Bio Rad Laboratories Inc (BIO) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Bio-Rad 2007 Earnings Call. My name is Jen, and I will be your coordinator for today.

(OPERATOR INSTRUCTIONS)

I will now turn the presentation over to Mr. Ron Hutton, Treasurer. Please proceed, sir.

Thank you. Before we begin the call, I would like to caution everyone that we will be making forward-looking statements about management's plans, goals, and expectations. Because our actual results may differ materially fro these plans and expectations, I encourage you to review our filings with the SEC where we discuss in detail the risk factors in our business. The company does not intend to update any forward-looking statements made during the call today. With that, I'd like to turn things over to Christine Tsingos, Vice President and Chief Financial Officer.

Thanks, Ron. Good afternoon, everyone and thank you for joining us. Today we will review the fourth quarter and full year financial results for 2007, the impact of our DiaMed acquisition, as well as provide some insight into our thinking for 2008. We know this is a lot of information and I'll do my best to walk through it slowly. Let's start with a review of the quarterly results.

Net sales for the fourth quarter of fiscal 2007 were $459.7 million, an increase of more than 28% versus the year ago period sales of $343.1 million. These quarterly sales include approximately $62 million contributed by the DiaMed business. Excluding DiaMed, sales in the fourth quarter grew 16% compared to last year, to $397.7 million. On an organic, currency neutral basis, sales for the quarter grew 9%. This strong year-over-year growth was fueled by solid performances in both Life Sciences and Clinical Diagnostics. During the quarter we posted record sales within our Life Sciences group. This growth was the result of increased sales of Protein Expression, amplification and process chromatography products. Diagnostics also posted a record quarter, even before the inclusion of DiaMed, which is a reflection of strong performance in blood virus, clinical systems, and quality control.

Consolidated growth margin for the quarter was a reported 50.8%, which includes more than $3 million of amortization expense related to the DiaMed transaction, and another $3 million of foregone profit margin as required under purchase accounting. The growth margin for the base Bio-Rad business came in as expected at 53.4% as product in our fourth quarter typically shifts toward lower margin instrument sales.

SG&A expense for the fourth quarter was $163 million or 35.5% of sales. This represents a significant increase from just last quarter, but it is important to note that the inclusion of DiaMed in our consolidated results constitutes more than $20 million of that increase. In addition, approximately $2 million of amortization expense, related to the deal, $8 million of negative foreign currency effect, and increased selling costs, commissions, and bonuses associated with the strong top line growth also contributed to this sequential rise. However, despite all of these additional items, as a percent of sales, SG&A is flat with the fourth quarter of 2006.

Research and development expense in Q4 was 8.7% of sales, of nearly $40 million, including the DiaMed financial results. During the quarter, we incurred a one time, non-cash charge of $7.7 million for purchased in-process R&D. This compares to $4.1 million in similar charges in Q4 of last year, related to the acquiring of the sell the assets from Ciphergen and the Blackhawk acquisition. Interest in other for the quarter was a net expense of approximately $10.6 million compared to $1.8 million last year. This amount includes a one-time foreign currency loss of $2.5 million related to the DiaMed purchase as we readied our cash for the Swiss franc transaction.

The decrease in cash balances also significantly decreased investment income for the quarter. And finally, the Q4 other expense reflects a one time write-down of an asset of $1.6 million.

The tax rate used during the fourth quarter was actually a benefit of approximately 8.5%. This benefit was primarily the result of favorable tax audit resolutions of prior years, as well as increase in R&D tax credits in our French operations. In addition, with the incorporation of DiaMed, we benefit from the lower statutory rates in Switzerland.

As you can see, our financial statements now include a line for minority interest for the DiaMed operation. This reflects two things. The 14% of DiaMed holdings that we did not purchase as part of the original agreement, as well as a few DiaMed subsidiaries where we do not own 100% of the stock. We will be conducting a tender offer for the remaining 14% of DiaMed holdings later this year. And as we integrate the business, we will also review the benefit of fully owning all of the DiaMed entities.

Reported net income for the fourth quarter was $12.4 million and diluted earnings per share were $0.45. During the quarter, we recorded $1.6 million of stock compensation expense for FAS 123. We are estimating that the one time non-cash charge for purchase R&D of $7.7 million plus quarterly amortization of $5.2 million, $3 million of foregone gross profits, and the $2.5 million of foreign exchange loss, all related to the DiaMed purchase, negatively impacted diluted earnings per share by approximately $0.68.

And now for certain segment information. Life Science reported sales increased 16% from the year ago period to a record $184.5 million. On a currency neutral basis, sales grew an impressive 9% for the fourth quarter. This increase reflects strong sales of amplification products, process chromatography media, and Protein Expression products. Gross margins in Life Science increased slightly, both sequentially and year-over-year, primarily due to improved manufacturing absorption and lower costs associated with our new Singapore facility.

In addition to improved gross margins, our Life Science group also posted good operating leverage from its record sales, and segment profit increased to more than $12 million as a result.

Our Clinical Diagnostic group also reported strong sales for the quarter of $271.4 million, including DiaMed. Base business for diagnostics increased 16% to $209 million, compared to $180 million last year. These sales were led by continued strong performance and quality control as well as our blood virus and diabetes product line.

Sales were especially strong in the United States, Asia Pacific, and Eastern Europe. On a currency neutral basis, excluding DiaMed, diagnostic sales grew 9% during the quarter. Diagnostic gross margins were down, both sequentially and versus last year, reflecting the inclusion of the DiaMed business and the related expense. As a result, reported fourth quarter segment profit for diagnostics decreased to just over $4 million.

Looking at the full year results, we are pleased to report annual revenues of $1.461 billion. Excluding DiaMed, annual sales were $1.399 billion, an increase of 9.8% over 2006. This is 5.2% on a currency neutral basis and in line with the mid single-digit guidance we gave at the beginning of the year. If we exclude the one-time revenue of $11.7 million reported in 2006, related to the patent infringement settlement with bioMerieux, then sales for 2007 actually increased 11% before the addition of DiaMed.

Both of our primary segments contributed to growth in 2007. For the year, Bio-Rad diagnostic sales were $770 million, an annual growth of more than 12% and currency neutral growth of 7.4%. Including DiaMed, our diagnostic group sales for the year were $832 million.

During the year, the group launched several new products in diabetes, blood virus, infectious disease, and quality control. On a geographical view, both Asia Pacific and the United States continue to be strong double-digit growers. During the year, we placed 50 new BioPlex 2200 in the U.S. and Europe, and have several other systems in evaluation at customer sites. The recent launch of our MRSA test in the United States, and our new point of care dose diabetes device (technical difficulty) into it are off to good starts. And finally, the inclusion of DiaMed into the Bio-Rad family brings with it new opportunities for both geographic and market expansion over the next several years as we continue to upgrade the technology and expand the business.

After a rather slow start to the year, our Life Science group also posted good annual sales, primarily fueled by growth in our core markets of multi-plex protein analysis and process chromatography. Asia Pacific and Eastern Europe also continued to be very strong growth regions for the tools business.

Reported growth in Life Science for 2007 at 6.9% and just under 3% on a currency neutral basis. However, this growth rate also reflects our challenges in the Japanese research market, as well as another significant decline in our BSE business. Excluding the BSE decline, core Life Science sales grew 11% year-over-year. During the year we introduced several new products for food testing, protein purification and analysis, and gene amplification. During the fourth quarter, we received regulatory approval in both Europe and the United States to sell our suite of food pathogen tests based on real-time PCR.

The strong year-end results for Life Science also reflect the continued demand for our new Proteome System, multi-plex reagents and process media as well as a good start for our new family of thermal cycling products.

Total company gross margins for the full year were approximately 55% prior to the inclusion of DiaMed, compared to 55.9% in 2006. Remember that last year's strong margin is primarily attributed to the bioMerieux settlement, which accounted for $11.7 million of both sales and gross profits. The impact of DiaMed and purchase accounting reduced full-year reported margins to 54.2%.

Research and development expense in 2007 was in line with expectations at $140.5 million. During the year, we launched more than 50 new products worldwide and have several more in the pipeline to help keep our return on R&D investment strong.

SG&A expense as a percent of sales was 34.8% for the year, about equal to last year, despite the inclusion of one-time expenses and increased amortization of intangibles.

Net income for the full year was $93 million versus last year's net income of $103 million. As I just reviewed during the Q4 commentary, various one-time expenses and non-cash charges accounted for approximately $20 million of negative impact to income, which had a direct negative impact on full-year earnings per share. Also remember that 2006 included after tax profits of approximately $6.5 million related to bioMerieux.

The tax rate for the full year of 22% was lower than originally projected due to benefits primarily related to favorable audit conclusions and new tax regulations in the U.S. and France. Going forward, we expect the tax rate to be between 24% and 26%. This improvement over prior years reflects benefits anticipated from the new regulations as well as the benefit of tax planning surrounding the DiaMed acquisition and having a sizeable operation based in Switzerland, which carries a significantly lower effective tax rate.

For 2007, Bio-Rad's balance sheets also remain strong. As of December 31st, total cash and short-term investments were $223 million compared to $488 million at the end of last year and $543 million at the end of September.

The significant change from last quarter reflects the approximately $400 million used to purchase DiaMed, partially offset by strong cash flow. The purchase of DiaMed has also impacted other areas of our consolidated balance sheet. The preliminary accounting for purchase accounting is reflected in increases that you can see in purchased intangibles of $178 million, property plant and equipment increases of $64 million, and increased goodwill of $201 million.

Strong cash collections throughout the year, coupled with good inventory management has resulted in excellent cash flow for the company. Net cash generated from operations during the quarter was $102 million, primarily reflecting the higher quarterly sales as well as good collections and inventory management.

For the year, cash generated from operations was a record $192 million compared to $118 million last year. Remember that cash flow in 2006 was negatively impacted by more then $45 million paid to settle litigation with Applied Biosystems. However the strong cash flow in the fourth quarter is not necessarily indicative of a new trend line. Remember that our first quarter historically has been a very high cash use period as we pay commissions, bonuses, and annual royalties associated with the top line performance.

Net capital expenditures were $14.7 million for the quarter, and $60 million for the full year. Going forward, we expect CapEx to be in the $60 million to $70 million range for 2008, reflecting increased investment in information technology and ecommerce, as well as the inclusion of DiaMed requirements. Finally, depreciation and amortization for the quarter was $23.9 million and $63.7 million for the full year.

As I said at the beginning of the call, this is a lot of information to digest, but the bottom line for us is that underneath the numerous one-time and non-cash expenses in the fourth quarter lies a pretty good business in Life Science and Diagnostics, and in DiaMed. Looking ahead to 2008, we see continued opportunities. The emerging markets of Eastern Europe and Asia Pacific continue to grow nicely, and we have several new product offerings in the pipeline.

While there is much to do to integrate the DiaMed operations, the business continues to grow. Thus, our outlooks for 2008 sales growth is currency neutral organic growth in the mid to high single-digits. Obviously the incremental acquired sales of DiaMed will likely lead our reported growth to be in the teens for 2008.

As you know, we report and manage our business on a GAAP basis and do not intend to move to pro forma reporting like many others in our industry. As such though, our outlook for 2008 is also on a GAAP basis, however we will try to give you color regarding the non-cash and other one-time items that are reported during the year.

We anticipate full-year 2008 gross margins to be in the 54% to 55% range, which includes an estimated $12 million of amortization expense, offset somewhat by anticipated improvements in our Life Science group margin. Moreover, we have made progress towards our goal of reducing SG&A as a percent of revenue. However, anticipated reported results will also include about $8 million of amortization and another $5 million to $10 million of integration spend and thus SG&A on a reported basis margins could look flat to slightly down from the 2007 levels.

R&D on a consolidated basis is projected to be in the 8% to 10% of sales range. As I mentioned earlier, we are estimating the full-year effective tax rate to be between 24% and 26%, although as we have seen in the past, discreet items can increase or lower that rate in any given quarter. But overall, the collective impact of the anticipated top line growth and other comments regarding the outlook bode well for significant growth in both operating and net income for 2008. And now I'll turn the call over to Norman for a few comments.

Okay. Well, I think in my view, 2007 was a productive year. I think in addition to the continued expansion of our base business, I think about the fact that we expanded our manufacturing footprint in Asia, introduced some very interesting new products, secured large orders from people like Quest and CDC, and of course topped it all off at the end of the year with the acquisition of DiaMed. I think we've really set the stage well for 2008. As you can hear from Christine's comments about the outlook, we seem to be pretty buoyant about it. You think about the number of new products, increased positions in this -- in these markets, certainly including immunohematology, I think our selling organizations are around the world are enthusiastic about the opportunities for 2008.

As I think about going forward in 2008, I think the successful integration of DiaMed will be one of the key areas of focus for us. In addition to continued work to enhance our operating margins and better serve our markets, I think we've got a lot to look forward to.

We certainly appreciate your continued support and interest and with that I guess we'll open it up for questions. Jen?

Thank you, sir.

(OPERATOR INSTRUCTIONS)

The first question comes from Jon Wood with Banc of American Securities.

Hey, good afternoon. Norman, first on BioPlex, you guys -- I think Christine just disclosed 50 installations. I guess -- is it safe to assume Quest was about half of that?

Yes.

Okay. And how many analytes do you have on that -- it looks like you just got an approval. How many analytes do you have on the system currently?

It's somewhere around 25. I don't have the exact number. John, do you have the exact number?

Yeah. That number's really close to mid-30s.

Mid-30s. Okay.

And can you just at least qualitatively talk about what you have on the docket for '08 for that machine? Should we see that significantly, I mean -- granted the FDA is cooperative. Should we see that number significantly increase in '08?

There will be a number of assays that we hope to introduce in '08, again depending on the cooperation of the FDA. At -- again, I don't have the exact number for you, but it should be pretty significant.

Okay. On the food testing opportunity, do you have a dedicated -- an automated PCR system for the food testing market in the works?

This is Brad Crutchfield. I'll take that call -- or question. We do have a new platform for PCR out. We just introduced it real time basis and it is compatible with automation front end. So the answer would be yes, although majority of the laboratories right now are still able to operate in the 96-well format and certainly the throughput of the machine is more then ample to handle that. But it is an automatable machine with the front end.

Okay. And can you just review the opportunity there, Brad? I mean what do you view as the ultimate market opportunity for a molecular food based modality?

Well, I think really the key aspect is to move in to fresh foods, and I think that we're talking about testing. Traditional methods can take five to seven days, and most fresh food needs to ship before that, that's why necessitates recalls. I think as more and more the regulatory agencies and the industries get comfortable with a real time test that gives them the sensitivity and the speed, you're going to see more and more fresh food being tested in that 24 hour mark. So then a product can be quarantined prior to shipping. And I think at some point that's going to start to set the standard in what the consumer is going to expect.

Even today, all it takes is one out -- outbreak. We had green onions a few -- about a year-and-a-half ago, and that sort of decimated the industry for some period of time. So I think we're seeing a lot more interest. As far as the exact numbers, I think if we look at over the next -- I'd see the market continue to grow maybe in the -- on the real time or rapid test, as much as 15% over the next five years at least.

Okay. All right. Great. And then, Norman can you comment just on the M&A environment? Has it changed any? I mean I know you've just done a big deal, but as far as what you see in the industry, has the market changed at all with respect to acquisitions? Either with the assets on the market or pricing?

It doesn't seem to have changed too much so far. It seems about, I don't know. About the same? Maybe they're a few less deals coming? But it's -- I think we're going to need a little more time to see what the trajectory is.

Okay. All right. Thanks a lot.

The next question comes from Quintin Lai with Robert W. Baird.

Good afternoon. This is actually Matt [Natori] on the end for Quintin. Congratulations on the quarter, guys. Could you just talk a little bit kind of globally about what you're seeing in your segments in terms of demands either geographically or customer based? Are there any that are particularly strong in Q4 and just kind of how do you see those end markets shaping up over the 2008 timeframe?

If we think about geographic markets, and we continue to talk about this, the Asia Pacific and emerging markets are -- we're seeing above average growth rates compared to the rest of the world. Having said that, we've had pretty good results in the Americas this past year, and see continuing opportunities. Probably Europe has been the slower of the three segments around the world. That's kind of the landscape.

Thank you for that. My next question, with DiaMed, the quarter in terms of revenues looked kind of strong and I guess just trying to figure out, is there seasonality to this business? Or how should we think about kind of growth going forward with the DiaMed portion?

I wouldn't expect much seasonality in that business. The only seasonality might be the kind of the summer months in Europe, which is traditional in the diagnostic arena, but otherwise, that would be about it.

Yeah. I think, Matt as we -- we're -- we have one quarter under our belt here. I think as time goes on we'll get a better feel for the business both geographically as well as seasonally.

Sure. Thank you for that. Just wondering if I could kind of dovetail into that, just to see if there's any progress you could provide, just kind of on how integration's going and what we can kind of look for as the year progresses.

Sure. And when -- John, feel free to add anything at the end. But we are just getting started. We closed the transaction on October 1st and not surprisingly our initial focus, besides being on the employees and the business, and John can speak to that, in my role it's been on financial reporting and getting this private Swiss company welcomed in this new world of U.S. GAAP public accounting and reporting. And there's -- so there's a fair amount of work we need to do there and a lot of the integration efforts will focus on more infrastructure type of events and items this year in finance and IT and things like that.

I think that overall, the business itself is quite well run when you look at manufacturing, production, sales, distribution, et cetera, but we will be looking at all of those areas for potential opportunities to create and record synergies as well as continue to help grow the business.

Yeah. This is John Goetz. Just one little addition there I might throw in here and that is that we do see that over time, as we begin to integrate the distribution side of the house of this acquisition, the ability to start pairing up some of the traditional blood virus products that we have that are manufactured in our French and U.S. operations, and to be able to pair those up with the blood typing product line of DiaMed. We're already seeing that certain customers are already very interested in talking to us about that, so as we start to integrate those two selling arms of the business, we hope that we'll be able to pick up some of that synergy there.

On the ground, in Switzerland itself, we have basically designated this operation as a full operating division of Bio-Rad and we've organized it in a very typical divisional approach way that installs an R&D group, a marketing group, a manufacturing group, and reporting to a division manager, so we think that that will give great focus to the things that we need to do from an R&D point of view and product point of view, so we're pretty pleased with how all of that's coming together now.

Great. Thank you, both. And just one final housekeeping question on the tax rate, Christine. If I'm going to -- if I were to kind of strip away the amortization and the R&Ds can you help me out with kind of what we could use as a pro forma tax rate for the quarter?

For the fourth quarter?

Yeah.

Well, interestingly enough, the tax rate coming in at a benefit is really based on the base Bio-Rad business if you will, and not as much the acquisition related costs. Now having said that, because income is much lower in the quarter and you look at the tax rate on a full year basis, all of these little changes of income get magnified in terms of the tax rate. But the real benefit had to do with favorable resolutions of audits, and tax credits that are available for us on the R&D side, especially in France. And despite the inclusion of DiaMed, we would have had a pretty attractive tax rate in the quarter anyway. That's the best I can do, Matt because it's really hard to play the what if game of this, and this and this, what would the tax rate have been.

Sure. No, thank you for that. I'll jump into the queue. Congratulations again.

Thank you.

The next question is from John Gibbons with Odin Partners.

This question is for Christine. Congratulations, gentlemen on another good quarter and a good year. Christine, just walk me through the foregone profit margin concept. I understood everything else but that.

Okay. Well, I'll do the best I can here. I may have to call on my controller for help if I get in trouble, but under purchase accounting, you have to review all the components of the inventory and from raw materials, finished goods, et cetera. And under purchase accounting, there are things you can and cannot do in terms of valuing that inventory. So as a result of that, we took -- had to take a -- an expense if you will, of about $3 million in to cost of goods for finished goods inventory that we needed to change the value of.

The purchasing accounting requires us to recognize that when we pay for the business, the earning potential of finished goods is something that we bought. So we're not allowed to basically lower the inventory and record the income twice.

I got you.

Okay? So what the production process has earned lowers our margin and as we go through the finished goods, and then it'll be less through the work in process, we get to realize all of it from our contributions and none of it eventually from the purchase of finished goods.

Great. So it's really sort of a one-time event as you go through.

Yes.

Yeah.

And as the inventory rolls, it will go away.

Right. Thank you very much.

The next question is from Vito Menza with Sandler Capital.

Hey, Christine. Hey, Norman. How are you guys?

Hi Vito.

Quick question. Just on DiaMed, I'm pretty sure you said it, but full year sales for '07 DiaMed came out to be what?

Well, we've owned them for a quarter, so I'll tell you that the fourth quarter sales were $62 million. We published the 8-K for the estimate on the first half of the sales. I don't have a full year number to give you for '07 at this time. So we will be putting some sort of estimate in the 10-K as best as we can see it for GAAP purposes.

And did you guys estimate that it was up 4% year-over-year? DiaMed was up in local currency? Was that what I heard?

No. We didn't estimate that at all.

Okay. I must have just misheard then. Okay. So the DiaMed projected growth rate is the same as the rest of the diagnostics business, is that right?

Yes. I think across-the-board on a currency neutral organic basis, whether you're looking at our traditional Life Science or our Diagnostics, or DiaMed, it's all in that kind of that mid to high single-digit growth rate is what we're seeing for '08. And then obviously we'll actually have three -- four quarters of DiaMed and in '08 versus one quarter in '07, so reported growth should be much, much higher than that. But I think organically the businesses seem to be growing in that mid to high single-digit level.

Okay. And the current -- some of the currency benefit that you're getting is the U.S. dollar depreciated is coming back at you in SG&A? Did I hear that?

Yes. You did hear that. And in fact, it was like $8 million on -- just on a sequential basis. For the full year, it's probably double that. So the good part about that though, Vito is that we have -- it gives us some bit of a natural edge to protect the income line. Revenues are higher, but so are expenses, and so that's good, because all of this outlook is based on kind of the dollar where it is today. Obviously if the dollar starts to strengthen, then it -- that only becomes a headwind on the top line.

Got it. Thank you very much, guys. Nice quarter.

Thank you.

(OPERATOR INSTRUCTIONS)

Your next question is from [Hui Dong Huong] with Times Square Capital Management.

Hi everyone. Congratulations on a great quarter.

Thank you.

Christine, I missed what you said about CapEx and depreciation. Amortized depreciation on the quarter. Would you repeat those?

I can. CapEx for the quarter was $14.7 million. So full year CapEx was $60 million.

Okay.

And depreciation amortization in the quarter was $23.9 million.

Okay.

And 63 -- $67.3 million for the full year.

Okay. And how --

So in that $23.9 million was the increase of $5.2 million related to DiaMed. And --

How much was related to DiaMed? I'm sorry.

In the quarter it was about $5.2 million split between cost of goods and SG&A. So it's about $3 million in cost of goods and $2 million in SG&A and we talked about in the guidance that it -- looking at it about $20 million in '08 of amortization. Again, the majority of it, $12 million-ish in cost of goods and $8 million in SG&A.

Okay. So I guess I must have missed that. So $20 million additional DNA on top of what you have this year.

$20 million of additional amortization expense in '08.

I see. On top of all we have in '07.

On top of what we have.

Okay. All right. Got it. And option expenses. What was that in the quarter end of the year?

It was $1.6 million for the quarter and a little over $5 million for the year. I have that number here for you. It's about $5.5 million for the year. And that may increase slightly in '08 if -- in line with option grants.

Okay. Last question for Norman. I heard that J&J -- this is related to DiaMed by the way -- J&J just raised its manual blood typing test price by 100% to 110%.

Yeah.

Can you confirm that?

I don't know what the exact percent was, but I do remember seeing something in the last few days that they are raising their prices, I guess to keep up with Immucor.

Okay. And could you tell us your pricing difference with this J&J and the rest of market and what percent of revenues is manual?

I don't happen to have that off the top of my head.

Is it half? Less than half? Maybe (inaudible) ball park?

I just don't know. I don't want to guess.

Okay. All right. I guess -- all right. Will you get back to me on that and -- when you find that number?

Sure.

Okay. Thanks. That's all the questions I have.

Thank you.

The next question is a follow-up question from Jon Wood with Banc of America Securities.

Hey, Norman. Have you seen any change in major pharma or just the pharmaceutical segments spending patterns recently?

This is Brad. I'll take that question. It -- if anything, we've probably seen it go up a little bit. There's obviously been a lot that's gone on in terms of not as much consolidation but changes in some of the product mix have changed in these companies, but in general, the pure research dollar part of that, which we see primarily is if anything, going up a little bit. There's no big technology change or see changes driving that, but in general we see them continuing to invest in R&D. And then we continue to benefit from the production side of it as several products that use our technology or our products, meaning pharmaceuticals, going into full production. Obviously in 2007 the rousing success of Gardasil had a very positive impact for us.

And so you're not exposed to -- on the chromatography side, you're not exposed to some of the bigger biotechs that have been experiencing some weakness lately.

Well, it all depends. I mean if we're in that process, it certainly can be an issue. When Pfizer decided to drop Exubera, we were in the Exubera process, and so the extent going forward, we're not going to get a lot of sales into that process, but there are literally hundreds of drugs in process. There's a lot of them that were in and it's one of those businesses. Some things are up, some things are down, but generally given our position in the markets more up than down.

Okay. And then on the DiaMed intangibles of $12 million in COGS, about 8 -- is it right to assume about $8 million in SG&A?

Yes.

Okay. And then can you give us the impact of the mad cow decline in the quarter on the Life Science business?

It was pretty much in line with what we expected. Remember we were talking about for the full year about $15 million to $20 million and that's where we ended up for the full year, and it was fairly [ratable] through the year. We are expecting another decline in that business in '08, but it's my personal goal to not ever have to talk about it because they'll be so many other good things going on in the Life Science business that you won't even notice it.

Okay. And that -- I mean is that franchise nearing a steady state at this point?

Well, maybe I should let Brad answer that.

Well, yeah. I mean just sort of the law of mathematics. It's certainly -- it gets to a point where the market is decreased. The number of animals tested despite some of the things in the news recently, most of the North American testing is controlled by the government and the policy hasn't changed. In Europe, the number of animals being tested continues to drop, and -- but we're seeing probably at a point, just mathematically the drop in the price, or the average selling price, is not as severe.

All right. Very good. Thank you.

The next question is from Steve Valiquette, with UBS.

Hi. Thanks. Just a quick question here. I got on a touch late, so I apologize if I missed this, and I'm embarrassing myself with this, but just to make sure that I understand the numbers here. If I back out the $12.9 million of non-cash charges that you cite, and then I use a tax rate somewhere in the low 20s, I'm getting an EPS number that's still pretty far below the consensus number of $0.80 for the quarter. I'm not sure if you mentioned an EPS number, ex the charges, or excluding something else.

Yeah. We did. And we also talked about that the tax effect -- it's probably not appropriate to use a tax rate in the 20s to tax effects those charges, but we did talk about $7.7 million of amortization of in-process R&D, $5.2 million of amortization, $3 million of foregone gross profits, $2.5 million in the setbacks loss, equating to about $0.68. So you could add that to the [$0.45]. And that's at a zero tax rate, because basically the benefit was on the base business.

Okay. Got it. Okay. All right. Thanks.

Your next question is from Barry [Melmet] with UBS.

Yes, Christine. That was exactly my question, whether or not the $0.68 was pre or post tax, and I guess it really didn't matter since you didn't have an effective tax rate for the quarter.

Exactly.

Thank you.

Thank you.

(OPERATOR INSTRUCTIONS)

As there are no further questions in the queue, I'll turn the call back to management for any closing remarks.

Okay. Great. Well, thank you, everyone for bearing with us here through this very long and complex call, but we hope that you share our excitement, not only in our results but what the future holds for us. Thank you.

Ladies and gentlemen, we thank you for your participation in today's conference call. This does conclude the presentation, and you may now disconnect. Have a good day.