Bruker Corp (BRKR) 2002 Q1 法說會逐字稿

Good morning. My name is Lisa, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Bruker Daltonics 2002 first quarter earnings conference call. Our lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the No. 1 on your telephone keypad. If you would like withdrawal your question, press the pound key. Thank you. Mr. Hulbert, you may begin your conference.

Thank you Lisa. Thank you and good morning everyone. I'm here with Frank Laukien, President and Chief CEO. Before we begin our discussion of our first quarter results, I'd like to review our safe harbor statement. This discussion will include forward looking statements. These statements are subject to risk and uncertainties that could cause actual results to differ materially from those projected including, but not limited to, risk and uncertainties relating to technological approaches, product development, manufacturing, market acceptance, cost and pricing of our products, dependence on collaborative partners, suppliers, competition, intellectual property, litigation and other risk factors discussed from time to time in our filings with the Securities and Exchange Commission. We expressly disclaim any obligation to release publicly any revisions to any forward looking statements. These statements may not be rebroadcast, recorded, transcribed or otherwise used without the written consent of Bruker Daltonics.

As most of the call participants have probably read our earnings release from this morning, I'll just give you some highlights and additional explanations. Despite some negative news within our sector over the last few weeks and throughout the quarter, we have started our fiscal year 2002 on a very positive note. As previously announced, our life science new order bookings for the first quarter have continued to grow at a rate that is consistent with our financial projections for the fiscal year.

Our first quarter 2002 product revenues were 25.7 million as compared to 21.7 million a year ago. On a constant currency basis, our first quarter 2002 product revenues would have been 26.6 million corresponding to a product revenue growth of 23 percent.

Our operating earning doubled to 1.35 million for the first quarter 2002, as compared to .67 million for 2001. Our EBITDA was three million for the quarter, as compared to 2.2 million in two one 2001, an increase of .81 million. As a result of lower interest income earned on our short term investments, in two one 2002 we earned 77 percent less in interest and other income as compared to the first quarter 2001. We continue to show significant increases in our operating profitability year over year. I would now like to turn the discussion over to Frank to talk about certain highlights and new developments during the quarter and our current expectations for the year 2002.

Thank you very much John. Good morning this is Frank Laukien. There is obviously much discussion on the R and D spending trends of the larger pharmaceuticals and biotech companies, and we believe the most relevant question is where are they spending their R and D budgets? From our own data, as well from looking at other companies, it seems fairly clear to us that spending on proteomics and particularly expression proteomics, also functional proteomics and structural proteomics, as well as on small molecule analysis in general and Metabolomics in particular, continues to be quite robust. More than 50 percent of our life science revenue comes from Universities, medical schools, government, and their longer term life science investment trends are very healthy with continued fast growth of the NIH budget and similar life science budgets here in the U.S. And perhaps even faster growth in parts of Europe and Asia. We have observed that some smaller life science companies may have slowed down their capital investments as they are preserving cash in lieu of the challenging fundraising conditions they face in the private and public equity markets. Another important trend to keep in mind when assessing demand in general and demand for our types of for our company in particular, is I think that it's pretty clear that there's a general trend towards higher information content screening and analysis, which fully favors an information rich technology like mass spectrometry.

So how does this then all affect Bruker Daltonics? As John, our CFO, had mentioned already, we're very pleased that our Q1 '02 new order bookings for life science systems again grew over 25 percent compared to the first quarter of 2001, supporting our revenue gross goal for 2002. We attribute this to continued strong demand for life science mass spectrometry in general, but also to a very competitive product line and reasonable execution at Bruker Daltonics. We, therefore, again reaffirm our fairly aggressive, previously issued guidance for the year 2002.

A few other points: We have received excellent customer feedback on our new ultra-flex TOF/TOF on which we have begun commercial deliveries in late 2001. By now, we have close to 20 TOF/TOF commitments altogether, and we're actually surprised by these significant demands for the system also from academia and medical schools where this powerful new technology is also creating quite a bit of enthusiasm and funded demand.

Our TOF or as well call them, BioTOF systems deliveries, have now also begun in Q1 of 2002, and we expect a gradual ramp up during this year as we become a third competitor in the so called Q TOF market.

As many of you know, at Pittcon 2002, we have introduced six major product introductions four mass spectrometry based life science systems, and in addition, we released significant new software capabilities for three of our bioinformatics products. Very recently, Bruker Daltonics has been selected for the Frost and Sullivan 2002 product line strategy award in the U.S. biotechnology instrumentation market. This award is presented to the company that demonstrates the most inside inter-customer needs and product demands in its industry. While this news obviously got lost in the early negative news of this earnings season, we're really very pleased with this recognition.

So, in summery, we are very pleased with our first quarter 2002 financial results as well as our financial, sales and new products outlook for the year 2002. We now would like to invite your questions please.

At this time, I would like to remind everyone, in order to ask a question, please press star one on your telephone keypad. Please hold for your first question. The first question comes from from RVC Capital Markets.

Good morning gentlemen. Congrats on a good quarter. A couple of quick questions for you. Could you maybe provide some more specific guidance for the second quarter, including your expectations, and then flowing from that, your ongoing outlook for currency exposure and how we should think about our reported revenue numbers relative to that. And then the third question if I might, Frank if you look at the TOF/TOF commitment you have to date and kind of the customer interest that you have pipeline so to speak. Would you willing to characterized that against maybe a commercial/noncommercial focus?

Good morning . Sorry, starting with your third question again about commercial/noncommercial -- I'm not sure I understood the question fully.

If you could characterize the commitments you have to date and what's in the pipeline maybe across farmer biotech verses academic and government interest.

OK. I got you. So starting with the third question. Roughly about 2/3 I would think is industrial and now 1/3 is perhaps also academic and some medical school and so on. I'm not sure that is a good statistic though -- you know it's sort of in the early days obviously. So I wouldn't be too much into those numbers. But so far roughly 2/3 industrial and 1/3 academic medical school.

On the currency front obviously there has been somewhat encouraging news I guess late last week about the -- maybe the dollar not further appreciating at least. But obviously -- you know we read the front page of the Wall Street Journal like everyone else so you know we don't have any insight. I mean we believe but simply that is simply belief that we probably won't find further appreciation or further weakening of the euro. I can't really read the end too well.

And last and not least Tom I think your very first question, sorry to do it in reverse order, was on second quarter guidance with you know we are not prepared to give any more details on that but I mean we have reasonable visibility and we do that believe that'll fall into line with our overall guidance. Let me put it this way we're comfortable with the consensus expectations for the second quarter.

OK. Thanks a lot.

The next question comes from Larry Neighbor from Robert W. Baird.

Thank you good morning.

Good morning Larry.

Has the problem that Micromass is having in the Q-TOF market giving you an opportunity for you to gain share with BioTOF and I think you mentioned delivery of BioTOF begun this quarter. What does your order book look like there?

It hasn't made such a big difference for us actually . You know we've had, it may still be a little bit too early. Obviously as you know the times that it takes for customers to make purchasing decision of this magnitude is you know somewhat lengthy so there may be some benefits for us in the future although it may also be that Micromass will be back on the market as they have claimed relatively quick. On the U.S. market it doesn't affect the international market as far as I know anyhow. And it just turns out that many of our BioTOF and Q sales actually are exports anyhow. So it hasn't had a big affect on us. Keep in mind that were in the early realms of above that. We're now shaping the system, we expect this to be healthy growth for us this year in any case. Simply because we think we have a unique system of unique capabilities but you know -- as you know from a relatively small 2001 level.

: You mentioned earlier that you're beginning to see some weakness and the smaller life science or biotech companies due to their financial picture. Could you expand on that a little bit and give us some idea of what percent of your business comes from that segment?

It obviously varies a bit. It tends to be 10 to 15 percent. And you know without going into customer names we've had the impression that in that segment some customers spent previously -- are slowing purchases down a little bit and may also just you know limit a little bit the size and magnitude of their planning. This -- you know as we try to reach the tea leaves like everyone else what's going on with market? What's going on with demand overall the demand we're seeing is quite healthy. We also -- we don't see slow down at all for our product from big pharma big biotech and as we then slice and differentiate things a little bit further we do notice that some of the smaller life science that nobody is stating necessarily but it appears there's a bit of a pattern that their slowing down or delaying some of their expenditures to preserve cash.

Thank you.

Welcome Larry.

Our next question comes from Kenneth Goldman from Lehman Brothers.

Good morning Frank.

Ken.

Congratulations. Just could give you just a little bit more information regarding the other revenue category on your interest income category. And the trend in this quarter.

The interest income is most of that is the interest income generated from our short term investments which -- basically our short term investment the capital expenditures over the last year with the new building both here and Bill and in Germany has decreased our short term investment and then basically the as you know the interest rates here in the U.S. have dropped off significantly compared to about a year ago. So it's a combination lower short term investments on hand and the lower interest rates.

OK. And the other revenue category.

Other revenue that's the grant revenue. We currently have couple R&D research grants in our German subsidiary and it's just the timing of when we reach certain milestones in the R&D phase. That will always be - you know historically that use to be a larger number as part of our revenue but going forward that's going to be less than one percent of total revenue.

OK. And just two more questions. One: just to follow up the Q TOF business. Even if Micromass can get back to the market in this calendar year, could you see them using there now instead oh there technology being able to compete with what you're saying instead of a unique newer technology.

Well Ken, I believe we do have some unique capabilities in terms of that are proprietary and that could not be easily, first of all we have hacker protection for that and second of all even from an engineering approach it is fairly different and I don't think others could easily change to the approach that leads to the approach that gives us about significantly higher resolution and better math accuracy as well as higher duty cycles. But I think we have some really unique things that are not that are also proprietary . But you know what that does for us is obviously we're a third arrival on this market and there are some other entrenched and capable competitors in it. So it gives us -- I think a reasonable chance to become a third competitor in this market. I don't know that it will this year greatly damage the market share of the two leading contenders but it gives a chance to establish ourselves and that's what we're looking for.

OK. And last question I know that the substance protection business again revenue curve. But as you say if you're going to meet your 2002 revenue targets, does that mean we're going to see an up-tick in the substance protection business in the next three quarters?

We obviously have some order under our belt already as what was discussed previously last September and also we anticipate delivering the order that have been subject of some delays again, discussed previously. We are seeing a lot of demand a lot of activity but it does take some time until large numbers or large sums approved in Congress and else ware trickle on to smaller purchase orders for companies. So we do take an uptake but it is obviously some what lumpy so it's hard to predict these things sometimes the decision there occur within weeks they literally take a year or more. But -- you know overall this year it will be our revenues in the substance protection or ABCDE business as we sometime refer to it will be healthier and support the growth targets that we in mind.

Thank you.

Our next question of SC Cowan.

Good morning it's . Frank I was hoping you could comment on the new order bookings growth for the MALDI and Ion Trap system.

Good morning . Yeah we haven't really broken that up for Q one nor do I have that breakout exactly right now. So we -- as we reported in Q one we had a 25 percent life science new order system. New order booking growth excuse me compared to Q one of last year. But we don't have any further split up of that.

OK. And of the, how about...

Sara

....TOF/TOF commitment that you have, how many of those were actually part of the order booking in Q1?

The number that I have quoted was not all for Q1. That also was sort of accumulative number that included commitment and purchase orders received last year. If I may add a comment to your previous question the slicing of any finer in quarters especially in the first quarter when obviously statistics aren't very meaningful yet we tend to that if we do it at the end of the year, when we have -- you know of the full year four quarters then some of these percentages, versus Ion Trap versus start to make some sense and have some meaning to us and then we tend to share that information rather than doing it every quarter.

OK. How about the inventory levels. I know you guys had a lot of new product introduction this quarter but you know the dollar level ticked up quite a bit for Q four. What sort of the outlook for that for year, do you expect it to come down?

Yeah we do expect it to come down. One of the big up ticks from the Q four 2001 to Q one basically the main driver increase our inventory in transit actually increased about nine to 10 percent. The inventory in transit is basically at customer sites waiting to be excepted. It basically went from nine million to about 12 million from Q four to Q one. So that has to do with the way we do our revenue recognition which I think is more conservative than most companies, most companies would not have that inventory on their books as inventory so it's actually a healthy sign that has been quite a bit more shipments of systems that have been -- you know have been shipped and delivered to customers and are in the process of installation but haven't been accepted and then therefore have not been recognized as revenue yet.

OK. I think that the that's all for me thank you.

Your next question comes from Reyal Liclur from UBS Warburg.

Good morning Frank and John. Congratulations on the quarter.

Thank you.

Just the -- few questions. I know you highlighted the 20 top TOF commitments. How many BioTOF Q commitment you currently have for units?

We are not disclosing that number at this point in time . Sorry.

OK. In terms of the 20 top TOFs how do you see the shipping or the revenue recognition is it all taking place really in the next quarter, or do you see that being spread out over a couple quarters can you get a little sense of when the 20 turns into revenue?

Typically over the next two quarters unless there's a delay that someone facilities isn't ready or something like that, so typically over the next two quarters the average delivery time that we're quoting on these tends to be around four months so it tends to be one or two quarters.

And then there's

And then obviously there's more, there's a lot of activity out there as well so we don't expect -- you know expect to just deliver those 20 or so. But you know there's a lot of interest and funded interest for these systems. Where you know we simply are in a competitive situation or customers are just you know, evaluating at this point which I wouldn't include in committed obviously.

With the gene product orders still in here or they've been shipped.

Gene prods we shipped one system late last year to their Geneva facility to their R&D and methods and obligation development lab and the systems for their New Jersey facility obviously have not been shipped. Those are I think aimed for the third quarter.

In terms of, I know you indicated that you don't like to break up product until the end of year. Can you give a sense of maybe quarter of a quarter comparable quarters of the three segments and how their growing from Q one kind of to the Q one?

I mean quantitatively obviously because its such a small bases, the TOF or BioTOF -- we use the product name in BioTOF Q of course have the most dramatic growth but that's because the base was so small last year. But that product -- you know is gaining expectancy in the market. We're reasonable happy with that. Other than that I don't see any new trends of why one accelerate versus another one that might decelerate. So as far as we can tell and you know we don't really have incredible insight looking at three months to discern any new trends we would say that it is more or less continuing as last year, MALDI TOF being our largest product line although not by that much Ion Traps the second and FTMS the third. I don't see any new trends of one you know -- I don't see any new trends that I could even describe internally much less share with you at this point. It may just be, the data may just be grainy to really make any real observations at this point. But there's nothing that comes to mind.

Liclur. OK. And if you could just confirm the customer mix I think it was -- you said 50 for academic and government the rest is all biotech and pharma.

Actually I find that in 2000 and 2001 life science systems which is about 85 to 90 percent of our revenue it's in the for life science of which life science systems is the majority and we also have some other markets. Sorry I misspoke, but for life science system we have 50 to 55 percent university medical schools nonprofit resource organization and governmental entities and about 40 to 45 percent come from for-profit companies where there large pharma large biotech or smaller, small pharma start up or life science companies so that's I can confirm that I think we have discussed that previously. Overall for the company the percentages of nonprofit customers including the government are somewhat higher because of course our substance detection is virtually, entirely driven by government spending.

And could you just characterize the growth roughly between the two segments, the non-profits and the profits just for the quarter.

Reyal I don't have a precise number on that. But it doesn't

No different than usual.

I can't give you quantitative numbers that are meaningful but qualitatively very healthy trend, continued trend in academia and government pretty healthy trends for our systems also in big pharma Big Biotech really as we kind of you know take a very hard look because everybody ask the question these days. The only segment where we you know sort of anecdotally we have seen a few cases where people tend to be slowing down and spending later or less would be among some the smaller, smaller, newer life science companies that kind of keep their mind ability rather difficult for them to raise additional cash in the near term..

OK. Thank you very much.

Somewhat anecdotally I just wanted to give you a feel for you know -- I know you want hard numbers. I'm not trying to hedge in and not give hard numbers.

What was that number?

This is a bit of anecdotal of what we see in various cases.

OK. Thank you.

You're welcome .

Your next question comes from Jon Sullivan from Stephens Incorporated.

Hi guys just a couple of quick ones. First of all circling back to a question several ago regarding the Q TOF entry, you mentioned duty cycles as a competitive advantage. Can you define that for me and expand on that for me a little bit.

Sure, I'd be happy to John. Duty cycle, well, the way we're using it here and the way it's commonly used is sort of the number of ions that you actually measure, the number of molecules and substances that you actually measure compared to those that some simply are lost and never utilized. And we estimate that on traditional Q TOF or Q TOF systems, from the way these are continuously injected from the ion - from the electra-spray or from all the electra-spray , but then the TOF event is necessarily a event, that perhaps there's only, a duty cycle is perhaps only around 20 percent, which means one out of five ions' really are measured and the other ones discarded. And the way we have designed our front and our QQ interface prior to the TOF is such that we actually do some linear trapping there, which assists us in having a close to, you never reach it, but closer to hundred percent duty cycle, which is also, you know, reflect itself favorable in sensitivity and detection limits. But, sorry about the arcane, very technical description, but I think in the very end, sensitivity is an important decision criterion for customers. So in the end it translates to something that's meaningful to the marketplace and to the customers.

OK, that's very helpful. I appreciate that. Two more real quick questions. First of all, the new FTMS instrument looked pretty compelling at Pittcon. Any anecdotal news about its acceptance or the type of customers to whom, who are taking a close look at it?

Yes, anecdotal as it may be, at the end, you know, these things don't resolve in purchase orders right away. But I think some people are taking a second look at FTMS if you can get into an FTMS for a half million dollars that reaches a budget level for a highly automated, very powerful system. And also the shrinking size and reduced complexity and greater ease of use, I think together with a more favorable pricing, I think there are people that will be looking, perhaps particularly within the companies, looking, taking another look at FTMS and whether that's not much more within their reach and their expertise. It is anecdotal. It just takes quite a while to translate into purchase orders and ultimately into revenue. But we believe that our strategy for this product line overall is on target.

OK, terrific. And last question. Could you just talk about, regarding the utraflex TOF/TOF and its acceptance by academic customers, sounds like you're a little bit surprised by that. I assume that relates to the dollar price being higher than a lot of academic customers traditionally play in. Can you just talk about what you think is attracting that class of customers to the instrument. And thanks very much.

Yes, perhaps two points, financial not being the only one. To some extent in our initial marketing, I'll admit, we thought it would be primarily a system for the high through factories and it turns out that the power of getting very sensitive or TOF/TOF data so easily and in so little time, in a minute or two on a number of relevant perhaps, is really very compelling. And so I think the TOF/TOF technology is perhaps, of course it's a steady evolution in life science but perhaps that's a bit of a jump, or a quantum jump, although that term is overused. And so customers, from any customer segment, whether it's big pharma or academia that bring their samples to our laboratories and see how quickly they can get an incredible amount of information at fantastic sensitivity levels, they notice that that's a big step forward in life science mass spectrometry. So perhaps the scientific impact is, you know, sometimes we're too close to the action. When you take a step back, or when a customer comes by who's never seen this before, they quite often are amazed and think this is beautiful and very useful new technology.

And the second point is, of course, and there you're right, we did not realize perhaps that a number of academic institutions, when they really want something, through extra-mural and internal funding, can raise that type of money. And, for instance, we've sold a few of these systems to Japanese universities. And as part of their budget, it didn't seem to be a big threshold. They were able to get to those types of spending budgets since they believed that the technology was simply very, very powerful. So it's both. I think the scientific utility in comparison to what's been available is perhaps more compelling than we even thought. And second of all, the budgets seem to be available, not to everyone, but to enough customers that could raise these in relatively short notice. Although many of them, of course, may have budgeted for some sort of TOF/TOF for quite some time even before we were on the market, and I guess we're benefiting from that a little bit.

Thanks.

You're welcome.

Your next question comes from Scott Greenstone from Thomas Weisel Partners.

Good morning gentlemen. Got a couple questions. First, Frank, you had about $10 million contract in the business. Can you give us a status on where that is and what you expect to book as revenues in the rest of the year?

Yes, Scott, this John Hulbert. The 10 million contract at the end of four quarter 2001, the government actually asked us to speed up a few of the deliveries. So when Q4 2001 we shipped, earlier than expected, about two million. In Q1, none of that was recognized because we did not ship the units that were expected to go in Q1 but went in Q4. We expect, roughly, to be shipping about two million per quarter over the next three quarters, three to four quarters, sorry.

OK. OK. And on your margin, it seems your margins are checking up rather nicely. I wondered if you could give us some guidance or some understanding of what your target, is particularly in the EBIT line for the rest of this year.

As you can see, our operating profitability has been increasing kind of in line with our internal expectations. We did expect margins based on new product introductions with an actual lower cost of products slightly, and again like our margins, they can fluctuate a little bit, quarter to quarter, depending on the make up to the strategic partners such as and . But we did kind of project that our margins would be improving slightly over the next couple years. We expect to be in the 53 percent margin for the full year of this year. You know, 53 to 53.4. And then, as you can see, our R and D is kind of inline with expectations. We expect our R and D expense roughly be between 18 and 20 percent. So we continue to see operation profitability increasing year over year.

Great, thank you.

Thanks Scott.

The next question comes from from Morgan Stanley.

Hi, it's actually David Zimbalist. Quick question. Two questions actually, one you started to answer here a little bit about your gross margin. If you could talk a little bit about the effect the product mix should have. In particular, it seems that the promise of the TOF/TOF instruments, you know, picking up if that should help the gross margin overall. And second, in the same vain, could you talk a little bit about pricing this quarter and how it's held up and what you see in your order book as well.

Yes Dave. Basically the TOF/TOF, because we've been able to leverage some of the technology in our auto-flex into the ultra-flex, we will see somewhat of a benefit in the gross margins on the ultra-flex TOF. So that basically our internal projections was kind of forecasting that new products would actually have a better, slightly better margins, but not a drastic five to 10 percent increase in margins, but a slow up-tick of one to two percent per year.

But you also have to balance that, David, and look at the entire product mix. So clearly, you tend to have better gross margins on the new products by design and because they're attractive. But then at the same time, you also have products that are, you know, where the pricing does then come down as they approach the later stages of their product lifetime, like our re-flex systems, which are being, you know, essentially being replaced by the ultra-flex TOF-only version, which has essentially replaced the reflex, so the remaining reflex systems that we have obviously then are sold at somewhat lower pricing.

So without trying to go into too much detail in the mix, in the overall mix you have trends. You know? You have the general trends. And I think you always in any company have that the newer products have better gross margins and the older products' gross margins go down a little bit. In the mix it's been a good quarter with a 53 percent gross margin but as John had cautioned you, there are some fluctuations from quarter to quarter. This can change easily a percent or even two, sometimes depending on how much we shift the channels, how much ABCD revenue there is and so on.

What about pricing on an apples to apples basis? If you look at you know, same currency, you look at same products excluding the ones that are being, you know, sort of -- that are maturing rapidly how is pressure holding up on those instruments now versus say, six months ago?

Okay. I think overall the pricing -- I see you looking more at competitive trends and so on and market trends. We have not seen a deterioration in pricing other than perhaps, via currencies. You know? I mean, our prices in yen and in euro we don't change our price list every month or so, so as these currencies have become a bit weaker somewhat unexpectedly -- we didn't as much weakness in the Euro and in the Yen in Q1 as has actually you know, happened. So in constant currency the pricing has been, as best as we can tell relatively stable. We did not see a general decrease in pricing but if anything, a stabilization and in some areas, like MALDI TOF perhaps a slight increase in average selling price due to the addition of TOF/TOF, for instance.

One last question. Any trends geographically by the product groups? Is Pharma stronger overseas than in the U.S. biotech -- same sort of question.

Yeah, the only trend that comes to mind, Japan has been fairly strong for us recently. And there a lot of it seems to be government, university, medical school driven.

Okay. Thank you.

You're welcome.

Your next question comes from from Banc of America.

Good morning, Frank. How are you?

Good, Jim. How are you doing?

Good. This is kind of an application question for the light science instruments for only clean genotyping. Some other tool companies have spoken of seeing use of their instruments kind of heading downstream or into development and the clinical uses of tool instruments -- tool and instruments. Are you seeing any sort of similar shift yourself, especially industry customers going from say, the and have you stepped up any sort of marketing in this area to try to dig out some more clinical or pre-clinical applications for tools or consumables? And actually, just further, what's the split in proteomics and genotyping possible applications for more of these downstream uses? Thanks.

Okay. Well, Jim, I think the use, I would confirm that some of the systems, the use goes from the pure drug discovery towards more downstream, as you call it towards development and perhaps you know, towards clinical eventually, so we've seen some of the genotyping instruments, obviously being used in pharmacogenomics and those type of applications which are not you know, not usually -- which are further downstream maybe, in support of clinical trials and so on. We do see an increasing interest in some of the diagnostic biomarkers, discovery which some people refer to as clinical or clinical proteomics and so on. I think there is an increasing interest there, really not only in the companies but also among the academic customer base and universities.

So I, you know, I think that was a long winded way of saying yes, we see that also. Can I quantitate it for you? I don't believe at this time I could but that general trend I think, is correct, that these systems you know, initially are used in the R & D drug discovery basic molecular biology discovery and that continues but more and more also in the more applications driven downstream diagnostic therapeutic development area. I think that's correct. And we expect that to be a long term trend.

Right, I guess the one that comes to mind recently is the study with biomarkers, which I guess is more of an academic side of things. But are you seeing companies take a similar strategy, maybe stratifying clinical trials along biomarkers ...

We see that interest, both from -- and again, pharm companies but also from universities, medical schools. We see interest in that area, yes.

Okay. Great. Thanks.

I would like to remind everyone in order to ask a question, please press star, one on your telephone key pad. Your next question comes from from Jalaa Equities.

Good morning, Frank. A couple questions -- you had mentioned that you're staring to possibly see a slow down from the biotech customers. Is that being made up by substance detection and the academic market which continues to be strong? And I just wonder how you feel comfortable reading your guidance in light of the fact that you're seeing some weakness in biotech. And to that vein, speaking with one of your partners, Genomic Solutions who seem to see the slow down, especially maybe from major pharma earlier than most they said they're staring to see a pick up there. Are you maybe, staring to see that? And is that why maybe, you're reiterating guidance?

Let me clarify a few things here, Dave, if I can. We didn't -- we don't see a slowdown in biotech. I mean, large biotech is not where we have seen a slowdown.

I guess it depends a little bit on your definition. And we anecdotally have seen some smaller life science companies, some of them, yeah are broadly categorized as biotech that may defer some spending. As I've said, that's a small percentage for us of the order of ten percent, perhaps of our revenue. And you know, we see -- I don't have a particular sector that makes up for that but overall I think that the other sectors you know, the large pharma, large biotech and of course, the academic universities all look very healthy to us for our products, certainly. I think the technological and scientific application shift that you see in big pharma going more from you know, from sequencing to post-sequencing genotyping proteomics and so on, these same type of scientific shift in applications and therefore in funding of course are occurring also at universities, medical schools and NIH intramurally and so on. And those are longer-term trends that I think are favoring our type of instrumentation. I can't comment on genomic solutions. We don't -- we're not really -- they're not a strategic partner. We're certainly aware of them somewhat but I think they're...

I was...

We don't -- they're not one of our strategic partners. We don't sell anything through them, for instance if just to avoid any confusion.

Okay. I wasn't so much asking about them or that they seemed to say that they're starting to see maybe, a pick up in major pharma which seems to have been hurting the industry. And let me just ...

If I may, I mean, pick up in major pharma I really think it's not is pharma spending or how much it's spending. I think for life science tools companies may be broadly as the universe but I think one really has to look a little beyond that and look at which companies and which technologies -- you know, what are they buying? Where is their spending going? It is clearly being reallocated. They're not spending their money, whatever the amount and whatever their average percentage increase per year is. They're clearly spending it on different things than a year or two or three years ago. And they'll probably continue to adjust their focus of their R & D investment. I think when it comes to the space thing you know, that's another question but if it comes to our company I think that's a formal, relevant question than you know, are they spending a percentage joint more or less overall.

Frank, why has Bruker Deltonics been able to buck the trend that seems to have caught everybody else, the waters, millipores, thermoelectrons, et cetera? What have you all done where you have consistently been able to buck the trend?

Well I think we have good product development, good new products. But I also think that if I look at companies that are in proteomics, I've not seen a weakness in proteomics. From what I've seen, even some of our competitors, as far as they're willing to disclose some of their mass spec data, sometimes they just give quantitative, excuse me, qualitative information. It seems to me that life science mass spectrometry at our competitors is doing reasonably well, as well. From time to time, one or the other runs into, well, either patent or perhaps product transition issues that are specific to that company, but it seems we're not the only one. I think the trend for this type of instrumentation is healthy if I look at other companies that deal, again, further downstream in proteomics, functional proteomics, structural proteomics and you know who the public companies are out there, or private companies, I think demand is very healthy in those areas.

So I don't think we're bucking the trend or sticking out in an unusual way. We're just in an, I think we have done a reasonable job in executing, I think we have good new products and good new technologies, but overall where I think a lot of the trends of where its pharma spending shifting, what's happening under the hood, I think, favor the type of applications and therefore the type of systems that we're offering. That's my read on this.

Thank you very much. Thanks Frank.

You're welcome Jason.

At this time, there are no further questions.

Thank you very much everybody. Bye bye.

Thank you, this concludes your conference. You may now disconnect.