Becton Dickinson and Co (BDX) 2011 Q1 法說會逐字稿

Hello and welcome to BD's first fiscal quarter 2011 earnings call. At the request of BD, today's call is being recorded. It will be available for replay through Tuesday, February 15, 2011 on the investors page of the BD.com website or by phone at 800-642-1687 for domestic calls and area code 706-645-9291 for international calls using conference ID 37117544.

I would now like to inform all parties that your lines have been placed in the listen-only mode until the question-and-answer segment. Beginning today's call is Mr. Zachary Nagle, Vice President of Investor Relations. Mr. Nagle, you may begin.

Thank you, Jackie. Good morning, everyone. Thank you for joining us to review our first fiscal quarter results. As we referenced in our press release, we are presenting a set of slides to accompany our remarks on this call. The slide presentation is posted on the Investor Relations page of our website at BD.com.

During today's call, we will make forward-looking statements and it is possible that actual results could differ from our expectations. Factors that could cause such differences appear in our first fiscal quarter press release and in the MD&A sections of our recent SEC filings.

We will also discuss some non-GAAP financial measures relative to our performance. Reconciliation to GAAP measures can be found in our press release and its related financial schedules and in the slides. A copy of the release including the financial schedules is posted on the BD.com website.

Leading the call this morning is Vince Forlenza, President and Chief Operating Officer. Also joining us are David Elkins, Executive Vice President and Chief Financial Officer; BD Executive Vice Presidents, Gary Cohen, and Bill Kozy; as well as Bill Rhodes, President of Biosciences; and Tom Polen, President of Diagnostic Systems.

And now it is my pleasure to turn the call over to Vince.

Thank you, Zac, and good morning, everyone. I would like to start off today's presentation by covering the key messages we would like you take away from our earnings call.

First, I want to provide an update on what we are seeing from a macro perspective. Healthcare utilization remains constrained due to lower levels of government spending, elevated unemployment rates, and higher out-of-pocket expenses. In the US, hospital admissions, physician office visits, and lab volumes continued to show signs of stabilization. However, we did see pricing pressure in certain medical device markets in the first quarter.

In total, the market remains challenging and we continue to manage the Company accordingly, focused on execution around strengthening the core, delivering on new product platforms and extensions, growing in important emerging markets, and delivering on our operational excellence programs.

Moving onto our performance in Q1, we are pleased with our results. Revenue was slightly softer than we expected and EPS was in line with the Company's expectations relative to where we expected to start off the year.

As we outlined on our year-end earnings call in November, revenue growth was significantly impacted by an unfavorable comparison to a very strong first quarter of fiscal year 2010 where revenues were up more than 9% year-over-year. This tough comparison included strong pandemic sales and US stimulus spending in Q1 fiscal 2010.

We continued to see solid growth in emerging markets and our initiatives around new product platforms and extensions and operational excellence programs continue to be on track with our expectations.

We see the back part of the year strengthening and we are maintaining our 2011 guidance of 4% currency neutral revenue growth. We are confident in our ability to deliver 10% to 12% currency neutral EPS growth on an adjusted basis.

On slide 5, we've outlined our Q1 revenue and EPS results. Currency neutral revenue declined by 1.5%. Excluding pandemic flu and stimulus impacts, revenues were up 2.8%. Fully diluted EPS was $1.35 including approximately $0.07 related to the timing of certain tax benefits. These benefits were reflected in our previous full fiscal year guidance.

Now I would like to turn things over to David for a more detailed discussion of our first-quarter financial performance.

Thank you, Vince, and good morning, everybody. I would like to begin by discussing the key financial highlights for the first quarter. First, as Vince stated, the quarter was mostly in line with our financial projections, with revenue coming in a little lighter than expected. We continue to experience some volatility in customer ordering patterns; however, that does not change our outlook for underlying demand. As we manage the business for these challenging times, we are confident for the full year that we deliver the EPS guidance we provided on our year-end earnings call.

Next, as we outlined when we communicated our expectations for 2011 on the year-end call, we experienced the bulk of the impact of our tough comparisons for 2011 in the first quarter, overcoming the majority of the pandemic flu orders in 2010 and a smaller portion of the stimulus orders. Excluding the pandemic flu and stimulus impact, BD grew 2.8% year-over-year with all three segments experiencing positive growth.

I will provide more details about the segment and regional performance in a minute.

R&D increased 17% as several research projects were accelerated in the quarter. This is in line with our expectations as we are continuing to invest in new products and platforms.

During the quarter, the Company's earnings of $1.35 also included approximately $0.07 of favorable impact related to the timing of certain tax benefits including the retroactive extension of the US R&D tax credit. This $0.07 benefit will be offset during the balance of the year.

Additionally during the first quarter, we completed $837 million of our $1.5 billion share repurchase plan. Our guidance for the program in 2011 remains unchanged at $1.5 billion.

Turning to slide 8 and our revenues by segment, I will start with the total Company performance. As I mentioned earlier, revenue growth declined by 1.5% currency neutral. However, underlying growth was 2.8% excluding the impact of flu and stimulus. BD Medical first-quarter revenues decreased about 4% currency neutral. When you normalize for the pandemic flu orders, growth was about 2%.

The growth in this segment was primarily driven by diabetes care with continued strong sales of pen needles. This was more than offset by a decline in pharmaceutical systems, which was negatively impacted by the absence of flu-related orders and an unfavorable comparison from large shipments to a single customer in the first quarter of fiscal year 2010. When excluding the impact of flu-related orders and the large shipment in the pharmaceutical systems business, underlying growth in the medical segment would be even greater.

BD Diagnostics first-quarter revenues increased 0.6% currency neutral. Excluding the impact of pandemic flu-related orders, growth was 2.8% with solid growth in preanalytical systems safety engineered products and in women's health and cancer in our Diagnostic Systems unit.

BD Biosciences revenue growth was 3.5% currency neutral, driven mainly by strong instrument and reagent sales in the cell analysis business as well as advanced bioprocessing products. When you normalize for the effect of US stimulus orders in Q1 2010, which did not repeat in 2011, growth in the Biosciences segment was about 5%. As we discussed on our year-end earnings call, US stimulus orders were a tailwind for us in 2010 and will represent a relative headwind in 2011.

Moving to slide 9, I will walk you through our geographic revenues for the first quarter. Overall, BD's reported US revenues declined about 3%. Excluding the impact of 2010 pandemic flu-related orders and US stimulus spending, US revenue grew approximately 3%, with growth in all three segments.

International revenues were roughly flat on a currency neutral basis after adjusting for the impact of pandemic flu, underlying growth was about 2.5%, with challenges in Europe offset by solid growth in our emerging markets.

Moving to global safety on slide 10, reported sales increased 1.4% to $453 million in the quarter. On a currency neutral basis, revenue growth was about 1%. After excluding the impact of flu pandemic growth, growth was about 7%. Revenues in the US declined about 2.8%. Excluding the impact of the flu pandemic, revenues increased 5.7%.

International sales were up about 9% on a reported basis. On a currency neutral, revenues increased 7.5%. Excluding the impact of the flu pandemic, revenues increased 9.2%. If you normalize for the effect of the flu pandemic on a currency neutral basis, safety revenues increased about 8% in Medical and about 6% in Diagnostics.

On slide 11, we review our revenue growth in the first quarter. We are reported growth rate declined by 1.4%, currency neutral growth rate by 1.5%. We have a favorable hedge impact that is compared to prior year which was partially offset by negative currency translation and performance.

I would like to point out again that in fiscal 2011, we are no longer hedging our foreign translation exposure.

Moving on to slide 12, our gross margin improved 90 basis points to 53%. This is mainly due to a 40 basis point favorable comparison from our 2010 hedging program and a 30 basis points of favorable currency translation. Our positive performance of 20 basis points is a mix of positive operating performance of 90 basis points offset by higher raw material costs, higher pension costs, and our startup costs.

Slide 13 recaps the first-quarter income statement and highlights our foreign currency neutral results. As discussed earlier, first-quarter revenue growth declined by 1.5% and gross profit growth declined by 1.1%. As a percentage of revenues, gross profit improved by 20 basis points for the reasons previously mentioned.

Moving down the income statement, SSG&A increased 1% primarily due to pension and EVEREST SAP implementation costs. We are driving down our G&A costs year-over-year and redeploying these resources to fund geographic expansion and increased R&D investments.

R&D increased 17% or about 100 basis points as a percentage of total revenue over the prior year period. The acceleration in R&D is in line with our expectations as we continue to invest in new products and platforms and prepare for several product launches. Vince will provide more details on this later in his remarks.

Our operating income decreased 7.5%, reflecting tough year-over-year revenue comparison in the quarter and the increased R&D spending. The timing of certain tax benefits along with the Company's share repurchase program resulted in EPS growth of about 5% currency neutral.

Now turning to slide 14, as we've indicated previously, when you normalize for the effects of pandemic flu-related revenues, the stimulus and supplemental spending in 2010, we expect the underlying growth of our business this year to be approximately 6% currency neutral.

Now I would like to address how the flu pandemic, stimulus, and Japan supplemental spending will impact the balance of the year. On our year-end earnings call, we stated that flu pandemic sales from fiscal 2010 would represent about a $90 million headwind for us in fiscal year 2011. We also indicated that stimulus spending in the US and supplemental spending in Japan would add an incremental headwind up approximately $40 million. Of the combined impact of $130 million, about $80 million impacted our results from the first quarter. Of the remaining $50 million, approximately $40 million will represent an unfavorable comparison in the second-quarter results.

After adjusting for these tough comparisons, underlying growth is expected to increase from 2.8% in the first quarter to 7% for the remainder of the year, bringing the full-year underlying growth to 6%.

Now moving to slide 15, I would like to highlight the main drivers of growth over the balance of the year excluding impact of flu, stimulus, and supplemental spending.

For our medical segment, we are anticipating currency neutral growth of about 6%. We expect the balance of the year to be driven by continued strong sales of pen needles with the next-generation safety pen needles being launched in the back half of the fiscal year. We also continue to see great success with our Nano, the world's shortest and thinnest pen needle.

Additionally, we are expecting to see improvement in our pharmaceutical systems business, which as I mentioned earlier was impacted by a tough comparison to last year. Globally, we will see an improvement in our safety sales, which will be driven by Nexiva in developed markets and a solid double-digit growth in international safety.

In the diagnostics segment, we anticipate currency neutral growth of approximately 6%. We expect to see significant pickup in growth from our emerging markets opportunity and from our new BD Max product launch later this year. We expect Biosciences currency neutral growth of approximately 7%, which will continue to be primarily driven by instrument and reagent sales and the cell analysis business, including the launch of a new sorter.

Discovery labware, including our advanced bioprocessing business, will also contribute to the growth in the balance of the year.

In our emerging markets, we expect to see strong growth for the balance of the year. Safety sales and strong growth in Latin America and Asia Pacific will also be among the primary drivers.

Turning to slide 16, as we discussed, we are maintaining our revenue growth of approximately 4% currency neutral based upon the current market environment. We estimate that our gross profit margin will improve by about 30 to 50 basis points, so we expect to see favorable change in startup costs and other efficiencies from our operational excellence programs.

We will continue to accelerate our R&D investment to support new product platforms and extensions. All in, we expect diluted earnings per share from continuing operations to be between $5.45 and $5.55, an increase of approximately 10% to 12% over adjusted diluted EPS of $4.94 for fiscal year 2010.

Now as previously mentioned, our second-quarter results will have an approximate unfavorable $40 million impact due to the absence of flu, stimulus, and supplemental revenues as compared to prior year. The second quarter will also have a higher tax rate than the annual rate as previously discussed. Therefore, the second quarter top and bottom line growth will be below the full year average growth rate.

Now I'd like to turn the call back over to Vince, who will provide a more detailed update on our go forward strategy, our performance, and progress against our key initiatives.

Thank you, David. As I mentioned in my initial remarks, in this difficult environment, our strategy remains unchanged. We are committed to accelerating growth by strengthening the core, delivering on new product platforms and extensions, growing in important emerging markets, and delivering on our operational excellence programs.

In the next few slides, I'd like to focus on these areas. But first, I would like to briefly comment on another press release we issued yesterday. I am pleased to report that BD has signed a definitive agreement to acquire Accuri Cytometers, an Ann Arbor, Michigan-based company that develops and manufactures personal flow cytometers for researchers. Consistent with BD's acquisition strategy, this acquisition would expand our presence into the emerging affordable personal flow cytometer space.

The acquisition is subject to regulatory approvals and is expected to close going into the third quarter of fiscal year 2011. We are not disclosing the financial terms of the transaction at this time. We estimate that the dilution will be minimal and short-lived and it is included in our full-year guidance.

Now moving on to slide 19, on our year-end earnings call, we discussed a number of key product initiatives and milestones. I would like to provide an update on these key initiatives. This fiscal year, we have many exciting opportunities in our pipeline. In our medical segment, our ReLoCo program remains on track with conventional reuse prevention and low cost safety products launching this year. We also plan to launch a next-generation safety pen needle at the back half of the fiscal year.

In our Diagnostics segment, we have a couple of new products to launch, the most notable being the BD MAX, the automated molecular diagnostics system.

In our Bioscience segment, we plan to have a new desktop sorter, a new animal-free media supplement for bioproduction, and a new serum free media for certain stem cells this year.

In fiscal year 2012, you can expect the BD MAX MRSA and C. difficile launches midyear in the EU. The US launch will be toward the end of the year.

In fiscal year 2013, we expect to launch our molecular pap test, the BD Surepath Plus, along with the Viper LT at the end of the year. Of course, we will continue to provide you with updates on our products and programs as we continue to make progress.

We continue to grow our emerging markets, which account for over 20% of BD's total revenues. Overall, emerging markets in Q1 grew significantly faster than the corporate average, with strong double-digit growth in key markets, with China growing at about 25%.

As David mentioned, timing and the flu pandemic-related sales that occurred in the first quarter of fiscal year 2010 presented a challenging comparison in our emerging markets this quarter. Emerging market growth is being fueled by the expansion of healthcare funding and patient access in conjunction with BD continuing to increase our investments and salesforce in those areas.

We expect good performance for the remainder of the year, with safety sales and strong growth in Latin America and Asia Pacific being the primary drivers.

On our year-end call, we discussed a number of operational excellence programs and key milestones. On slide 21, I would like to provide an update on these important initiatives.

As David stated, our ReLoCo program remains on track. This fiscal year we will begin manufacturing conventional reuse prevention and low cost safety products in three plants on three continents. We expect the program to break even in fiscal year 2011 and to reach steady-state savings of $50 million to $60 million in fiscal year 2013.

Our EVEREST program aimed at consolidation of our SAP systems also remains on track. The first go-live will be in mid-fiscal year 2012 and we are making good progress towards full implementation in fiscal year 2014.

On the shared services front, the centers in San Antonio and Singapore are in place and will go live this quarter. We are continuing to make investments in these centers to drive structural efficiency gains and G&A reductions.

On slide 22, before we open the call to questions, I would like to reiterate the key messages from our discussion today.

First, healthcare utilization remains constrained by the macro environment.

Second, we are continuing to invest in driving strong growth in emerging markets and we saw good progress in the quarter.

Third, we continue to invest in new product platforms and extensions. Our product development and product launches remain on target and consistent with what we communicated on our year-end call.

Fourth, we remain focused on operational excellence programs and our initiatives are progressing on plan.

Lastly, based on our expectations for the balance of the year, we are reaffirming the guidance for the full fiscal year 2011 that we gave on our year-end call.

Thank you. We will now open the call to questions.

(Operator Instructions) Rick Wise, Leerink Swann.

Good morning and thank you. Good morning, Vince. Good morning, David. Let me start off with a question about the quarter. You had said in the fourth quarter you expected essentially flat results. You sort of delivered that, but the press release obviously indicated you were a bit disappointed it seemed by a couple of issues, which included, quote, greater price pressure in certain markets. It sounded like EU was a little tougher and pharma systems was on the light side.

Can you help us understand, give us a little more color on those points and think about forward how they resolve?

Sure, Rick. Starting with -- we came in slightly under flat, as you saw and you noted. It was really more volume-related than pricing-related. The pricing issue is more episodic than anything else. And we see on the occasional tender where a competitor throws in a significantly lower price, but it's not something that we are seeing uniformly across the device product lines.

We have probably seen a little bit more of it in the international space and maybe in Europe, so that's the first thing. In terms of where the shortfall was, it was kind of across the businesses. I can't point out one particular business and say that business was off.

So we look at it more as a macro trend from a volume standpoint more than anything else, and you correctly noted that Europe was challenging. And as we look into some of the background data, we see some of these governments trying to hold back and scale back on what procedures they do. So those are kind of the macro factors.

Okay. Maybe just as a follow-up, Vince, maybe we could talk a bit more about gross margin. Gross margin was much stronger than I expected. You had guided us I think, David, to 52.2% to 52.4% for the year. You were at 53%. Some of that was from hedging, but it sounds like there were some challenges on the raw materials and pricing side.

Can you help us think through how we go from here? Is your -- it sounds like your old guidance still might be conservative.

Remember, when we gave guidance, you're right, it was 52.2 to 52.4, Rick, and in the first quarter, we had significant favorable variances because of currency, about 70 basis points improvement. And what we guided for the full year on currency would be slightly negative, about 10 basis points.

But underlying performance there is a great -- really good story there. What we said before is that we have about for the full year, about 40 to 60 basis points of performance improvement for the full year. What you really have there is you have operating performance improvements, you have ReLoCo turning positive for the full year, and then that's going to be offset by some resin and the increased pension costs that we have year-over-year.

But I think the ReLoCo program, the programs that we have in place on the supply chain particularly in the medical business, we continue to see good performance there on the margins. So we're holding our guidance at 52.2 to 52.4.

Just make sure, so it sounds like the rest of the quarters are going to be less than the first quarter is what you're saying?

Well, the first quarter was really driven by the currency in the hedge and that kind of disappears through the remainder of the year so you won't get that. But what you will see in the second half of the year is continued improvement in the operating performance.

Thank you so much.

David Lewis, Morgan Stanley.

Good morning. David, two questions on outlook just to start, then I have one question for Vince. Just think about outlook in the back half of the year, if you adjust for stimulus and adjust for flu, it's still implying sort of an organic improvement into the back half. And I wonder if you could comment whether that is more an economic improvement or more of an inventory restock?

Then on margins, operating income obviously was down to currency neutral 7.5% this quarter. Obviously that's very different than your guidance for the year so also interested in what are the major factors that really improved that profitability in the back half versus the first half. I have just one follow up for Vince.

Okay, well I think as we went through it, we talked about several of the things that are driving performance in the second half of the year. If you think through our medical business, as we said in pharma systems, pharma systems in the quarter was down and that's because of not only the flu but also because of extra orders that we received in the first quarter of last year. So -- and if you remember with our pharma system business, if you look back on a quarterly basis it's quite lumpy.

So we are anticipating seeing some very strong growth in the second half of the year in pharmaceutical systems. Diabetes business, we continue to see strong growth from our -- the pen needles, and also international safety, we are anticipating seeing improvements in the second half there.

In the Diagnostics business, women's health and our SurePath is strong growth in the second half of the year. And with the launch of BD MAX, we continue to see very strong growth in that platform.

Then on the Biosciences business, the tough comps remain mainly in the first and second quarter with stimulus in the supplemental orders from Japan. Once we get beyond that, we will see good growth rates of about 8% for the remainder of the year in the Biosciences business.

So it's all those components together. As Vince said, it's spread across the business, so we feel good about the remainder of the year from that perspective.

So, David, it's not so much -- we are not forecasting a change in the macro environment. We think the micro environment is going to be here for awhile. So what you're really seeing is as David was saying, a improvement in pharm systems in Medical, the ReLoCo product launches, a new pen needle product launch. And on the Diagnostics side, BD MAX as an open system, and you can see that on one of the charts.

There's also a microbiology instrument which is a plate streaker and then the small sorter in the Bioscience business. So there's a series of product launches, not so much macro factors.

And David, to your second question around operating margins, the first quarter operating margin was less than what we had guided for the full year and that was in line with what we expected. What is really driving that, as we talked about, is the biggest driver there is the R&D investment, 17% growth in R&D. That's about 100 basis point increase year-over-year. And as we guided for the full year on R&D, it's about 10% to 11% growth in R&D investment.

Also as we talked about from an SSG&A perspective as well, we are anticipating that to be about flat. That decreased about -- it was a headwind of about 50 basis points. That's just the phasing of some of those investments there.

Okay, then just a quick strategic question on Accuri. I thought historically BD was not as bullish on bench top flow systems, so help me understand what Accuri offers that's different. Has something changed in how you view either US research market or is this more of an emerging research market investment? Thank you.

I will make an initial comment, then I will turn it over to Bill Rhodes to talk further about it. But we really saw a new segment begin to emerge over let's say the last 18 months or so in that we were really focused more in core laboratories. This is a much lower cost, much simpler to use flow cytometer. And Bill Rhodes can explain it a little bit more.

Yes, essentially what we have seen is over the past three years, there's been a development in the utilization of flow cytometry in non-core facilities, i.e. making it a personal flow cytometer that life sciences researchers can use. The obstacle that they have had to do that is affordability and essentially we see this as an opportunity for us to work with life sciences researchers around the world to in essence bring them an affordable and very high-quality flow cytometer.

So it's very much in keeping with our strategy. And just one last comment, we have seen -- you will see the desktop sorter at some point. We've introduced even high-end products that are built to be more affordable, take up less space, and go into laboratories outside of the core labs.

Complement what we are doing in Accuri.

Great, thank you very much.

Mike Weinstein, JPMorgan.

Thanks. You know, one of the questions really that I get from investors is not so much the BD product pipeline but more gets this macro question of whether your end markets can support sustainable 6% plus, 6%, 7% of revenue growth. So it's not so much a question of what's in BD's pipeline, but the strength of your underlying end markets, be it the US, Europe, or the (inaudible) emerging markets?

Can you just help us with that a little bit in terms of the comfort level with -- not with what you are doing internally but that there's the growth in your external markets? This quarter obviously is one a quarter data point. But help us with the comfort on long-term sustainable growth in your markets.

Well, you know, if we look at the US and we see maybe GDP is growing 3%, if we then also expect in international markets the growth that we have in emerging markets, the 6% does not look like such a -- does not look like such a stretch to us. Remember, when we grow 6%, it's a combination of added extra value plus volume growth. And while you told me to move away from our pipeline, but that is a big portion of how we get to the 6% growth.

So we started out the call by talking about stabilization in the markets that we are seeing from a macro standpoint. So we do think it is sustainable. Let me go back to the example that Bill Rhodes was talking about from a bioscience standpoint. So it's not just in our current core served markets that we see growth opportunities, but it's also in moving into near adjacencies. And that in addition to the other factors that I've talked about is how we get there.

So the personal flow cytometer market really didn't exist a couple of years ago. As Bill said, we started to see that trend, so we expand the segments that we are moving into.

Give you another example, in the medical business in diabetes care, we've been so successful with pen needles and we see a worldwide epidemic in diabetes in addition to the core product line we've talked about moving into the infusion space particularly on the disposables and working with the JDRF.

So there's a number of things that we are doing that enable us to leverage kind of core growth into higher growth. Gary, would you like to make a comment?

The only other thing I would add to that is that there are a number of things in the first quarter that don't really make a reliable indicator. The flue pandemic certainly is one of them. It's very strong pharmaceutical systems performance in the prior year, which particularly hit Western Europe by the way. I think part of that was in Western Europe. And then there were a series of other things that were timing of orders going into the developing world through PEPFAR and through UNICEF that didn't fall into the first quarter as we had anticipated. There was a change in an India immunization order that was fairly sizable on a year-to-year basis.

So there's a number of things that tend to mask what the underlying performance actually was. And as we look out for the full year, growth in the emerging markets we are anticipating will remain strong. Western Europe is not as bad as it looked in the first quarter for the reasons I had mentioned. We had good growth in some key areas like United Kingdom, which is one of the largest countries there, actually grew pretty well. So I think we will get a better sense of all this as the year rolls out.

Thanks, Gary.

A couple follow-on questions, one question. Has flu testing picked up the last few weeks? Have you noticed that? If so, can you give us a sense of by how much?

And then second question is, you bought back more than $800 million worth of stock during this quarter. (technical difficulty) you're planning to buy back 1.5 billion during the year. Should we for modeling purposes assume that you complete that in this fiscal second quarter?

Okay. Let me ask Tom Polen to make a comment on the flu.

So for Q1, we saw very little flu in Q1. As you just indicated, we have seen flu begin to pick up over the last few weeks, a bit stronger in Japan. We've seen the flu season accelerate in Japan but it is also accelerating in the US but to a lesser extent than Japan.

Right, and then on the share buyback?

Share buyback is just assume that we finished the remainder spread over the last three quarters.

Okay, thanks a lot.

Jon Wood, Jefferies.

Thanks a lot. Vince, you mentioned that the Accuri dilution is in your numbers. Is the revenue of this asset material enough to move BD's constant currency revenue growth in the back half or is it too small at this point?

It's too small at this point. They are selling -- they do have product sales, but it will move the needle on BD.

Okay. For David, so just back on the repurchase, is the $228 million still the right number for the year given that you've done quite a bit obviously in the first quarter? Does that trend down at all for the annual guidance?

Yes, if you look at the fully diluted shares outstanding, that's a pretty good number. One thing, recall that dilution increases a little bit as the share price goes up, so it might be a little south of the $228 million.

Okay, great. Thank you.

Larry Keusch, Morgan Keegan.

Good morning. I guess two questions here. First, I think, Vince, you mentioned in your prepared comments you said something about some volatility in ordering patterns by customers. So I'm just wondering if you could expand on that?

And then is there any update on how you are thinking about the uptake of safety in Europe given that sort of three-year transition period?

And then just for David, just help us understand kind of how you are thinking about the tax rate for the second quarter since you said it is going to be higher than it was in the first.

Sure. So on the volatility of customer ordering patterns, the biggest impact was in the pharmaceutical systems business. And as we said, that has been historically there's a lot of volatility in that and so low this quarter, with a difficult comparison to last year.

And Bill, do you want to give any more color on that at all?

The only thing I can add, it is a little bit of a complicated picture because it's lumpy, but if you take the pharm systems growth of minus 12% and you adjust for the pandemic, and as David and Vince both mentioned, it gets you to about minus 3. But if you then adjust for this large order that came from a major pharmaceutical customer, which was over $25 million, the underlying growth for pharm systems in the first quarter was in the 9% to 10% range, so we're actually comfortable where we are at in terms of core demand.

Right. And, Bill, we are expecting on the back half of the year that we are going to see some lumpiness as well with Q3 being stronger than Q4.

We've got favorable comps coming in the second half, primarily in the third quarter.

Right. And Gary, you had a comment you would like to make.

Just a comment on your question about safety. First just for some perspective of total safety, international was about 55% of the size of the US, a little bit more than half the size of the US. Then of international, almost exactly half is Western Europe and the other half is the rest of international.

We are already experiencing faster growth on safety than the average, quite a bit faster in Western Europe in the first quarter relative to the total results for Western Europe. We are expecting some acceleration of that over the remainder of the year, and we are experiencing very strong growth, very solid double-digit growth in the emerging markets for safety, particularly Asia Pacific and Latin America. And we anticipate that that will continue through the year.

So the safety contribution is pretty much across the board in the international markets and the growth increase that we are expecting in 2011 over the remaining quarters in Western Europe is not a huge increase, but it's a continuing upward trend consistent with the anticipated impact of the timing of implementation of the European Union Director.

Larry, coming back to the volatility and customer ordering patterns, the other piece that I had in mind when I was talking about that was the flu for diagnostics, where because of the big ordering that we saw for last year's pandemic flu, there was a lot of flu tests in the pipeline, and so that was introducing a lot of variability as well.

Okay, and then the tax?

Larry, it's David. On the tax, if you recall for the full year, we had guided 27% to 27.5% and the spread in that was as we talked about was because of the variability and whether or not we were going to get the R&D tax credit and we said we had it built in there.

So for the full year, the tax rate we are expected to be round 27%, so as you think about the first quarter sitting at 23%, for us to average out 27% for the remainder of the year, the tax rate in the following quarters will be north of that 27%.

Okay, thank you very much.

Kristen Stewart, Deutsche Bank.

I know earlier you had said that the softness in the quarter was more volume than price and price is kind of spotty, it sounds like. Could you maybe expand a little bit about that just in terms of the tenders that you are seeing? Is it more in Europe or emerging markets? And to what extent have you built in additional kind of pricing headwinds as you look at the balance of the year?

It was mostly in Europe and from a Company standpoint when we try to quantify it, it was very, very small, but we expect that we will continue to see that kind of behavior. So we are not forecasting significant price declines over the balance of the year.

Okay. And just in terms of who is being more price competitive is the usual suspects --are you seeing more of it coming from countries pushing back on price or is it just the competitive nature?

It's just the competitive nature. It is the usual suspects.

Okay, then, David, can you just go back in talking about the gross margins, you had broken down the performance and I think you had said that there was 90 basis points of improvement but offset by pensions and higher resin. Could you just maybe flush that out a little bit and to what extent do you have resin price increases built in for the year?

Sure, Kristen. So performance overall was about 90 and that's being offset by about 40 basis points of resin. Within the quarter, I'm talking Q1 now -- 20 basis points of pension, and about 10 basis points of ReLoCo startup. So the net performance for the quarter was around 20 basis points.

Right now what we are assuming on resins is oil in the 80 to 90 range, so there is a little bit of risk from pricing pressure if oil goes above $90 a barrel and stays there for the remainder of the year. But we will keep you guys posted on that. Right now, our assumptions as we look at it, we are thinking in the $80 to $90 range.

And then just kind of how long it takes for that to translate to the P&L, is it still like about a six-month lag?

I'd say it is about a three- to six-month lag, depending upon the resin. Remember, these are specific resins that we have to purchase and so you can't go to different suppliers in order to provide it. But it's in that three to six months and I would say that last year we were successful in buying in more of those resins. This year it's proving more difficult to do that.

Okay, perfect. Thank you.

David Roman, Goldman Sachs.

Good morning, everyone. Thank you for taking the questions. I wanted to the back to ex-US growth for a second. If I just do some math based on your comments that emerging markets were about 20% of revenue and if those grew in double digits, that would mean the mature non-US markets were down something close to double digits. And I know you referenced a couple of large orders that may have negatively impacted that.

But can you maybe articulate a little bit more about whether you are expecting that to change throughout the course of the year? And if so, which markets did you see the most weakness in and what would drive them to get better over the course of the year?

Gary will take that question for you.

The first thing to point out is in the quarter, the emerging markets did not grow double digits, mostly just to some one-time events that I had briefly mentioned in response to one of the other questions about timing on orders going into developing countries through international organizations and an unfavorable comparison to a very large Indian government immunization order last year. So that therefore the industrialized markets, the developed markets didn't decline at double-digit rates either.

The emerging markets in the quarter were up around 8% excluding the pandemic impact. That's going to accelerate over the course of the year because of the factors I mentioned, these one-time unfavorable comparisons. We are expecting double-digit growth for the full year, which implies even slightly stronger double-digit growth in the remaining quarters.

And then Europe, as I mentioned, was down year to year but that had a disproportionate impact on the pharmaceutical systems comparison. So it's not as extreme as perhaps you thought, just assessing the information so far and the emerging market growth outlook is very positive.

David, we might have confused you a little bit because we did say double-digit but we had those -- some qualifiers in there in terms of those one-time events.

Okay, that's helpful. So on the overall top -line growth, if I kind of look at the 2.8% that you did in the first quarter to get to the 7% underlying growth for the full year. You're talking about sort of a little bit north of 8% growth through the balance of the year. And I know in your prepared remarks or answers to one of the earlier questions you referenced that you weren't expecting an improvement in the end-user markets. But is all that improvement related to comps/new product introduction? Maybe you could quantify to what extent the acceleration is related to an abatement of some of these one-time factors versus the introduction of some of the new products. Is it equally balanced or is it more weighted to one or the other?

I don't have the split right off the top of my head, but kind of backing up a little bit, so in terms of some of the comps, the two biggest areas where I think the comps are going to play a big deal, one is in pharmaceutical systems, where that's going to be very significant. And the second one is in PAS, where we will have easier comps over the balance of the year.

And then in terms of the headwind that we have dissipating, remember that we will still have $40 million worth of headwind in the second quarter, which will have an impact of about negative 2% on the top -line and about 4% on the bottom line. Then things turn much more positive. So I can't break it out between that and the new products.

David, do you have anything else you could add on that?

No, I think you pretty much summed it up there. I think as we look at -- as we talked about last year, we are in a period of four very tough quarters. The last two quarters of last year and the first two quarters of this year because of the comp that the flu, supplemental orders and pandemic had and that's why as we look forward when you adjust for all those things as we went through on slide 15, we are really looking at the remainder of the year to be about 7%.

I think you had said about 8, David, but we look at it to be about 7%. If we do that, we can get to the underlying growth excluding flu and the stimulus orders of about 6% for the year.

As Vince said earlier, we're really looking at the markets to stabilize in order to deliver upon that. We see it stabilizing and that's what our guidance is based upon.

Yes, the biggest impacts in Bioscience is new product driven. It is in the balance of the year in Diagnostics, it's new products in the infectious disease business, continued good growth in TriPath. And that's really the -- as we've seen already this year. And then continued growth of c. difficile.

The bigger kind of comp is as I said, is in PAS and pharma systems. Bill, do you have any other comments on medical?

No, I think I just want echo the earlier comments Gary made about the international safety effort not being just in Europe but in Europe and Latin America, we've got a good confidence on our conversions, particularly in the area of infusion therapy.

Thank you.

Amit Bhalla, Citi

Good morning. A couple questions on that new product portfolio and the launches that you laid out. Can you give us an update on the Surepath Plus trial? I think you're shooting to complete that by the end of the year.

On the desktop sorter, I see you have a launch date of fiscal 2011 but I thought that was supposed to be a calendar first-quarter launch. So did the timing move around there?

First we will do Tom Polen on the Diagnostics side, Surepath Plus.

So on your question on Surepath Plus, so we did start that trial in the US in Q4 of last year. It's progressing exactly to our expectations and we continue to hold that launch date in 2013. So no change from what we announced in Q4 and it is going very well.

And as far as the desktop sorter, it's still within the second fiscal quarter, first calendar quarter.

And we were talking another instrument that we are going to be launching the following year. That's what you're thinking about, a small analyzer.

Okay, and then a follow-up question just in terms of Diagnostics. Can you give us a little bit of color on the performance of GeneOhm, TriPath, and some of the other molecular products there?

So Genome, [inaudible] in Q1, we were pleased with the performance that we saw and as Vince already alluded, we saw very good growth on our c. diff assay. In that business, we grew 15% in Q1 driven by growth in c. difficile testing. I think Vince obviously discussed earlier about some of our future product launches with MRSA and c. diff coming in FY'12 and we are obviously also working on a number of additional menu items for the BD MAX platform, which will eventually of course cannibalize. We will end up fading out the Genome smart cycler product, replacing it with MAX and are working on a breadth of menu that we look forward to sharing in future quarters.

We expect to begin communicating more about our menu on Max as the six color MAX approaches later this year.

TriPath?

TriPath grew worldwide. TriPath was up 5% for the quarter. And one thing that we have seen -- I think we had spoken last year about some volatility in OB/GYN business and pap visits and we have been tracking both OB/GYN visits and pap visits very closely. Over the last two quarters, we have seen that stabilize which is pleasant obviously for us to see that.

We are not seeing a return to prior levels of testing but we are seeing stabilized flat and we are again seeing good growth across most markets particularly in Asia Pacific for our TriPath business, where we are growing well north of 20% in Asia Pacific in that business.

Tom, the trial, the timing on the trial?

For Surepath Plus? I think (multiple speakers) earlier.

All right, sorry. All right.

Thanks.

Jon Groberg, Macquarie.

Thanks a million for taking the questions. So, a lot of the questions have been answered. I guess maybe, David, if you could just expand a little bit more the question I get the most often is around gross margins in particular with the -- potentially with this disconnect between the euro and commodity prices. So I know in the past there tended to be an inverse correlation which kind of helped you to some degree mitigate the impact.

I guess that seems to have broken down a little bit. So I know that these lag three to six months, but can you maybe talk a little bit more generally about the impact you expect now that you are no longer hedged from a currency standpoint? Thanks.

Our guidance, we're really looking at -- assuming that the really no impact from currency for the full year. So we have some favorable comparisons because of the hedge losses last year in the first quarter and a little bit in the second quarter. But as we progress throughout the year, we are assuming the average euro rate is going to be about the same.

To your second point on commodity prices, we are seeing pressure on commodity prices. I think resins is something that we will see more pricing pressure on, but right now our assumption is that resin pricing is going to be in line with that oil in the $80 to $90 range.

Okay, I know you said that earlier. I just didn't -- I guess as we think about that, you no longer having that offset, if -- are you potentially more exposed I guess to rising commodity prices? Is that something we see over the next year to two years? And you've been in the past, or are there other mitigating things that you're doing that maybe just haven't been communicated?

Yes, I think our ReLoCo program and our start-up costs as we talked about a little bit earlier, start-up costs start coming down year-over-year. We start getting positive from our ReLoCo program particularly the latter half of this year and going into next year and also our efficiency programs that we have that are below gross margin that we continue to drive from our shared services and our G&A cost reduction programs.

So and as we talked about, our strategy very much from a manufacturing perspective is we are assuming that commodity prices are going to be higher going forward, therefore everything that we can do from a green perspective, from a manufacturing supply perspective to get more efficient will make us more competitive in that type of environment. That's the strength of the organization, it's what we've been successful over the past few years doing.

Okay, perfect. Thanks.

Bill Bonello, RBC.

Good morning. Just looking forward out into the future a bit, any thoughts on some of the inhalable insulin products and just how that might impact your pen needle business?

Bill Kozy will take that.

We continue to track a number of potentially disruptive technologies. I'm sure you're aware that the latest feedback from the FDA on this latest new product activity and they are going to have to go back and do a little bit more work, we will continue to keep our eyes on that. But our position on inhalable insulin is really not changed since the last go round.

Okay. And then I guess I'll call this a follow-up, though it's kind of cheating. Just on BD MAX, you talked about the initial launch being as an open system. Can you elaborate a bit on that sort of what kind of demand you would expect for the product as an open system and sort of where that's being sold and what kind of applications it might be used for?

Sure, so we expect launch of that as an open system in Q3 of this fiscal year and in Europe follows very soon after the launch of that system in the US. And the way that we expect this to be used particularly in Europe, where there's a much larger kind of standard market for open assay development where you have a large number of the university laboratories and even large community hospitals are basically developing their own assays and the way that this works is we sell the six color BD Max to them as the instrument. We then provide a consumable strip that essentially has the majority of the reagents that they need to develop their own tests.

They would put in their specific primers for their marker. They were able to adjust some of the software algorithms to be able to optimize for their specific tests and then they would be able to develop any test, molecular test in their own laboratory and then perform that.

You see that typically for many of the more esoteric tests. You don't see people doing an open system for GCCT or HPV or MRSA. They would buy a commercially available test for those assays, but many other infectious disease tests you do see the use of home brews or open systems particularly in the European market.

And so there's quite a robust market for those types of technologies today. I think this fits in well into a category that Vince alluded to earlier. We have not traditionally played in the open system marketplace. This is many of our competitors have had offerings in that space. The launch of BD MAX later this year will be our first entree into that new market for us. And I think as Vince alluded to, that growth is all coming as incremental new growth in a new market that we have not competed in traditionally.

Okay, thank you.

Doug Schenkel, Cowen & Co.

Good morning and thanks for taking my questions. Just a few loose ends. Clearly there's a lot of focus this morning on trying to get more comfortable with the robust second half acceleration and sales growth that you've built into guidance. You've mentioned a lot of different variables. Maybe just to go back to a couple of them, I think early in your prepared remarks you talked about pharma system improvements that you've incorporated into second-half guidance.

Is that more attributable to historical lumpiness, favorable comps? Or is it actual visibility on that business getting a little bit better? Another thing you mentioned was SurePath, which I know is not a huge part of the business, but I think you talked about improvement there in the second half. Is that seemingly predicated on some sort of a rebound in utilization that's built into your guidance?

Well, Bill will take the pharm systems question but we do have some pretty good visibility as to customer ordering patterns. Bill, do you want to take that?

Sure, just as a quick reminder, the way that pharm systems business model works, we tend to get advanced projections from our major pharmaceutical customers and those are followed by confirming purchase orders. Typically within 45 to 60 days of an actual commitment to order.

Coming back to the comments that Vince made about the third quarter, what are the key drivers from a customer perspective? Remember that from the pharmaceutical company perspective, the flu ordering starts in the third quarter and we've got commitments, projections on that. Low molecular weight heparin also is continuing to make good market penetration particularly in the US.

We've got market expansion in two markets on the prefilled platform as people convert from bio to prefill, and that's in Asia and in Latin America with the Asia market expansion being a nice, positive impact in 3Q. So it's those particular growth variables in addition to our European base growth business in the third quarter that are giving us some confidence around pharm systems in the third quarter.

So coming back to Diagnostics, Tom can comment on TriPath in a second. But Tom and I have both said that there were a couple of other factors that were bigger drivers within that business. In the back half of the year, we have the two product launches that we mentioned, which of course was the BD MAX and there's another microbiology instrument for core microbiology that we are also launching on the back half of the year. Easier comps on PAS. Then the absence of a negative situation from flu. But TriPath, I think, Tom, you mentioned that there is continued good growth in TriPath.

I think you know that there's not a significant acceleration of TriPath in the second half. It's really more the overall growth factors are more related to the factors that just -- that Vince just mentioned. We are continuing to see good growth in TriPath and again that's coming part from the US but much more significantly from the emerging markets.

Okay, that's all very helpful. Maybe if I could just slip in one more. A lot of other companies that we look at that have stimulus exposure are still seeing a good amount or I would say least flat growth when it comes to stimulus-related revenues. Now maybe that's because they are more research-focused or there's more of a consumable mix, so there's more of a tail to that type of spending.

Could you just explain why it is a little bit different for you? Exactly what dynamic is driving the drop-off in stimulus-related revenues that a lot of others are not seeing?

It's hard to comment on others, but our stimulus revenues were related to a very -- two particular events. One was the US stimulus and their instrument program, which had a defined start and stop, and then the Japan stimulus program, Bill -- anything else on that?

Well, that's exactly right. If you parse through it and take a look at what happened, there was a discrete amount of money that was made available early in the year and instruments for laboratories which we took notice of and advantage of, and the same thing on Japan supplemental funding. So for us, we had a very good run at stimulus and supplemental last year.

I guess that makes sense to me, but I guess to be clear then you don't get any follow-up pull through I guess on those instruments and then I guess also given they were instrument placements, would there be some in kind margin benefit at the gross margin line given -- that presumably that would actually -- the elimination of those revenues would actually lead to a favorable mix this year?

It's Bill again. The answer actually is -- we do see reagent pull through because we have a higher installed base due to the fact that we were able to place that many instruments in both Japan significantly and the US.

As far as margin, it's a complicated formula. You need to remember of course that we made a lot of things last year which contributed to margin, but now we are selling more reagents. So it's sort of a complicated way to look at it, but at the end of the day we do see pull through on reagents.

Okay. So there is some stimulus-related revenue in the form of those reagents that's in this quarter.

Yes, it's based upon the fact that we placed instruments because of stimulus spending.

Yes, not stimulus-funded dollars now, but instruments that went in and customers now use them. But more on the research side and so they don't have the large reagent trails that you see on the clinical side of the business, but we are getting a positive impact (multiple speakers).

Okay, thanks for taking the questions.

Brian Weinstein, William Blair.

Good morning. Not a whole lot left to go over here, but are you guys sticking with your 228 million shares outstanding? And the reason that I ask is obviously with a big chunk of the $1.5 billion spent so early in the year, you get a really nice EPS benefit from the lower share count.

But using so much in Q1 really struck us as a bit odd, especially given the nice move in the stock. As of early November, you guys hadn't even really started the program yet.

Yes, so I think the question came up earlier from Jon Wood. We said the 228 million will be favorable, but there is some offset due to dilution because of the higher share price than what we had originally assumed. But yes, there will be some benefit from the weighting effect that you get from retiring more shares in the first quarter.

Okay, and then I didn't hear if you guys specifically commented on the STD business and what was going on there?

The STD business? Tom Polen will take that. Our Viper and ProbeTec business.

So we again, strong performance in Q1. We grew about a little over 8% in Q1 in our molecular business and are forecasting continued strong performance for the balance of the year, in that same range.

Yes, so we were pleased with what we saw there.

Thank you.

Bill Quirk, Piper Jaffray.

Thanks. Good morning, everybody. Vince, just thinking about the commentary around the higher material costs, raw material costs, excuse me, as well as the pricing pressure that you mentioned, how should we think about your ability if at all to push some of the higher cost through the end market?

So as I said, the pricing has not been significant. In this -- historically, we have not been a company that raises prices unless it's really been a significant situation. So you would see us more focused on operating effectiveness to offset the pricing than raising prices across our product lines. And especially on the device side, we may have a little bit more room in certain bioscience product lines.

Got it, thanks much.

Peter Lawson, Mizuho Securities.

Vince, I wonder if you could just give us a break out of the mix between c. difficile and MRSA and the GeneOhm business.

We haven't broken it out, but most of the growth, what I would say tell you, Peter, is coming from c. difficile at this point in time. I think that's as far as I would go with it.

Perfect, thank you. And then just on the mentioned -- on your commentary about China, what -- are you seeing a benefit from a hospital build out and you're seeing increased competition in that marketplace as well?

Gary will take that.

I think all participants in the broader healthcare space are seeing benefit from the build-out of hospitals and we planned our strategy accordingly including plans for us to expand our organization to reach those hospitals.

Competitive wise, the circumstances are dynamic but not really changed. We are seeing strengthening of local competitors but not in a dramatic or a step function sense and much of what we are doing to ensure we can compete on the highest quality, lowest cost basis lends itself very well to the market characteristics in China. So on the whole, we are very pleased by the progress there.

And what's the revenue contribution from China?

We had mentioned last year the revenue in China was in the range of about $250 million in 2010. That's just the mainland.

Perfect, thank you so much.

Paul Choi, Caris.

Good morning. Thank you for taking the questions. Maybe first a question on diabetes. You guys face some difficult comps next quarter as well as in the fourth quarter. Can you help us think about how that growth that you are targeting for medical will be achieved? It sounds like you're banking a lot on diabetes growth, but is it more volume in terms of customers replenishing stocks or do you see the primary driver as being perhaps adoption of your new safety patents?

Well, there are other growth factors in Medical that Bill can touch on, so it's not primarily diabetes care though diabetes has been a good actor. And there are some new products there, but, Bill, you want to comment on that?

Sure, we've still got some unfavorable comps to deal with in the second quarter, as David has mentioned a few times. You are exactly right on the DC comparisons, diabetes care as it relates to 2Q and 4Q. But the acceleration in the second half of the year is reflecting a lot of the benefits of the investments that were made over the last six to nine months in emerging markets that Gary referenced. And particularly we will start to see some revenue impact from those investments in the fourth quarter of the year, with China being one good example of that activity.

International safety, as I mentioned earlier, is also expected to have a positive finish in the second two quarters of the year, with Nexiva, Q-Syte, [Venpron] pro-safety and Intima 2, our new safety launched product in China, all contributing nicely. And we've got all the capacities now completely lined up to support that growth.

And then one last comment on new products, we've got the nano pen needle, which is gaining momentum. We will launch the safety product, which Vince and David mentioned, and then the rekindle product, all making admittedly smaller contributions to the year but incremental additions to our core revenue base.

Okay, thank you for that. And then maybe just quickly turning to Diagnostics, in terms of the 5% growth you've targeted for the full year, does that include some contribution from the ProbeTec test for HSV that you guys just filed for? Or should we think about that more as a fiscal '12 contributor?

There is a very small amount of growth in for HSV this year, but it's a relatively low volume asset. So I would even expect as we look forward in FY'12 and beyond, while there's going to be growth related to HSV, it's not going to be a key driver of growth either at the Diagnostic and certainly not at the BD level.

Okay, thank you for that.

Tony Butler, Barclays Capital.

Thanks very much. Briefly, Vince, you've made reference to new products in the back half of the year and I'm just wondering to what degree of confidence do you have that BD MAX will be launched in Q3? And moreover, what's your level of confidence also in its initial uptake? And then I have one follow-up for David, please.

Okay, I will let Tom talk to that, but we have a high level of confidence that we are going to get the instrument out, that it is a very attractive platform. Tom?

We had a very high level of confidence that it will be out in Q3. In fact, we already are shipping BD MAX to some clinical sites, our six color, as well as we have announced partnerships publicly for example with Lonza and we've been shipping instruments to our partner there as well. So the instrument is actually -- we are building instruments and beginning to ship them in certain places. Our commercial launch is in Q3 and we feel very comfortable with that date.

And initial demand, initial uptake?

We are seeing very high demand at this stage in Europe and in the US, very high customer interest. It's a very unique platform in the way that it combines extremely high ease-of-use. It's basically a walk-away system for molecular, but also with that open system flexibility so that customers can do many assays beyond those that are just offered by BD. So very strong customer interest and we remain on track to launch that as committed.

Thanks very much. Then, David, a P&L question. I believe last quarter you gave for full year 10% growth in R&D expense, obviously 17% in the Q1. Is it still 10% for the full year and therefore there will be a trend down for the remaining three quarters?

Well, it's 10% for the full year is correct, yes. There may be some lumpiness quarter to quarter but 10% is the full year guidance.

Yes, so lower growth rates the balance of the year, yes.

Thanks very much.

Jeff Frelick, Canaccord.

Good morning, folks. Real quick on the flow acquisition for Accuri. Vince, a few years ago you guys made an acquisition. I think it was Cytopia for custom flow. So how does that fit in and differ with Accuri's acquisition?

That was a sorter acquisition and we are doing well with that product line and in fact -- so that's up at the high end of the market place, the sorters. Though we are introducing, as Bill mentioned, a smaller sorter, and so we are going to have a small sorter and so we're going to have a small analyzer. So they are very complementary.

Okay, great. Thank you.

Kristen Stewart, Deutsche Bank.

Thanks for taking the follow-up. I just wanted to go back to the resin just to get the exposure. You said $80 to $90 a barrel is kind of where you are pricing it at. Obviously it's a little bit higher now. So can you just quantify again for us how much resin is as a percentage of cost of goods sold? I think it was last time like around 7% but I'm not sure if that has changed.

Yes, it hasn't changed dramatically. It fluctuates based upon the price of the resins as well as some of the other commodity prices. But broadly speaking, that hasn't changed dramatically.

So resins is still about 7% of cost of goods sold?

Yes, approximately.

Yes, it fluctuates anywhere between about $180 million to -- it's gone as high as $220 million based upon the pricing of the resins and how much consumed in any given year.

Got you. Okay, and then just the fall through from FX, is that still roughly like 25%, 30% -- of the currency from the top-line would fall through and your assumption for the full year assumes the euro kind of roughly at $1.36. Is that right?

That's correct, that's correct. Remember, what we saw in this quarter was there was a lot of volatility across the board on the currencies, not just the euro. So if you just think through some of those other currencies that we talked about earlier, the dollar strengthened against the euro as well as the pound but then it weakened in the quarter against the yen, the Australian dollar, and the Canadian dollar, so they kind of had counter effects within the quarter.

Okay, perfect. Just in terms of looking at the US book of business, you guys aren't seeing any concerning trends of trading down and kind of hospitals looking to use maybe instead of generation 3 and generation 2 safety needles or anything like that, right? After some exchanges?

No, we haven't seen any significant movement in that direction that's changed, no.

Perfect, thank you.

That was our final question. I will now turn the floor back over to Mr. Forlenza for any closing remarks.

Thank you all for your participation today. While healthcare spending as we've been talking this morning is -- provides a challenging environment, we are going to continue to drive our operating efficiency programs. You saw the increase in R&D and the investments in the emerging markets. So we were happy to reaffirm our guidance for the full fiscal year and we look forward to updating you on progress next quarter. Thanks very much.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.