a lion's share of that market with the only FDA-approved Sotradecol. Could you give us some sense of when you expect to achieve that level of penetration and when it would be likely to show up in the numbers?
Eamonn Hobbs - President and CEO
Well, you are right on as far as the market size being a little north of $30 million currently for our exclusive field for Sotradecol. We just initiated sales of that product in early December, so we're looking to put at least a couple of months under our belt before we feel comfortable enough to provide any guidance going forward, because at this stage it really is a function of how fast we can convert the market from the substitutes that it has been using to our legally available product. And we really don't anticipate having any competition while we do that.
So I hate to hedge at this point, but it's really too early in the game to offer any sort of definitive dates as to when we can get a lion's share of that $30 million marketplace.
Phillip Nalbone - Analyst
Can you give us a sense of how sensitive your topline planning is for fiscal 2006 to the Sotradecol rollout? In other words, does your guidance already incorporate some degree of conversion?
Eamonn Hobbs - President and CEO
Our guidance incorporates very little of the Sotradecol, as we really did not feel comfortable putting that into our guidance at that time. We still don't. That may change after this quarter, our first quarter of selling that product; we'll have to wait and see.
Operator
Jayson Bedford with Adams, Harkness.
Jayson Bedford - Analyst
A few quick follow up questions. First, on biolitec, is there anything new in the case that caused them to take this action? Was there a certain trigger that now, after a few years of distributing product, they now see it differently?
Eamonn Hobbs - President and CEO
Well, it's hard for me to speak for them. We're guessing that since they have been dutifully paying the legal expenses for an extended period of time, the triggering factor may have been the VNUS lawsuit. But as I stated earlier, we have yet to sit down and discuss this with them. So there may be more light shed during those face-to-face meetings.
Jayson Bedford - Analyst
Fair enough. And then just two more positive things, in terms of the demand for Sotradecol, I know it's only been out there for a few weeks here. But is there any way you can kind of frame or potentially quantify the demand that you're seeing out there?
Eamonn Hobbs - President and CEO
Well, the response has been quite positive. There is a pent-up, established market, pent-up demand to fill the established market that has been filled with substitutes that are not FDA approved. And we are very optimistic at this point, but again it's so early -- really, just a few days of sales under our belt. But the reaction so far from the customer base has been strongly positive.
Jayson Bedford - Analyst
And is your entire sales force selling the product now?
Eamonn Hobbs - President and CEO
They are. They are, indeed.
Jayson Bedford - Analyst
And in their pitch, I guess, is VenaCure complementary with Sotradecol? Is that kind of the push you're making?
Eamonn Hobbs - President and CEO
It is very much complementary, if not downright synergistic, in that of all of our VenaCure customers are current or potential Sotradecol users, as is the case for all of VNUS' customers, all of Diomed's customers and all of Vascular Solutions' customers. So this product has the potential to open up a tremendous amount of doors to us to not only sell Sotradecol, but to sell the rest of our diversified product line.
Jayson Bedford - Analyst
And then just on VenaCure, are you seeing more use in the hospital or are you seeing procedures drift out into the office?
Eamonn Hobbs - President and CEO
Definitely a trend towards office-based is continuing. The office-based procedures are between 60 and 70% of the procedures being done today.
Jayson Bedford - Analyst
Just lastly, angiographic catheters up 18% -- clearly, the market is not growing that fast. Is it all due to Mariner, or has there been any kind of competitive disruptions in the market?
Eamonn Hobbs - President and CEO
No. It is definitely not all due to Mariner, although Mariner had a very strong quarter. We saw growth across the board in our angiographic product lines; i.e., the market is definitely not growing at that rate. Approximately half that rate would be the mean of what third parties think the market is growing at. We see our continued strong sales in those lines as clearly market share improvement, and I think that attributable not only to the fact that we have the best products in class but also we pay more attention to that space than any of our competitors do.
Operator
Arnold Kaufman with Brean Murray.
Arnold Kaufman - Analyst
Eamonn, I was wondering if you would follow up a little more, elaborate on your new catheter drain, the TOTAL ABSCESSION drainage catheter. I don't know if you have given out what you project or anything as far as -- I understand the market is about 30 million, but can you give us any idea regarding what you are projecting as the first year of sales or anything like that?
Eamonn Hobbs - President and CEO
We don't, as a rule, give individual product guidance going forward. But to give you some insight into what our expectations are for this product, it's pretty much the same expectation that we have for all our products, product lines, as well, in that we expect to become a market leader. And by market leader, I mean number one in the space.
So the big market share owner at this time is Boston Scientific in the drainage catheter marketplace, with approximately a 70% market share. Our goal is to change that marketshare mix very significantly and to exceed a 35% market share, which should get us into a number one position or very close to it. So between 35 and 40% of that market would be our ultimate goal, and the effort that we are going to put behind that will definitely show results this fiscal year and certainly next fiscal year.
Arnold Kaufman - Analyst
And regarding the Morpheus CT PICC, that seems to be doing very well again; I believe it's up 103%. Is there anything special about that, as far as your marketing (ph) on that? It really seems to be going full force, sales on that?
Eamonn Hobbs - President and CEO
The Morpheus is a runaway winner for us, without a doubt. The reason we're doing so well with that product is the product's performance. It's the only us CT-capable PICC line that really doesn't subtract from the performance of a standard PICC line while offering the significant benefit of being usable for CT injections as well.
The patients benefit from this tremendously because they only need one line instead of two. And the clinicians really benefit both in time and money, in that they have ready access for a contrast-enhanced CT study whenever they want one because the patients with PICC lines already have a CT-capable PICC in-place.
So the primary customer for this product is also right in our sweet spot, in that the PICC lines are primarily placed in these days by interventional radiologists. So that also gives us an advantage, since we spend the majority of our sales time with the interventional radiologists.
Arnold Kaufman - Analyst
One last question; this is probably more for Joe, I guess. Your SG&A -- I believe you said 35% you're looking for. However, in the first and now in the second quarter you actually were kind of above that; I think it was 37 in the first and 36.9 or so in this quarter. Are you still comfortable, confident you can be 35%, you know, bringing it back down, or what should we be looking for?
Joe Gerardi - CFO
If you take the run rate that we are on right now and you annualize that and you look at the revenue base of $76 million, that will help reduce the amount of -- as a percent of sales.
Arnold Kaufman - Analyst
So leverage (multiple speakers), in other words?
Joe Gerardi - CFO
You're going to get leverage from the revenue increase.
Operator
Robert Goldman with KeyBanc.
Robert Goldman - Analyst
I got a couple questions for you. The first is a follow-up to that tax rate question. I don't want to be quibbling about pennies; I am just interested, though, in the thought process. A 200 basis point decrease in tax rate is worth about $0.02 to your earnings per share. And you are, in this guidance, lowering your tax rate guidance by 200 basis points from the prior guidance. But there is no change in earnings per share guidance or the net income guidance. I was just hoping you could take me the through that as far as the thought process.
Joe Gerardi - CFO
There could be a potential leverage with the increase in the tax rate, right now. We have not really modeled it to the point where that level -- we wanted to keep the guidance consistent with the one that we just gave in October. And in the guidance that we gave in October we said it would be about 38% tax rate. So it's down just another percentage on that. And we feel that 37% now is where it will stabilize.
Eamonn Hobbs - President and CEO
But you are quite correct, Bob, in that our guidance is conservative and there is some upside to be had because of the lower tax rate.
Robert Goldman - Analyst
Let me ask one other question, this time on gross margin, which was very good performance. But on greater sequential sales in the second quarter versus the first quarter, the gross margin went down from the first quarter to the second quarter. I'm just trying to think that through and then understand the rationale for the gross margin decline on a sales increase.
Joe Gerardi - CFO
We were going through a conversion of our enterprise software system, so we had reduced the amount of materials on the shop floor going through that conversion. So we will pick up some efficiencies going forward, but we had to reduce the amount of throughput in order to make the cutover (ph) easier.
Robert Goldman - Analyst
Is there a way to quantify that, Joe, on what the impact was on the gross profits in the second quarter?
Joe Gerardi - CFO
I'm sure there is, but I don't have that right for this second -- for this conference call.
Robert Goldman - Analyst
But in any case, you view that as a second quarter anomaly?
Joe Gerardi - CFO
Yes.
Operator
Chris Warren with Janney Montgomery Scott.
Chris Warren - Analyst
A quick question on game plan, if you have one, for enforcing the use of Sotradecol as the only FDA-approved drug.
Eamonn Hobbs - President and CEO
Well, the plan as it stands today is, first off, education. One, we are educating the physician customer base of the benefits of using Sotradecol compared to -- or an FDA-approved Sotradecol that is manufactured to the highest standards and has an extremely pure active pharmaceutical ingredient, compared to some of the Sotradecols they have been using in the past, which would not in any way meet FDA standards.
And that education process is showing great benefits in that the physicians are starting to come around, that it makes absolutely no sense whatsoever to save a few dollars and take the risk of using an illegal drug, illegally imported drug.
Last but not least, the FDA does not take very kindly to physicians using illegal drugs, especially after they have approved a drug. And they have their own enforcement mechanisms, as were demonstrated recently with the veterinary Botox being used by physicians who thought that the drug would be the same and could use a much lower-cost veterinary-grade Botox and get away with it. Those physicians have put themselves in extremely hot water. And those sorts of examples are all too common and all too clear. So the education process also includes some enlightenment that it's just not worth using an illegally obtained drug.
Second, if Wyeth had never discontinued the drug and Sotradecol had continued to be really the only sclerosing agent used up through 1999, on a widespread basis, and we had started to market in the place of Wyeth without any disruption to the marketplace, we wouldn't have these issues. There is no concern from the customer base that Sotradecol is a question in any way regarding its efficacy. So all of our educational endeavors really center around the importance of using FDA-approved, legally obtained drugs to do the procedures that they have been doing.
Chris Warren - Analyst
Thank you; that is helpful. One quick question on your disposable sales for the varicose vein treatment. Is there any reason to think that we wouldn't see above 80% growth in the next quarter or so, as you both continue to increase the actual installed base as well as start to leverage and the physicians will leverage the procedure?
Eamonn Hobbs - President and CEO
Well, we don't give individual product guidance going forward, but we have been exceeding 100% growth on our consumables sales in VenaCure. And I certainly don't see any reason why that's going to change for the worse.
Operator
(OPERATOR INSTRUCTIONS). Nelson Chardon (ph) with Punk, Ziegel.
Nelson Chardon - Analyst
Congratulations again on another record quarter. Two quick questions here. With regards to Sotradecol and the slit-hole catheter, you made some predictions here for the market moving from $30 million to, I believe, $50 million in 2010. Can you put some color around a market that includes the saphenous veins?
Eamonn Hobbs - President and CEO
Well, that would be significantly larger than the forecast $50 million. We didn't include any of that potential upside in that number. That's -- that growth from $30 million up to $50 million in 2010 is a solely for spider veins and other small, uncomplicated varicose veins.
The upside for the use of Sotradecol in larger veins as really a question of how much faster the market can grow with a sclerosing technology for treatment of larger veins than it is currently growing with laser and RF endovascular treatments. We see it as opening up many more clinical sites, potentially, because the monetary overhead necessary to get into the large vein treatment businesses is less with a Sotradecol sclerosing technology in that there's no capital equipment expenditure necessary. So this could really accelerate things.
Having said all that, we don't think anyone is going to throw their laser away at all, because one of the major issues in the marketplace, in all of our medical device marketplaces, will be reimbursement. And until sclerosing of larger veins is reimbursed competitively with laser treatments, we don't see sclerosing cannibalizing the laser market. But it may get people into the market much more quickly than we can with a capital sale that's associated with a laser system.
Nelson Chardon - Analyst
And one other quick question. Any more substance to a particular launch month for the Profiler PTA Balloon Cath?
Eamonn Hobbs - President and CEO
No. We're currently in test market. Those test markets historically have gone anywhere from three months to 12 months. The way Profiler is tracking at this point, I would think it would end up being more towards the three-month side than the 12-month side.
Operator
And with that, ladies and gentlemen, this concludes the Q&A portion of today's conference. I would like to turn the call back over to Eamonn Hobbs for any closing remarks.
Eamonn Hobbs - President and CEO
Thank you. Well, in wrapping up I would like to say this has been a highly successful quarter where, on the financial site, we oversaw a 60% growth in net income, 34% increase in operating profit and a 44% rise in earnings. On the product side we experienced strong growth from the Company's newest products, as well as continued market share extension of our existing products. We also introduced Sotradecol, which we feel will be a strong addition to our product portfolio.
The distinctiveness of AngioDynamics within our industry is a result of our innovation, our diversified product offering and our very strong physician relationships. We look forward to continuing to expand in all these areas in the future. On behalf of AngioDynamics, I want to thank you all for your continued support, and I'm looking forward to seeing some of you at our upcoming conference events. Happy holidays, everyone.
Operator
Ladies and gentlemen, we thank you for your participation in today's conference. This concludes your presentation, and you may now disconnect.