Becton Dickinson and Co (BDX) 2007 Q2 法說會逐字稿

Hello and welcome to BD's second fiscal quarter 2007 earnings call. At the request of BD, today's call is being recorded. It will be available for replay through Wednesday, May 2nd, on the investor's page of the BD.com website, or 866-373-9238, for domestic calls and area code 203-369-0284 for international calls. I would like to inform all parties that your line has placed in a listen-only mode until the question-and-answer segment. Beginning the call is Ms. Patricia Spinella, Director of Investor Relations. Ms. Spinella, you may begin.

Thank you. Good morning, everyone, and thank you for joining us to review our second fiscal quarter results. During today's call, we'll make some forward-looking statements, and it's possible that actual results could differ from our expectations. The factors that could cause such differences appear in the second quarter press release and in the MD&A sections of our recent SEC filings. We will also discuss non-GAAP financial measures with respect to our performance. The reconciliation of non-GAAP to GAAP measures can be found in our second quarter press release and its related financial table. The copy of the release, including the financial tables, is posted on the BD.com website. Leading the call this morning is John Considine, Senior Executive Vice President and Chief Financial Officer. Also joining us are BD Executive Vice Presidents, Gary Cohen, Vincent Forlenza and Bill Kozy.

I will now turn the call over to John.

Thank you, Pat, and good morning to everyone. I assume you all have our earnings release and the attachments that we sent out this morning and have had an opportunity to review them. As usual, we'd like to devote as much time as possible to answering your questions, and therefore, our opening comments will be brief. As is our practice, there are three primary topics we'd like to first address. Firstly, since there are certain items that affect the comparability of our diluted EPS from continuing operations for the second quarter and six months period of fiscal 2007 and 2006, we will review the analyses of these results that we have provided in the press releases. Second, we'll describe some of the key drivers of our revenue and earnings growth for the second quarter. And lastly, we'll review guidance for the full year of 2007.

Now, before we start, I'd like to point out that we have issued two additional press releases this morning. In one release, our Diagnostics segment announced our 510(k) submission to the FDA for rapid and simultaneous identification of MSSA and MRSA for patients with positive blood cultures. In the other press release we disclosed arbitration proceedings, which we understand are being initiated by bioMrieux in Paris against our subsidiary GeneOhm Sciences in Canada, to terminate a sublicense agreement under which it granted certain patent rights to GeneOhm Canada. Although we have not yet received the pleadings, we believe that the license agreement is valid and enforceable. While we haven't seen anything else or discussed anything else, we believe there's no basis for termination of the license.

In that same release, we disclosed receipt of a letter from bioMrieux invoking the dispute resolution clause of a separate license agreement between BD and they, under which they grant us patent rights for BD for certain license fields relating to BD's BACTEC products. This is an ordinary course commercial dispute that we typically wouldn't disclose, but for the fact that bioMrieux brought the forementioned arbitration action. As is our policy, since these are matters of litigation, we're not going to discuss them any further. Just to clarify, though, in many -- in at least one if not both cases, these would have normally been in our Q, at best, but with the proximity of the earnings release, we felt it prudent to get all information out at the same time.

Now, moving on to our earnings, I suggest that you turn to table one in the press release that appears under the heading "Analyses of Second Quarter Fiscal 2,007 and 2006 Earnings." For the second quarter of fiscal 2007, reported diluted -- diluted EPS from continuing operations were $0.92, and there are no specified items in the 2007 quarterly results that impact comparability. For the second fiscal quarter of 2006, we begin with reported diluted EPS from continuing operations of $0.63 and add back the charge of $0.21 resulting from the in-process research and development charge related to the GeneOhm acquisition and subtract $0.02 resulting from insurance settlements related to our former latex gloves business. This gives us diluted EPS from continuing operations, excluding specified items, of $0.82. Comparing the $0.92 this quarter to the $0.82 in the prior-years quarter gives us an adjusted EPS increase of 12%.

Moving to our six-month results for 2007, we begin with reported diluted EPS from continuing operations of $1.44 and we add back the $0.45 charge from the in-process research and development charge related to the TriPath acquisition, which was recorded in the first quarter of fiscal 2007, and this gives us an adjust diluted EPS from continuing ops of $1.89 for the six months of fiscal 2007. For the six month period of fiscal 2006, we begin with reported diluted EPS from continuing ops of $1.51 and we add back the $0.21 charge resulting from the in-process R&D related to GeneOhm and then subtract $0.04 of EPS, $0.02 each in the first and second quarters, resulting from the insurance settlements related to the former latex glove business. After considering $0.01 of rounding, our comparative diluted EPS from continuing ops, excluding specified items, for the first six months of fiscal 2006 are $1.67. Comparing the $1.89 for the six-month period of '07 to the $1.67 in the prior year gives us an adjusted EPS increase of 13%.

One final comment regarding the second quarter and six months' results, in both cases they reflect dilution from both the GeneOhm and TriPath operations. We have not excluded this impact in the table since, although not comparable to the prior-year results, the GeneOhm and TriPath operations are now a continuing part of BD and its results. For purposes of your analyses, the incremental dilution related to GeneOhm and TriPath combined in the second quarter was $0.03, For the six months incremental dilution was $0.06. And for the second half of fiscal 2007, we estimate combined incremental dilution will be only $0.02; that's about $0.01 in each of the two quarters.

Moving to the second topic, that is what drove our growth. We'll begin with our revenue growth of 11% for the quarter. This growth includes approximately three percentage points favorable foreign currency translation due primarily to the Euro and effecting all segments. In the Medical segment, second quarter revenues grew about 10%. In particular, the key growth driver with sales of prefillable drug delivery devices in the pharmaceutical systems, growth of pin needles and injection and IV flush syringes filled by BD were also strong. We should note on a year-on-year reduction -- that our year-on-year reduction of sales of home healthcare products, such as elastic bandages, reduced reported sales growth in the diabetes care unit. I'd also add the global sales of safety engineered products in this segment grew 8% to $157 million.

Revenues in the BD Diagnostics segment grow about 11% in the second quarter. The diagnostics systems unit reported revenue growth of $0.15, which, however, includes about $27 million of TriPath revenues. Excluding TriPath revenues would be about 2%. Continued slow sales of flu testing products had an unfavorable impact on the growth rate and overall diagnostic product testing has been unfavorably impacted by the mild flu seasons in the U.S. and Japan. In addition a change in the OE manufacture supplier relationship for flu product in Japan has negatively impacted our competitive position in that country. If you look at this quarter alone and adjust it for the impact of flu, which was about ten million, the DS growth alone would have been about 7%. Moving on to the preanalytical systems unit of the Diagnostics segment, revenue growth was 8%, fueled once again by safety devices. Global sales of safety engineered products in the segment grew about 49% to $174 million, due in large part to the continued success of our push-button blood collection set. Looking at combined medical and diagnostic global safety, sales grew about 11% to $331 million. The U.S. growth rate was about 8% and ex-U.S. was about 20%, both in line with our guidance. In the BD Biosciences segment, worldwide revenues grew 13% for the quarter. Research instruments and reagents continue to be the primary growth contributors.

Moving to earnings and beginning with gross profits, we experienced an improvement of about 60 basis points from 51.5 to -- from 50.9 to 51.5. The improvement was primarily due to product mix and productivity in part -- offset in part by negative foreign exchange and certain startup costs that we talked about at prior calls.. SSG&A as a percentage of sales increased by about 80 basis points with somewhat more than half of that coming from the addition of TriPath and GeneOhm. R&D spending, net of the in-process R&D charge related to the GeneOhm acquisition, increased about 16% year over year. Once again, more than half of the increase relates to TriPath and GeneOhm spending. In terms of cash flow for the first half of the year, we generated over $500 million of net cash from operation. $225 million was used to repurchase about three million shares of common stock and we invested $235 million in capital expenditures.

The last topic we'd like to cover is our guidance for fiscal 2007. Once again, I'd suggest that you turn now to the second table in the press release, which immediately precedes conference call information. The specified items enumerated in that table effecting comparability for 2007 have already been described. For fiscal 2007, diluted EPS from continued operations are expected to increase by 13% to 14% to a range of $3.76 to $3.80 from last year's adjusted base of $3.34. This current range exceeds our previous guidance of $3.71 to $3.77.

Before ending I'd like to make some additional guidance, comments for fiscal 2007. Our full-year reported revenue growth is expected to be about 10%. with about one and one-half percentage points of growth coming from TriPath and about one percentage point from positive FX. Full-year reported revenue growth for the BD Medical and BD Diagnostics and BD Biosciences segment is also expected to be about 10%, with about 5% coming from -- points of BD's Diagnostics growth coming from TriPath. We continue to look for U.S. safety sales products -- safety engineered product sales to increase about 8% over 2006 and anticipate international safety to increase slightly north of 20%. We expect gross profit margin improvement of 70 basis points, with TriPath accounting for 10 basis points. SSG&A is expected to increase by ten basis points, with 20 basis points coming from TriPath. Therefore, on a year-on-year basis, [ex] TriPath, we'd be slightly down as a percentage of sales. Our R&D spending, excluding in-process R&D charges, is expected to increase about 20%, with six percentage points coming from TriPath. And our effective tax rate is projected to be about 26.5% for the year, and as you know, may vary quarter by quarter.

So with those comments said, we can now begin the Q&A. As I always say, in order to allow for broad participation, we'd appreciate it if you'd limit your questions to one plus a follow up. So, thank you, and, operator, we can open the call for questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from Rick Wise of Bear, Stearns.

Good morning, John.

Rick.

Let me start off with the MRSA front. How important is today's filing and maybe give us some sense of what incremental benefits this could be or is this really about continuing to drive instrument placements, maybe especially in light of competitive -- other competitors entering the market?

You're talking about the 510(k) filing?

Exactly.

Well, Bill's on the phone, or Vince, either one of them. Bill would be better to answer that [directive], if you're there, Bill?

Yes, I'm here, John. Rick, to answer your question that this StaphSR submission is going to be the first test that simultaneous detects as well as differentiates bacteremia caused by either MSSA or MRSA directly from a positive blood culture and it's going to do that in the existing platform, which is in within a two-hour timeframe. So the physician's going to get a relatively simple, fast, highly-sensitive assay that allows them to get the right treatment at the right time. Traditionally, after a positive blood culture, you would go to classic microbiology IDASP process, which can take, obviously, quite a bit looker than the two hours that we're talking about here, so this gives the doctor a chance to get to an answer and treat that patient quicker. It's also the first deliverable, if you would, in our array of menu all associated with helping hospitals and physicians manage HAI.

I understand the technical things, but is this a significant incremental driver or change your competitive position in some important way?

Well, we think that menu is going to be really important in terms of competing. So, that company that can bring you positive blood cultures, womb cultures, MRSA, VRE, Clostridium difficile, all of these primary organisms, which has a focal point of HAI management, we think the company to provide those first and on a simple, easy-to-use platform will be well-positioned.

Okay, John, a two-part question for you. One just a point of information. Last quarter you said that for the year that net interest and other would basically net out, if I understood you. This is the second quarter in a row where it's actually come a bit better a net basis than we were looking for. Do you still think we should think like you did last time? And the larger strategic, longer-term question is with ongoing operations growing in the upper single digits, when we're looking at our models going out a year or two, should we be thinking upper single-digit sales growth just in a general sense, [ex] acquisitions, but lots of operating leverage as you move past the acquisitions and as mix improves? Just any perspective there would be helpful. Thanks so much.

Okay. Yes, actually net interest and other income we had assumed would be a little bit tighter than it is similar to one another, but in -- in this quarter, we were able to do two transactions. One is to sell off a small piece of something that we weren't going to pursue and that generated a little under $2 million. And beyond that, we had one other small -- small item. Nonetheless, even with that, our operating income will still be in the 20% range, which is pretty bad. and it just was some additional stuff that we hadn't anticipated being able to realize. The more strategic question about the future, if I understood it, is yes, I think in the near term, the next three years you can look for upper single-digits, seven to ten kind, seven to nine on and apples-to-apples basis without acquisitions. And I think, again, acquisitions play a part. We look at them in terms of growth from an incremental standpoint; that is notwithstanding the fact that in the case of TriPath that that may add to our overall growth. We look at it on a pro forma year to year and say how much is TriPath really growing, although the reporting requirements, obviously, as you know, have us put it in one year and not the other, so -- But, think your numbers are about right and we do think that opportunity for leverage throughout the income statement but particularly in cost of goods sold and in SSG&A continues to exist. Research and development, on the other hand, as we continue to really push our portfolio of products is more likely not to reduce and probably will continue to climb over time, although maybe not quite at the pace at which you'll see now and over the remainder of this year.

Thank you very much.

Thank you. Our next question comes from Michael Weinstein of JPMorgan.

Hi, everybody, it's Kim here for Mike. Just a couple of quick ones. First, on the MRSA patent from BioMirror, is that patent licensed exclusively to GeneOhm?

I believe it is not exclusively to GeneOhm.

Okay. Next would be a follow up to Rick on your timing associated with the products coming out of GeneOhm over the next 12 to 24 months. Could you give us more detail on the expected timing for actual product launches? Should we see MRSA and VRE rolled out early this year or is that sort of early next year?

Okay, Kim, you have Bill that first -- Bill, are you there?

Yes, I am. You should -- based on the submission, and of course, we always have to wait to the FDA's approval cycle, but we ideally would like to think that the StaphSR positive blood culture will be out in our fourth quarter, in that July to September timeframe is our expectation. We expect to follow with VRE within the next quarter or thinking about our first quarter of the following fiscal year, that October to December timeframe and that would be followed by Clostridium difficile mid to late year of FY '08, so in the second half of our fiscal year next year.

Okay, great. Just one last one and then I'll drop. On CapEx, is there any updated guidance on CapEx for the fiscal year, just given the buildup for the Pharma Systems manufacturing?

No real change from where we were. I'm trying to remember the exact number of where we were, but it's probably $600 million to $650 million as that -- when Hungary begins to kick in at the beginning of the year. We're at $225 million right now, but we tend to accelerate as we get nearer to the end of the year.

Okay, great. Thanks.

Thank you. Our next question comes from Bruce Cranna of Leerink Swann.

Morning.

Morning, Bruce.

John, can you give us the actual sales number for GeneOhm in the quarter?

I don't see why I couldn't. I think it's about $5 million, Bruce.

About $5 million, okay.

Just under that.

All right, and I'm just -- I want to, I guess, push a little bit on TriPath. If I look at $27 million or so in the quarter versus the prior year, it seems to be -- I think the prior-year number is $24 million or so. It seems like it's slowing a little bit, maybe 15% or so year-over-year growth there, which is a little bit slower than TriPath was doing, I think, prior to the deal. So I guess the question is is that a fair observation and if not, why not? Has anything changed with respect to pap share in the U.S. between the two players?

No, there's no significant change in share between the two players. I would say that TriPath continues to gain incremental share. Our expectation was in the, in the 10% to 15% range for this business for the year, and now that was because of more of that Quest rollout happened last year. So, it's pretty much in line with our expectations.

Vince, do you have any thoughts on potential filing for [pro-xbr] or is that still -- too early there still?

That's too early for me to talk about. The next filing is going to be on the focal point guided screening assay, okay? So that is the instrument I'm talking about, you know, the location-guided screening.

Yes.

And we're expecting that by the end of the next month we ought to be able to file that.

Okay. And last question for me, just so I'm clear on MRSA-MSSA, and the 510(k) and then presumed language, from a positive culture, I assume that means really using anyone's culture system, be it a BACTEC or BAC-T, for instance?

That's right.

So it could be from any systems -- a positive culture from any system?

Yes.

Okay, thank you.

Thank you, the next question comes from Glenn Reicin of Morgan Stanley.

Good morning, folks.

Hi, Glenn.

This is an imaginative way of asking one question. Can you give us some updates on three product lines, if can you explain better what happened in the quarter and the prognosis for the Pharma Systems, for Diagnostics, and if you can give us status updates on TriPath with respect to the imager and Quest?

Okay, so Pharma Systems, Diagnostics, TriPath with respect to the imager and Quest. Vince was just on TriPath. Why don't we go from the bottom up, Glenn.

Yes, Glenn n terms of Quest, we continue to implement a program there. There's really no significant change. We continue to put more instruments into Quest, so we're moving ahead under our contract with them, so it's positive. You asked me last time about when we would get the improved claims on the imager and that is why I just mentioned that previously that we expect to file that by the end of May.

Okay.

You want also to touch on the Diagnostics?

Oh, sure. So on diagnostics, Glenn, overall John mentioned that Diagnostics on the 11.3%. If you exclude the TriPath it was 5%. If you take the flu sales out of that, that normalizes to about 7.7% or so.

So what -- explain exactly what is happening with Japan and the flu and how we should be modeling going forward?

Yes, so what is happened is that one, there has been a light flu season. But, two, Glenn, we -- I should say our OEM supplier of the test that we sold in Japan, the flu test, ended that relationship and we've introduced our own new product into that market. We're forecasting, Glenn, that this business is -- for this year, just flu testing is going to be a $10 million to $11 million system. We don't think -- over the back half of the year, the next two quarters, it's really a non-issue, because historically there's very little flu sales in the second half of the year, just a couple million dollars. And then we expect to contin -- turn this around and grow the business next year.

So just to clarify, is it possible that Diagnostic Systems internationally will be back at a run rate above $100 million per quarter for the second half of the year?

Don't look at that.

I have to -- we have to do a little math quick and I haven't --.

Or, I mean, you haven't had any growth, you were negative 17 in the first quarter, negative one.

Yes.

Yes, if you got a couple of things work in your favor in terms of reported growth -- I mean, we were anticipating growth over 20% the second half of the year.

Yes, Glenn, the flu was a negative impact of about $10 million and most of that was international.

For the quarter or year?

For the quarter.

And then the OEM thing you're saying for the year is $10 million?

No, let me go back over the numbers for you.

Please.

For the flu business was down versus last year $10 million in the quarter.

Okay.

Okay. What I was saying was total sales of flu products for the entire year, you know, fiscal '07, are going to be around the $10 million range. I further stated that sales of flu products in this third and fourth quarter are just a couple of million dollars.

Okay.

Okay?

Yes. And the $10 million and $11 million for the year, where does that compare with last year?

It was above $40 million.

Yes, I could give --

Okay.

If you looked at '06 --

Yes.

-- a$ll flu for the year, 46 million and this year we're looking at $11 million. So $35 million, and as you'll recall, first quarter was 24, 25, and $10 million now in this quarter and the remainder of the year, total expectations is less than $3 million of flu and that's consistent with what we booked the prior year.

Okay.

It's done for this year. To your question and to Vince's point is, okay, so you get it now, that business is kind of a $11 million business. What we have to do now is work to bring it back to the $40-odd million business. Now, the only other wild card in this is that flu season, as everybody knows, changes -- change year on year, but in fairness, our flu sales had been in the -- when good flu seasons had been in the low 50s and high 50s over the last over the last -- over '04 or '05.

Okay.

So, Glenn, our plan is we've launched our own product in Japan and we've got plans to move ahead also with an improved product, so that's why we think we'll turn the business around starting next year.

Okay, very helpful.

Now, Gary?

Yes.

You want to talk a little about Pharma Systems?

Sure. Just to answer the question in a nutshell, we're expecting the trends in Pharmaceutical Systems, the revenue growth trends to continue the rest of the year pretty much consistent with what's been happening in the first half.

Wow, those are big numbers.

Yes, they're good numbers. The mix of -- geographically may change a bit, but the essential trends are consistent and we had a particularly strong quarter in the second quarter on a year-over-year basis, recorded year over year and I would say between the first and second, what you've seen so far is similar to what we expect in the back half.

In terms of growth?

In terms of growth.

Wow, okay.

That's -- it's being being driven by what's considered the core business there, which are glass refillables, but in the U.S. we're also benefiting from growth of ten devices that we sell through pharmaceutical systems, through needles. We actually also had a nice little growth impact from the medimmune MediMist device that we also provide.

Okay, one last clarification from a bookkeeping perspective, John. The TriPath revenues, are you booking those as all domestic or are you apportioning a certain amount internationally?

They're all domestic, they're all being sold out of the U.S. right now.

Okay, thank you.

Glenn, just to make sure I'm clear on the flu, too. So what I was talking about was we finished the year at ten and starting to grow off of that base. [I'm not talking about getting that anywheres near back to the $40 million next year].

Sure, you're saying it's a long slog.

And Glenn, a clarification my [inaudible]. When I talk about continuing the growth in Pharma Systems, I'm really -- I'm not putting FX into my head on that, because that's unpredictable. So the underlying growth pattern should continue.

Great, thank you very much.

Thank you. Our next question comes from Quintin Lai of Robert W. Baird.

Hi, good morning. Looking at Biosciences, the Discovery Labware was really strong. Pharmagen looked a little weak, especially considering how Discovery Labware and flow, so could you go through those two -- those subsegments for us?

Sure. Bill, do you want to do that or --?

Sure, the -- regarding the Discovery Labware activities, a good part of that strength is coming from the early success to the advanced bioprocessing. You might recall that's the bionutrients and media supplement business that got created last year Our Pharmagen reagent business is -- right now has two stories to it. We continue to be very successful in Europe and are getting positive growth there. Our growth in the U.S. was just little softer for the quarter. We continue to see the entry of low-cost competitors in the U.S. market. We think that we've seen the early push from them. We're confident that in the quarters ahead that we'll be able to compete effectively with them, but that's been probably the area that's getting our attention right now on the Pharmagen side.

Thank you. As a follow up, just going back to some of the MRSA. There are a lot of contracts that are coming up looks like from the VA. Is it possible to tell -- or is it too early to tell a little bit about what those types of contracts are going to be? Are they going to look for centralized lab systems or do you think that there's going to be a combination of some of these moderate complexity point-of-care systems for prescreening patients for MRSA?

Well, Quinton, the key decision that the hospitals will be making is going to be the volume of screening that they choose to do this, and this is on the surveillance side, particularly on incoming patients. So anybody who goes for a more active surveillance program, particularly going after high-risk patient admissions, we believe, and the signals we have from existing customers -- we've about 150 major hospitals converted around the world right now -- that they want a batch test. And the reason for the batch testing is pretty basic. It's the traditional hospital lab mindset here, but they want to get as efficient as they can. They can manage their admissions usually pretty effectively, and so most of the work we're seeing in the VA at this stage is looking like broader active surveillance activity. Of the 14 hospitals that we've converted to date, the larger ones in the VAs system, they have all opted for batch kind of testing. Now we don't know what will happen going forward. That could certainly change, but right now it is focused on a little broader surveillance, high efficiency, the benefits of batching, and reducing their test cost seems to be, at this stage, working favorably for us.

And then what about eventually moving it to a high-throughput platform, like a viper?

We have just briefly mentioned in a few calls that we have two platforms in the longer term and these are out there a ways. But we will move to an upscale, much higher throughput capability, kind of bench-top analyzer, and our game plan is in the longer-term, we would migrate to viper for those customers who need that kind of volume and throughput.

Thank you.

Thank you. Our next question comes from Peter Lawson of Thomas Weisel Partners.

I wonder if you could give us more color on GeneOhm, where you're seeing traction internationally and within different hospital networks?

Sure, in terms of traction internationally outside of the U.S., we now have active accounts in Canada, in Australia and in Western Europe. The bulk of the concentrated activity in Western Europe has been, at this stage, in two countries. It's the UK, where the NHS has an active interest in HAI management, and then also, most recently particularly in Germany. And at this stage, the growth in Germany is an area of high concentration for us.

Are you seeing traction from other hospital networks outside the VA?

We are at this stage. 'd like to emphasize that it's very early, but for the updates that we've got outside the VA, HCA recently announced that they were introducing an MRSA quality initiate to their 200-member hospital. We know that the VA has 125 hospital pilot programs underway for MRSA infections. That started in late December, and that pilot will conclude, I believe, in mid-summer of '07 and then they'll probably make some decisions. We have seen some IDMs start to also express interest and we've got trials going on in three or four major IDMs in the U.S. So in terms of market development and interest, we are starting to see some good traction.

Okay, on the 510(k) that was -- that you mentioned today, you mentioned a positive blood culture. How long does that take, typically?

To get it to the positive blood culture?

Yes.

That can depend on the organism, but it can be as quickly as just a few hours or it can take up to 24 to 48 hours. Our tests, though, will give you the ID within two hours after the instrument -- let's just talk about BACTEC as an example. Once BACTEC has signaled to you that you've got a positive blood culture, two hours later you'll know if it's MRSA or MSSA.

Okay. And then for John, the stock options in the quarter, how much were they, and where do we stand for the share repurchase?

We -- let me just grab the number. For the year we're looking at $0.28, by the way, and the total stock option it was about $0.29 last year. So about the same number in the quarter, the expenses is about $0.07 in the EPS. And for the third and fourth will be like that or slightly down, maybe $0.06 a quarter. In terms of how many shares we repurchased, we repurchased three million so far this year.

What's outstanding [inaudible] on the share repurchase.

What do we have left on the share repur -- we have plenty to get us through this year and into next. Let me see if I have a num -- about four million shares.

Okay. Thank you so much.

Thank you. Our next question comes from Glenn Novarro of Banc of America Securities.

Good morning, everyone. [David Digeralimo] in for Glenn. Have two quick follow-up questions. Glenn Reicin actually asked most of my questions. The first is on Discovery Labware, is it fair to assume then that about 10% U.S. growth in the remainder of '07 is reasonable?

This is Bill. About -- give me -- 10% growth across the remainder of the year?

Yes, so in fiscal 3Q and fiscal 4Q, is the growth that we've seen in the first two quarters going to essentially play out in the back half of fiscal 07?

We think that that's reasonable again. And again, my comment about bioprocessing playing a key role in that is important and our ADME/Tox testing is also doing pretty well, so we think we should be able -- and you're using a reported number here in your question, is that correct?

Yes.

Yes.

Okay, and OUS?

We continue to do pretty well in Europe and the strength of all of our bioscience sales in Europe has been a little bit of a highlight over the first half. The projections we have right now suggest that they should be able to sustain those over the second half of the year.

Got it. And then finally, turning to Diagnostic Systems, Glenn pushed you a little bit in terms of what the impact was of the flu season year over year. If I heard you correctly in your comments, John, you talked about an effect to your competitive position. I wonder if someone could provide color on how your market share is in Diagnostic Systems.

Are you talking about in the flu?

Yes.

[inaudible] your question, what we were talking about was in Japan that our market share is probably around 10%, 8% to 10% of flu products. The markets highly fragmented with many, many competitors in Japan.

Got you. And outside of flu within that division, how have things been going from a market share standpoint?

So far so good. The flu, obviously, was a small piece of this overall business, so it's $46 million back in last year '06, so otherwise, we are doing well. We continue to do well in the PAS business, specimen collection business, [we have safety products], and strong conversions to our new products. And BACTEC, in the blood culture business, we're holding our own. We expect to have a now instrument out at the end of next year and the core media business is doing fine as well.

Great. All right, thanks, guys.

Thank you.

Thank you. Your next question comes from Charles Chon of Goldman Sachs.

Yes, thank you very much. Can you hear me?

Yes.

Oh, great. Thank you. So I guess if anything,was hoping I could get into a little bit of the R&D guidance for the year, hoping you might be able to provide a little more granularity Could you speak to how it's expected to grow about 20% when the first half of the year, R&D spending growth has been the 16% and 17% range, so that kind of worked itself out to about 23% growth the second half of the year. Can you give us an idea of how we can meet that R&D spent over the latter half of the year? And if there is a catch up in the R&D spending growth, can you review what incremental R&D initiatives are being timed into that timeframe?

Well, let me see, there's a lot there. I mean a lot of money -- if you look at the -- let me give you a broad answer. If you look at the first half of this year, the true increases in spending are coming from TriPath and GeneOhm. Probably incrementally $15 million worth of R&D spent has been on them versus prior year, some of which there was none in, so every dollar is incremental. And if you look at our base, therefore, and took that out, it would be growing in the upper mid -- kind of in the mid single-digits for the first half of the year. You know, say 6% or 7% kind of. Now as we move out, the spending in the second half of the year certainly increases dramatically -- the next slide on the R&D for the -- just for this quarter -- but we start getting into spending in the $90 million-plus mark for both of the third and fourth quarters versus this quarter, which is like at about $87 million, so that you have more and more growth coming there.

In terms of where we spending it, there are many, many, many projects. The bigger incremental projects are along the lines of injection, optomics, rapid diagnostics, microbiology spending, certainly the molecular spending is not anything small. We consider every hing else in the base, but those are the big things that you guys would recognize that we are -- we're spending on. So I think that over this year at the end of the day, you're going to see a lot of incremental spending on TriPath and GeneOhm. Some of that is because as comparable numbers are absent from the prior year, but you should see our spending overall be in the 16% increase for the whole year with all of this in place.

Some of what is driving the spending on the diagnostics side is the clinical trials that we're running. The multiple clinical trials going on in TriPath, the multiple clinical trials going on in GeneOhm for the menu. The Phoenix -- we talked about in the past that we were adding front-end automation to Phoenix, so that's another platform that we're investing again. All of those things are major R&D programs. So it's not all infrastructure is what I'm also saying. Some of it is outside of clinical trials work.

That's very helpful, thank you very much. And then the second questions just on the U.S. safety. Can you just spoke to penetration levels where we stand today? And as we think about growth going forward, should we continue to think that it comes from increased penetration or mixed shift that you guys speak to? And also, could you provide an update on how the [inaudible] launch is moving along?

Bill, you want to take that?

Sure. First, I think this is an overall comment. The U.S. market is very heavily penetrated with safety engineer devices and blood collection and intravenous therapy. You can consider it complete or near complete transition from conventional to safety. A little lower in injection, and that's primarily in the not hospital segments where it's kind of beyond the reach of OSHA and many physicians' practices have not made the transition, so there's still some room on the injection side. And hospitals are not as high on the injection transition as the other two, but it's fairly high that.

That being said, really, the primary growth going forward and some of the growth that we're getting now is through what you might refer to as mixed shift or what we would refer to as upgrading to future generation devices that's already driving the primary growth driver in preanalytical with the push buttons, that it is the emerging and will be the key growth driver in medical with Nexiva. And keeping in mind that in this case, it's not just healthcare worker safety benefits but also patient safety benefits that are coming, because Nexiva also plays a roll in reducing the potential for bloodstream infections, which are an important subset of healthcare-associated infections. So much so, actually, that our outlook for U.S. safety growth in medical is very positive. In the coming years, we're expecting it certainly not to be any lower than it's been and if things go well, it should creep up in the other direction. With the GP impact of Nexiva lagging that a big -- because as we've done with all of our safety devices, we scale and automate the manufacturing according to how demand patterns grow, so we'll get a little bit of a lag effect on the GP, but the outlook is quite good. And Nexiva's doing very well. It's meeting our expectations this year, the projections we had, which were pretty substantial growth, and it's being well-accepted. It's taking a little bit more in-service training than we had anticipated, but that's not unusual, and we're just devoting the extra time to it. But the product is very, very well-received once it's adopted.

Awesome. Thank you.

You're welcome.

Thank you. Our final question comes from Jeff Frelick of Lazard Capital Markets.

Good morning, guys. John, can you just speak to the growth rates for ProbeTec and Phoenix in the quarter? And then maybe, Gary, just kind of a follow-on question, can you just touch on the -- kind of an update at the VA hospital network on conversions to next-generation safety products?

Yes, I think Vince will take that one on ProbeTec and Phoenix.

So, ProbeTec was's little over 18% in the quarter and Phoenix was up 44% in the quarter, but you remember that's off of a small base, so, that's where we stand.

Okay.

And then relative to the VA system and Nexiva, VA has been among the key early adopters for Nexiva. I don't have the date in front of me to give you a proportion of what's in VA relative to other accounts. But VA in general, if you look across the HAI spectrum, they've really been pioneers and it may not be what you would typically associate with government hospitals, but they seem to be taking the issue seriously. There's a lot of activity going on with Nexiva outside of the VA system as well, so I don't want to give you the impression it's disproportionately there.

Okay.

All right, so --

Thank you. We have another question coming from Greg Reicin of Morgan Stanley.

Hey, just -- yes, it's simple. The safety numbers usually give U.S. and international breakout by piece for preanalytical and for medical. Can you do that?

Yes, sure. Look at it for the quarter.

John, while you're doing that let me just mention that in the medical, it's a little lower than previous quarters and it's and anomaly that you wouldn't see just by looking at the numbers. Part of the international safety are safety devices we sell through Pharmaceutical Systems to drug companies. They actually end up in the U.S. primarily but they're sold through Europe. They were off this quarter relative to others, which is really a timing issue, since drug company order patterns don't always match end-user demand, so --

Okay.

-- when you see the international medical, that's why it's a little bit lower, primarily it's the reason why it's a little bit lower.

Yes, I'm going to have a follow up as well, then.

All right, Glenn, let me give you -- you asked for U.S. and international?

Yes.

So you U.S. overall up a little over 8% in the quarter. If you looked at it between medical and diagnostics, medical about 8% and diagnostics higher than that, about -- nearer to 9%. If you looked at -- on the international side, medical at about 9%. Now, we -- Gary can explain that. That's kind of an anomaly, because if you recall, we were very high, 43% up in the first quarter. But about 9% and diagnostics up about 24%, so about 20% overall on international safety when you combine them. That means medical was up about 8% and diagnostics about 14% and the Company about 11% Those were the numbers you were looking for? Glenn?

One moment, please. Go ahead, sir.

Excuse me?

Go ahead, sir.

Yes.

-- you wanted, Glenn?

Yes, I had just one follow-up question. My preface is I hate asking questions like this, but I need to. You know, Tyco Healthcare is preparing to go public. I'm just wondering if you have seen any difference in behavior out of the company over the last six months during this whole process?

John, you want me to comment?

Gary.

I think the differences we've seen in Tyco have been more of a continuance. If you go back to the time where Tyco acquired Sherwood from American Home, which directly with our injection business, they have been improving their capabilities since that time because in the early stages, they really were not running it particularly well, if I can say that. So that's been, I'd say, an ongoing strengthening. I'm not aware of any step function changes in that since the time that they've announced that they will be taking separate and public. So, I think the competition that exists in the market among BD, Tyco and others is vigorous competition and it always has been. And I think they've improved their ability as a competitor over the last years, but not to the point where we've seen a step function change. It's not easy to make step function changes in the industry.

Sure. Okay, thank you very much.

Thanks, there are no further questions at this time. I'd like to turn the call back over to Ms. Patricia Spinella for any closing remarks.

Okay, I thank everyone and if you have follow-up questions, you know how to reach me.

And thank you very much on behalf of the management and we'll talk to you next quarter.

Thank you for attending today's conference call, and have a nice day.