Fresenius Medical Care AG (FMS) 2009 Q3 法說會逐字稿

Good day, and welcome to the Fresenius Medical Care earnings release on third quarter 2009 results conference call. At this time, I'd like to turn the conference over to your host today, Mr. Oliver Maier. Please go ahead, sir.

Thank you, Audrey. Thank you, good afternoon, good morning, ladies and gentlemen. Welcome and thank you for joining us for Fresenius Medical Care's analyst conference call which will cover our third quarter and first nine months 2009 results and achievements. By now you should have received a copy of the investor news and all the relevant material. The release and the presentation slides are also available on our internet page.

Like in the past, I would like to comment now on the Safe Harbor Statement. This presentation today includes certain forward-looking statements. Actual results could differ materially from those included in the forward-looking statements due to various risk factors and uncertainties. These and other risks and uncertainties are discussed in detail in the company's reports filed with the SEC, Securities and Exchange Commission and the German Exchange Commission, Deutsche Versa. With us today is Ben Lipps, Chief Executive Officer of Fresenius Medical Care. Since we have not announced a new CFO, a Chief Financial Officer yet, been will give us a general update on the business and (inaudible) as well on the achieved financial results for the third quarter and nine months 2009. So that was the easy part for me then (inaudible), the floor is yours.

Thank you, Oliver. Ladies and gentlemen, let me extend a warm welcome to you, our board members, our employees and all of our associates around the world and those who are joining us on the internet. As Oliver mentioned, I will cover the agenda and unfortunately you have to listen to me also cover the financials in the second part of the program.

So let me now turn to slide -- or chart four and say that we had a very strong third quarter, very pleased with it, very pleased with the performance around the world of all the regions and everyone contributed in a major way. A very, very good quarter. We are also pleased that our strong organic growth continued at 8% and more so that we see improving outcomes in the dialysis areas in the clinicals that we are operating. We've seen a 60 basis point improvement in mortality in the US and 70 basis point improvement in mortality in Europe for those patients, nondiabetic patients. This is really significant because we are now operating in the 12.5% to 13.5% mortality per year in both North America and in Europe with nondiabetic patients.

Now, everyone knows with diabetic patients we are dealing with anywhere from 200 to 400 basis points higher mortality, but we have got programs underway that are improving that area and please stay tuned, I think so we are making progress there. Also, we are seeing very good enrollment in our new therapies that we are offering both in Europe and the US. They are growing at 40% to 50% a year. With respect to the products, we've seen the highest quality levels to date in our plants, our product lines and we are quite pleased with that, and that's a very important aspect of our business. The renal pharma is on target, and we've launched new products in the PD and the HD area that appear to be having excellent acceptance in the early stages.

Turning now to chart five, let me say that revenue was close to $2.9 billion for the quarter, third quarter 2009. That's a 6% increase in actual currency or 10% in constant currency. Now, our net income increased by 9% and again, this is with a stronger dollar compared to last year of almost 5% in strength. So we feel very good that we are at the high-end of our guidance, which was from 4% to 9% in actual US dollar currency. Turning now to slide six I'd like to talk a little bit about the nine-month results. Revenue was $8.2 billion, up 4% in actual currency, 9% in constant currency. Again, net income in US dollars was up 7%. Again, during that time period, we had the dollar strengthening by almost 10%. So again, we feel comfortable that we are meeting our expectations for the year and that the operations are going quite well.

Turning now to chart number seven. You see the revenue by region, and let me start first with North America. North America had an excellent quarter, growth at 10%. I'd like to complement the management board in North America. They did a an excellent job. We saw high water a mark of 8% organic growth in North America. North America turned in about $1.95 billion in revenue in third quarter.

International had a very strong quarter also, turning in about $940 million. The growth leaders were Asia Pacific and Latin America, again with constant currency growth double-digit in the 12% to 14% range, and Europe did very well growing above market at 7% constant currency and again, Europe carries the highest margin in our company and they maintain that margin, and you see the international increase in margin. So again, every region did an excellent job in Q3 '09. Looking now at the split of our businesses, we continue to operate in the 30, in the 73% to 74% of our businesses, dialysis services. It's been pretty much like that for the last few years, and we would expect that to probably continue as both segments of our business grow.

Turning now to slide eight, let's talk about the dialysis services business. We saw a very strong revenue growth globally in dialysis services in third quarter. North America grew at 10% revenue growth for the year. Of that, 8% was organic. International continued with growth in constant currency of 12%, again, a very strong organic growth of 9%. We are treating about 193,000 patients in our 2,500 clinics and basically, the metrics look quite good.

If you turn to chart number nine and look at the -- this chart will give you a good snapshot of the continued excellent performance in the key metrics of our global service business. As I mentioned, our organic revenue growth was 8% and again, very close, North America and international both 8%and 9%. We saw same market growth in North America rise to 4%. We saw 4% growth in international in same market growth, and that's a little bit below the normal 5% to 10% we see. The reason for that is we are building less de novos this year, and we are acquiring more in the international environment. What that does is of course, you don't get to count the growth in for the non-acquired -- for the acquired for a year. So we are a little bit in that space where this is not really reflective of the growth that we are seeing, and the 12% is certainly more reflective.

Now if you look at the revenue per treatment, that's definitely a good story. Our target, as you remember, was 2% growth in revenue per treatment year-over-year in North America and 2% constant currency in international. North America has done very, very well in the contracting area and grew -- is growing at 4%. International, even in this economic climate, is growing at 3% constant currency, but that's not the whole story. If you look at the legacy clinics in international, the actual growth is closer to 5% constant currency. So all around the world, people are recognizing the quality and basically being fair about treating the -- treating us fairly in terms of paying for that quality. Now in the international, we've seen revenue increases in 10 of our 33 countries and again, this is about this year, this is about the way, this happens about every three years you see a revenue increase.

As far as de novos, we built basically 23 this quarter. Our run rate is closer to 100 in 2000 -- de novos in 2009 versus 135 to 140 that we were building in 2008. And so we basically are shifting more towards acquisitions. I would like to mention though that we now have only 42 clinics awaiting certification in the US, and the good news is this is down from the 49 at the end of second quarter. So clearly, the authorities are cooperating with the dialysis industry in helping us get these clinics online, and we are making some progress in that area.

Now turning to the revenue per treatment. In slide 10 in the US, again, you can see that it's a very good story. We have seen a 4% year-over-year increase quarter-over-quarter. And if you look at that increase, it's about two-thirds rate and about one-third utilization as our utilization stabilized here in 2009. If you look at the average of 2008 to the average so far in 2009, it too is 4% and like I mentioned, that was clearly above our target of 2% for the year. Now, if you look at the sequential growth of 1% between Q2 and Q3 '09, that is a 100% contracting, that 1% growth. So again, I'd like to compliment the contracting group in the service area. They are doing an excellent job, and we are quite pleased with our performance this year in terms of revenue per treatment and essentially in terms of the actual operations of the service area.

Now turning to slide 11, let's talk about some of the quality metrics. I think everyone who has listened to these quarterly programs understand that we have a clear and absolute commitment to quality, and that clearly holds for both products and services. And so what I want to show here is a little bit of our normal metrics on the service quality.

As I mentioned, we are making very good headway in terms of improving our mortality and the lives and the overall lives of our patients, and that's very reassuring. If you look at -- we are running between 95% and 96%, and probably that's where we'll stay in terms of delivering the amount of therapy that the physicians basically prescribe for the patients. We are making some progress in the anemia area in terms of being able to to have more and more patients or tightening the variability curve here between 10 and 12, we are up to about 64%, so we are making some progress there. Pretty much flat in terms of the 10 to 13.

Looking now to the other story that's beginning to become interesting is in the nutritional area. We actually, for the first time, saw a little bit of improvement in North America from 81% to 82% of our patients above 3.5 grams per deciliter albumin, which is the measure of nutritional status. Now, the reason that I'm kind of excited about this is that the team in North America basically has an advisory -- a breakthrough advisory opinion where we can actually provide limited nutritional supplements to those patients that desperately need some sort of nutritional supplement. I think if that program continues to expand it will, for the first time that I can remember, give us some sort of handle here on trying to improve the nutritional status of the patients that clearly need it. So, I think that's a breakthrough. That's just getting started this year, so we should see some sort of improvement as we go.

Now what is the target in the Portugal bundle operation or clinics? We are running 93%, basically albumin greater than 3.5. In our demo project in North America with 1,000 patients, we are running 93%. So there really is -- our target then should be to get into the low 90s with respect to those patients that can operate, who have a nutritional status greater than 3.5. When it comes to phosphate targets, we are not making much progress there. I think we understand that because it's a very complicated, basically inter-relationship. We are seeing some very good progress with our phosphate kinetic modeling, and we are rolling that out and expanding it. So I think over time, we will see that improve.

With respect to hospitalization days, we are probably operating in the range that we will probably be very difficult to improve, that's in the high single-digit, low double-digit North America and high single-digit in Europe. So all in all, very comfortable with the performance in the quality area. It's a major focus for us and clearly, we think that we are making some progress in that area.

Now turning to slide number 12 and looking at the products, we continue to have excellent growth in our products business, which is really moving into a therapy business, which includes both the pharma and the conventional renal products that you've seen over the years. North America is showing a 14% growth, international 6% growth in products. Now as I look around the world in products, we are starting to see a movement in the PD area. We introduced a new cycler in the US. It's primarily internal right now, but it's overseeing a significant growth in PD.

We are seeing our hemo disposables on a worldwide basis clearly grow above market by 30% to 40%. In the machine area, we are seeing Asia Pacific, very strong growth. However, as you look at the US and Europe right now, there's a tendency to extend the useful life of our machines and again, these machines are very, very rugged, reliable machines. So we are seeing some of that. And again, usually what happens is that after they extend it for a year or so and repair costs go up and we see then a bolus in terms of replacement. So the machine business right now is doing fine for the year. We think though that it will probably, basically as this bubble works through, it will probably then be -- we will see that increase. So the machine business is pretty much what I would say flat so slightly up over last year. So that's pretty much the overview of the products area.

Again, looking at US legislation, I think that everyone that is following this knows that the House bill has been introduced. The Senate bill is expected this week or next, and they are expected to have a vote on healthcare reform by the end of the year. Again from dialysis, to the best of my knowledge, I don't -- I believe it's fairly neutral. For dialysis, there is a couple potential positives in terms of the accountable care pilots which I think the industry believes would be very good for the dialysis patients and very good for -- basically for the payors. And also an extension of the special needs plans which is again, along the same lines of a comprehensive care such as the demos that DaVita and FMC are running. Now, there are certainly areas to watch, and I think a lot of people are focused that and what are the specific terms of the health exchange, will there be negotiator rates , what is the proposed device industry fee, et cetera, et cetera. I think the industry as a whole is very supportive of healthcare reform. Clearly, all of the dialysis patients who need dialysis are covered. So it's not a matter of not having coverage, but it's a matter of how do we provide best possible care at the most reasonable cost. And so I think all of us are working in that area in that direction, and we think that there may be some positives here in terms of comprehensive pilots.

Now, back -- turning now to the bundle. That's clearly become front and center. I think that CMS has put out a well constructed initial proposal, very thoughtful. Again, it's the initial proposal. I believe that as we've seen in the past, the dialysis industry, dialysis community and FMC -- CMS work closely together. We are all wanting to make sure that basically this doesn't impact patient care. There are some areas that we clearly need to address. They are basically a little light or actually light on reimbursement from the labs to some other areas such as the transition adjustment. Clearly, the major issue is the Part D oral drugs. Clearly, they are significantly underfunded, and I think we are trying to make sure that whatever goes forward here, it's a -- really does not impinge or detract from patient care. But the good news is, I think, everybody is working together. I don't have a whole lot to add on it today, but I'm very confident when it finally gets put together, it will be a fair package for both the industry and for essentially for essentially CMS with the community and CMS.

Now that sort of took care of my normal overview and so now you have to listen to me, unfortunately to the talk about the financial and the outlook, so I apologize, but I will go forward on that one and then see if we can go into a question and answer session.

Okay, moving to slide 15. I think what you can conclude from slide 15, I covered the revenue, is we will look at the EBIT and the EBIT margin, and we were really quite pleased to see that the EBIT margin was stable from 2008 to 2009. And we saw the sequential improvement from Q2 that we expected as a number of these programs basically started to bear fruit here in the back half of the year.

Now, what did we see that was positive and negative compared to Q3 of 2008. Clearly what we saw was unfavorable currency transactions, because a lot of our products are made for international in Europe and Japan, and both of those currencies were strong this year. So we saw some transaction effects that we normally wouldn't see. We did see higher depreciation. Obviously, we expanded our plants around the world last year, and we basically saw what I call a pharma mix shift in the US between PhosLo and IV iron which we had projected would happen as the genetic PhosLo came to the market before we bring our next generation of binder to the market. Now on the negative side -- on the positive side, we saw basically continued revenue increase in the US. We saw very strong products business, both production costs essentially being reduced because we were able to renegotiate our raw materials and our energies -- energy contracts around the world. So net/net, we ended up basically balancing the negatives with the positives and ending up at pretty much the same margin in 2009 here in third quarter as we were in 2008. And most of these programs then I think paid off, but they do take time to get them underway considering last year.

Now looking at the interest line, clearly interest at $75 million is decreased and again, that's because we saw lower short term LIBOR and Euribor rates. We also -- net interest -- we also saw the tax rate of 35%. It was slightly lower than last year, but that's basically because of new accounting standard and essentially, there's no tax expense shown on those earnings attributed to noncontrolling interest such as JVs, et cetera. So essentially, the tax rate then is a result of the regulation changes, no real significance there. Net/net then, the noncontrolling interest, obviously the more it expands, the lower the tax rate. So that certainly makes sense. Net/net then, we ended up for third quarter being at the high-end of our guidance at 9% EAT growth in dollars.

Turning now to the nine month numbers, which are shown on slide 16, the revenue development for the nine months was very consistent in terms of 8% organic revenue growth, 9% increase in constant currency. We turned in $8.2 billion in revenue for that time period. The actual operating margin, however, was 15.4, which is about 30 basis points lower than what we saw for the nine months in 2008, and that pretty much was influenced by the same set of circumstances that we talked about in second quarter when we were looking at the low watermark here, and that was personnel expenses, price increases for pharmaceuticals including heparin pharma mix effect netted for PhosLo and basically, we were balancing those with strong dialysis products business, good commercial contracting and cost controls.

So essentially, that basically explains the 30 basis points between the two. We clearly saw a reduction in interest in interest expense from last year, $252 million to $225 million. The same thing, it's lower LIBOR at Euribor rates. And of course, the tax now for the nine months was significantly lower than last year but due to a recognition of a tax benefit in the second quarter, that was associated with a tax claim currently being litigated in the courts. So that reduced our tax rate to 33%, but you can see that in third quarter, it came back to more normal 35%.

Turning now slide 17, we will talk about the operating margin development. Again, I think I covered this, I'll cover it a little bit here. Clearly, operating margin in North America Q3 this year was stable compared to Q3 last year at 16.7%. On a year-over-year basis, the margin was positively affected by revenue per treatment and essentially, that was driven by increased commercial contracting, higher utilization. We had a Medicare deposit rate increase and we also saw the ASP increase for both EPO and iron.

In addition, we saw very clearly excellent collections in third quarter. We run our bad debt on a matrix and of course, as you drive down your days outstanding, essentially your matrix accommodates that by providing you with a less of a bad debt expense. We clearly saw that happen, and I'll talk about that in a minute. And we also saw excellent cost management. I think if you look at our sheets, you'll see that the actual cost per treatment, I guess in the investor news, went down from second quarter to third quarter as we had expected as it's team worked through some of these issues. And, of course, the mix shift from pharma was essentially a negative and also, we had higher depreciation in North America because of the computer system that we are bringing online sorting the system.

So net/net in North America there was some positives and negatives, but we ended up basically then at at the same margin of 16.7. International actually increased by 60 basis points in Q3 '09 versus Q3 '08, primarily driven by better manufacturing costs, again, from an excellent job of cost savings, renegotiating our contracts with our energy suppliers, our raw material suppliers. We did have some headwinds of -- in terms of foreign currency transactions like I mentioned because of the strong euro and strong yen. However, the actual savings in the manufacturing area outweighed those.

For third quarter, this is a pretty significant achievement for international because we take our normal maintenance shut down in third quarter, and so there's usually a nice expense that goes along with that maintenance. So this is really quite an achievement then if you look at third quarter increasing by basically, by 60 basis points. Now you can say well, why didn't the margin for the whole company expand a little bit rather than just 15.6%. The reason is that we have increased our R&D. We have some exciting new products that we are trying to bring to market. And so we essentially, whatever was gained in the operating margins, we increased our corporate R&D and our R&D to essentially make sure these products come. That's why we netted out at around 15.6 year-over-year.

Turning now to slide 18, let's -- I want to discussion a little bit the day sales outstanding. This was really one of those excellent quarters. We had excellent cash flexion in North America. We are down to 55 days, which is clearly a record for us. In this environment, it's also just almost more than one could have expected, but the reason it's happening is that over time, the management has been essentially restructuring our building groups and continue to work on ways of improving basically the cash collections, and they are doing a great job. And our target, believe it or not, is in the low 50s, between 50 and 55. So we still have got a little room to go, but lit take a little more time to get there. So they are making very good progress, and this was really quite pleasing.

International. We actually from Q2 to Q3 held it 112 days. In this environment, that too is quite an accomplishment. And so we were really quite pleased with that because obviously, there is clearly a lot of pressure around the world on cost and cash payables. So we are doing an excellent job there. So by and large for the first nine months of 2009, we actually decreased our DSOs by three days, and this is clearly a very positive development and this added to the -- basically to the cash flow for the third quarter.

Which leads to slide 19 where we will talk about the cash flow, and you can see that on slide 19 that we had cash flow from operations of $443 million in Q3, which is again, a record for us, 15% of revenue. Our target is more like 10% of revenue. But we had expected this the back half of the year as we looked at some of the things we are facing the first half, because we were certainly under 10% for the first half of the year and we had committed that we would end the year around 10%. So again, very strong cash flow from operations. Again, they were a result of the higher earnings, reduction of DSOs and the inventories and working capital. So we've essentially focused on all these areas.

Capital expenditures, $139 million. That's about $20 million less than last year. Again, as I mentioned, we are essentially -- had a high watermark last year when we were expanding all the plants around the world. So we expected that to come down a little bit this year. But the guys are doing even a better job than what we had expected. That led us -- or leads us to the highest free cash flow we've seen for a long time of $304 million, and that's 11% of revenue. Our target would be closer to 6% so again, that's way above the target, and we are quite really quite pleased. Now that -- we believe that we won't stay at 11%. We will -- our target is closer to 6%. But it does put us for the year then pretty close to our target.

And finally acquisitions. We essentially had $26 million spent on acquisitions this quarter, again for dialysis clinics in the US, Europe and Korea, which gave us a 10% free cash flow after acquisitions which is again, essentially more like double when our normal target would be 4% to 5% -- 4% to 5% of revenue. So again, a very, very strong cash flow for Q3. Now turning to slide 20, we will briefly touch on the cash flow for the first nine months and obviously, it was impacted positively from the cash flow from Q3. We are at our target now, a little bit above our target in terms of operating cash flow at 11%. As I mentioned, our target was around 10%. So we are clearly in line for reaching our target for the year. And as we expected, with the back half being what it is. And now if you look at, again, the drivers, they are pretty much the same as I talked about for third quarter.

If you look at capital expenses, there we are about $100 million less than last year and again, that's consistent with our guidance I'll talk about here a little later. And again, we've made a lot of investments the last couple, three years in production. We are in good shape at that point, and so we are also looking at -- we believe there will be some nice acquisition opportunities available in 2010. And so rather than build a lot of de novos, it's probably better to focus on acquisitions.

So anyhow, we are $100 million less in CapEx, and that leaves us then to a free cash flow of about $492 million, which is pretty much at our target or a little bit above, that we are thinking 5 to 6 million -- 5% to 6% of revenue would be our ongoing target although last couple of years, we've been running more like 3.5% or between 3% and 4% because of the investments. Now if you look at the acquisitions, let me point out that basically what we have here is we've spent $109 million for acquisitions. However, we had divestitures of $57 million. So that number here with net of divestitures is $57 million. So that 57 is a little bit misleading in terms of what our acquisitions. If you think of our target on acquisitions later, we really have spent about $109 million at this point on acquisitions, leading to a free cash flow, again as you can see, in the range of 5%.

Turning now to chart number 21, we'll talk a little bit about the debt and EBITDA development. And I think you can see that on the left-hand side of the chart, our debt has been pretty consistently in the range of $5.7 billion for 2008 and 2009. And basically, we've increased the EBITDA and therefore, if you look on the right-hand side of the chart, you will see that we actually ended up with a leverage ratio of 2.62 at the end of 2009. And so essentially, we are clearly delevering but at the same time, our debt -- we've held our debt in a constant range of around 5.7 and essentially, that has been our target at this point. We clearly, as we look into the next couple, three years and interest rates increasing, we are in the process of looking at what is the optimum debt level for FMC. But at this point, we are certainly beating our targets, expand our EBITDA and holding our debt constant.

Moving now chart number 22. Basically, we'll talk a little bit about the outlook for the fiscal year 2009. And as I think you read in our investor news, the third quarter met our expectations, in fact exceeded them a little bit in certain areas but we saw the margin improve. We are very pleased with the organic growth staying in the 8% range. And so we felt that based on that, we've looked again at what the year will probably turn out to be, and we've increased our revenue guidance by about $100 million to $11.2 billion. We also felt that we needed to move the bottom range of our net income because when we started the year, there was a tremendous amount of fluctuations, and so we gave ourselves a fairly broad range. But as we move towards the back half of the year, we felt that we probably should tighten that, and all indications are that we should tighten to the high-end, which we did by moving up the low end.

Now, as far as leverage ratio, we are leaving that the same. In terms of capital expenditures, we are not changing the guidance there, but we will probably be near the low end on both of those at this point as we look towards the end of the year. But again, we have the fire power to basically move up if there's a need to in the acquisition area. But at this point, we are not a heavy in that game. Okay.

Turning now to slide 23, which is my final summary slide, I'd like to reemphasize it was a very, very good quarter. And I'd like to thank all of the employees and management board for outstanding performance for, during 2009 totally. It's been a very difficult year, but they've done a great job and are doing a great job, and especially third quarter was very reassuring. I talked about basically compressing our targets towards the high-end guidance for the year. The -- so far we continue to see good quality. I talked about the cash flow. Again, it was exceptionally good in third quarter. So net/net, I'd like to say we are extremely proud of the performance in third quarter. And we did that without reducing our effort in the R&D area, which really is necessary to ensure our future growth. At this point, I think I would open up for questions and answers, if that's acceptable to

Yes, thank you very much, Ben, for the presentation. You must be exhausted with both parts now, so I'll give you a little breather. But we can start with the Q&A section, Audrey.

Thank you, sir. (Operator Instructions) First question, Kevin Ellich from RBC Capital Markets. Please go ahead.

Good morning, thanks, Ben. Quick question on average revenue per treatment in North America. It's going pretty strong. Can you talk about what's driving that?

Yes, the -- primarily, if you look is the second to third quarter, it's the capability of the contracting group,and that's pretty much contracting plus the Medicare increases this year, plus the ASP in third quarter was a little higher. So it's all based on all contracting, or all non-utilization.

Non-utilization. And then you also mentioned ASP, so was there an increase in some of the pharma?

Yes, there was an ASP increase in third quarter. Now, it will work against us in fourth quarter a little bit because basically, it's I think $0.30 or $0.40 lower in fourth quarter. So those have all combined in fourth quarter, and that's why we are pretty comfortable saying that we are pretty much going to be revenue flat probably to the fourth quarter. We are not going to continue to see the rise here because net/net per year-over-year, we are way ahead of our target.

Great. And so just to be clear, when you say flat, is that flat sequentially, or flat year-over-year?

No, flat sequentially, yes. Not going backwards, okay. No, that's flat sequentially, yes.

That's helpful. Okay. Then you talked a little bit about nutrition and albumin and North America, I thought you mentioned the ability to provide supplements to patients, at least in the demo that you have with CMS. Right now, that's not allowed, is it, by Medicare?

No. Interesting, that's why I mentioned the group in North America really accomplished something that we've been talking about for ten years, and they got an advisory opinion that it is acceptable under limited conditions to provide to patients who basically test to require nutritional supplements, free nutritional supplements. And so that is a changer -- a game changer for us. We haven't seen that in ten years. So yes, with all the data we had from the demo project, it's clear that that is been the benefit of the patient. So we are starting that program. That is a new step for us.

Is it to the extent that you guys are able to provide meals over in Europe and Portugal?

No, it's more a supplements, basically commercial supplements.

Okay, I understand. And then thinking about the healthcare pharma and the fee on the medical device industry, how much exposure would Fresenius have to that be, if any?

Yes, where -- of course it depends on where they land, whether it's $4 billion or $2 billion. But at this point, our standpoint it wouldn't be that significant, but it could be in the range of $10 million to $20 million a year max, okay?

Okay. And then last question on bundling. Medicare held that open door meeting a few weeks ago in Baltimore. A lot of support for home hemo treatments and also, there issues with like the payments like you mentioned labs. Could I just get your thoughts on what's going to happen and new technologies that are evolving?

Well, I think -- again, I didn't attend that, but there certainly is an interest in looking at home and obviously, that's why we bought the Sorbent system. We just filed our 510(K) on the -- for Sorbent product. But I think that it's just a little too early to -- from my standpoint to call where it's going to end up. I think we have to do quite a bit of work with CMS to get the payment right and once that's done, then you can always focus where should the therapy be given in the future. So I think right now the focus by everyone is making sure that the payment is proper in 2011 so basically we can join a very exciting program.

Okay. Thanks .

Thank you, Kevin.

Our next question will come from Ed Ridley-Day from Barclays Capital. Please go ahead.

Thank you very much. Firstly, in terms of --

Hi, Ed.

Hi. In terms of your excellent cost control, can you just give a little bit more color on the, first of all the CapEx? It seems to be back at levels as you said, that we saw after a couple of years ago in this quarter. And given that most of the capacity expansions that you've seen in your production are finished, would you then say that we should see CapEx sustainably lower going forward, so around maybe not as low as you've seen in the third quarter, but certainly materially lower than we've seen in recent periods?

I think that's fair. We haven't really talked about next year's guidance so I don't want to run too far ahead. But generally, if we are not doing major production capacities, we would be looking at 5% in the revenue range in terms of CapEx. So that's where I think we will probably be headed as we go forward, okay?

Related to that, in terms of obviously the new raw material contracts, can you give us an idea of perhaps the timing of these new contracts and the length of the new contracts that you've contracted? Presumably they are obviously multiyear contracts at the new level.

Yes, I can't give you much color on those because there is really a whole host of them and they vary in time depending on the quantity of the purchase. Generally they are multiyear end users, they is some sort of negotiated escalator or risk version. So right now, I think you probably are comfortable looking at out a year on most of them and some of them may go a little longer than that. But we really just got bit last year when everything became so inflationary, but I certainly don't see that around the world right now. So if you just look around the world for the next couple of years, I don't see too many inflationary pressures.

Final question. On the -- your new dialyzer can you just give us some color or potential on how you are progressing on that, how quickly you feel you may be able to start to use larger volumes of the new dialyzer of that operationally?

Ed, I'm not quite sure -- we've introduced a new line of dialyzer about four or five year ago --

I'm sorry, your dialyzer, the new citric acid based dialyzer.

Okay, I think you're talking about Dialyzate, right?

That's right, yes.

Okay. Yes, we, basically, the citric acid has been around in the Dialyzate replacing acetic acid for about five years. We are doing some studies now and we have brought it to the dialysis market but again, I think I mentioned second quarter we will probably end up doing studies through fourth quarter and first quarter and then look at expanding it beyond there. But it's still pretty much in the study phase. We have started the programs. We've made the modifications to the hardware to be able to run that Dialyzate. But it's been on the market for about five years, and it's being sold by the actual company that owns it. We are just a distributor.

Okay. Thanks.

Our next question will now come from Lisa Bedell-Clive from Sanford Bernstein. Please go ahead.

Good afternoon. Three questions. First on international growth, this year it's been a bit slower than historical rates. Have you seen any health budget constraints in international markets? I would mention Europe in particular here. Second, as your cash flow continues to develop nicely, what is the company thinking in terms of dividend strategy going forward, if there is any thoughts on that? And then third, I'm just trying to get a better understanding of what the long-term margin for the North America dialysis products business should be? That's obviously been squeezed a bit given a change in product mix, but some guidance on that level going forward would be helpful.

Okay, thank you very much, Lisa. As far as the international growth, I think we've seen a couple of effects. One of them is there's been, in one country where we basically have a number of clinics. We operate a large number of clinics, we were expecting a reimbursement increase. It hasn't happened, but we think it will happen. So that's one of them. I think the other one that you are seeing is that a 6% to 7% growth is not slow growth. Okay? Because we've always said it's going to be somewhere between 5% and 10% and if under best conditions you are going to be 10%, then the other ones you are going to be closer. So I think we are pretty much on target, but there are a couple of things that really haven't happened yet. When they do, they will boost it back.

As I mentioned, we see some of the equipment being extended, and so that can only go so long and then basically, people have to replace their equipment. So I think that's what we are seeing. Those two situations probably are moving us from the 10% down to closer to the 6% to the 7%. Cash flow in our dividends strategy, we have a very clear dividend policy in terms of how we pay the dividends. I don't see us changing that. We haven't for 12 years. It's a percent of increase in EAT, so I think that will stay the same.

What we don't talk about the margins in North America or any country product versus service, because they are really driven by what they charge each other in terms of how you transfer products. So you will you notice North American margin is actually stable year-over-year at 16.7. So basically, we have seen all the margins stay pretty much the same to where we had a little less margin with the PhosLo, we clearly have improvement in terms of manufacturing capability. We've reduced that. So the guys have done a nice job, and we've pretty much worked through that. This will be the last quarter for that. Okay? So from that standpoint, I think the answer, we really would expect the margins to stay, as I've said in the past, North America between 15.5 to 16.5 and I believe they are over that in third quarter above the target. That's for the entire country, not just the products, okay?

Okay. Thanks.

Our next question will now come from Justin Lake from UBS. Please go ahead.

Thank you, good morning.

Hi, Justin.

Hi. The quick question on commercial contracting. It sounded like that was very good in the quarter. There was some concerns specifically around commercial payor mix and the number of patients covering by commercial given the weakness in the North America economy. Can you talk specifically to that and whether you've seen any change in payor mix as you've gone through the year?

Yes, I can give you -- we have not. In fact, I think as I mentioned last time, if you -- we tend to look at it in terms of what I call governmental and essentially non-governmental. And our non-governmental is actually increasing. So we have not seen that and I don't know that the industry is seeing that either because of Cobra and a number of other things. So we have not seen a deterioration in our non-government position.

Got it. And specifically no change in the third quarter?

No.

And then just secondly, you mentioned bundling and obviously, there's a lot of unknowns out there. The question I have was around the CMS estimate of the number of folks who will actually -- or number of facilities I should say that will actually transition or phase in bundling versus opting in. I think there's a lot of thought out in the sector that most of the larger facilities would like to opt in and start receiving bundled payments right away, yet CMS only estimates about a third of the facilities will choose that. I'm just curious -- I would just be curious to hear your thoughts on how you look at that from your company's standpoint. And then specifically, if you could talk about the ability to do that on a facility by facility basis or whether would you need to make that decision on a total company basis.

Well, I think there are two issues here. One of them is the transition deduct of 3%. We are not quite sure where that comes from, and is that really necessary? Because if you add that to the 2.5% or the 2%, you end up getting a major decrease in reimbursement,t which I don't think was intended. But as far as -- what happens if all the numbers are proper and everybody is comfortable that the program should be joined, okay? Then I think as we look at it as a company, it really is much better to just make the switch and it's hard for us to manage claims one way in one part of the city and another way in another part of the city or state by state. So I think the desire on the part of -- at least from what I've heard from the management in North America would be to make the full switch if all the conditions were right and it was really a fair bundle. Because it would basically allow us, then, to focus on the best patient outcome without being schizoid in terms of how we are doing it.

That's great. One quick follow up on that that transition adjustment that you mentioned there. That is a concern I kind of had myself. I'm just curious, have you been able to -- is there anything you can talk to as far as your discussions with CMS around how they are thinking about that transition adjustment and maybe your ability to convince them that that should be delayed or the fact that maybe they misestimated how many facilities will actually transition in?

Yes, I can't comment too much on that one. I know there are teams from FMC and the community working on it. It's clearly a concern to all of us that it may not be the proper approach, okay? So we are looking at it right now but personally, I can't add any more to it. I don't think so, Justin.

Thank you very much for the comments.

Thank you, Justin.

We will now take our next question from [Julian Domoai] from Exxon. Please go ahead.

Hi, good afternoon gentlemen, basically two questions, please. The first one would be on the results of the TREAT study that was published by Amgen last week and which showed a strong increase in the risk of stroke for patients with chronic kidney disease which are not on dialysis. Are you aware of a similar study which would be ongoing for patients currently on dialysis and if the results were extendable to that population? What would you see as an impact in terms of EPO used in dialysis patients? And then the second question would be about your external growth strategy in the US. Are there still a lot of small and mid-size dialysis providers that is would be appealing to you? And what do you think the limit in terms of market share that would be allowed by the US antitrust authorities?

Okay, great. The TREAT study, I haven't studied it, but we've certainly seen it. I don't think there's any carryover between the TREAT study and dialysis, and we've said this now for almost two or three years, when the predialysis data started showing up and putting all these black box warning. I see that as having no relevance to dialysis at this point. So I don't believe it will have an impact. I don't know of a study that's going on in that area. I just know from our experience that I think we are at the right spot in terms of (inaudible). Acquisition growth, at this point in time, our main interest is to do what we can as a community player to make sure that all of the dialysis clinics in the US stay healthy and profitable, and acquisitions is really not part of our strategy at this point in time. So I can't tell you that I've got any aspirations to grow anymore, okay, other than through organic growth.

Okay. Thank you.

Our next question will now come from Michael Jungling from Banc of America, please go ahead.

Great, thank you everyone. I have two questions, first on heparin. Now that you have got another supply of heparin are you still looking very much at acetic acid as a way of reducing costs or the additional studies that you are doing, is that based on something else? Secondly, on the commercial payor discussions in the US for 2010, what portion of the North American commercial payor price negotiations have been concluded, and how many remain open? And that's in relation to the 2010 fiscal year. And then the third question I have is for product, how much of your constant currency growth did IVI do in the third quarter, and that's the deal with (inaudible)? Thank you.

Thanks, Michael. As far as the citrucate, as I mentioned, these studies are ongoing, and we actually see some medical benefits or at least has been published in terms of that as an anticoagulant. So we will continue those studies and essentially, basically not back off of anything in that area. And again, I think there has been some data presented at ASCM. As far as the commercial contracting, we generally don't comment on that because it's a little too sensitive but obviously, we are striving for more and more multiyear contracts, so you can imagine then that there's less and less that are open for next year. As far as the products, we sell them as a therapy. I don't know that I actually know that number. I think check on that and try to get back to you, because it's pretty much blended. And one of the things that I have is the iron sold internally is not in the numbers. And so at this point in time, I don't have a quick number for you.

And perhaps a quick follow up on PhosLo. Can you give us an update on the regulatory path to get PhosLo approved in the United States? Whereabouts are you in that process?

We have filed our next generation PhosLo, PhosLira, we have filed that and we are expecting approval for that in the first half of 2010.

Thank you.

Our next question will now come from Scott Bardo from Credit Suisse. Please go ahead.

Thank you very much for taking my questions. This first question is to follow up in a little bit more detail on international. Obviously, we have seen the products business has slowed a little bit sequentially in Q3 versus Q2, and I believe the underlying reimbursement per treatment in international was a little larger in Q3 versus Q2. I was wondering if you can help talk through this treatment and perhaps comment on your international growth expectations for Q4 given your full year guidance. And the second question was on acquisitions, you just mentioned acquisitions in the US is (inaudible) strategy at the moment, which would mean that there's quiet some step up in acquisitions within the context of your guidance likely until Q4. I was wondering if you could help us with which international geographies you are particularly interested in, if there's any move in healthcare reform in any particular countries that would open certain pathways up for you. Thank you.

Okay, as far as growth in international in fourth quarter, I would expect it to be similar, or usually fourth quarter is a very strong quarter for us, so I would expect international growth would be near the higher end of our target rather than -- you're talking about the products now, in terms of the 6% it would be a little higher than that. As far as the acquisitions, basically, as I mentioned, we've spent about $109 million. We said the target is between $200 million and $250 million. So basically, we probably won't -- we may not even get to the low end of that target. But at this point in time, the $100 million is, if you spread that over a number of clinics, that's not a lot of major targets. We have got far more than that onesey-twosey targets available around the world. Don't read anything into any major acquisitions at this point although when the price is right, we will be ready to do them.

Thanks. So just to follow up then if I may, so in terms of constant currency growth for international, would you expect Q4 '09 to be a similar growth to Q4 '08? Did I misunderstand your comments there, or are you talking about sequentially?

No, I was talking about, Joseph, help me on that one. I was talking about sequentially, I would expect it to step up because fourth quarter is always a stronger quarter. And I would expect that would be comparable to 2008. I'm getting a nod on that. The revenue per treatment, you have to be a little careful in the international because there's a lot of currency effect. And remember I mentioned that if -- because we bought units that actually have lower reimbursement in some of these areas, if you then look at the average reimbursement, it would be a function of where you're expanding and not necessarily as homogeneous as the US number is. So if you look at the legacy group, we are growing at 5%, which is pretty much in the target that we've been growing at. I wouldn't read anything who that 3% constant currency because it's really 5% in the legacy clinics, okay? Does that help you on that one?

Thanks very much, that's great.

Okay.

We will now move to our next question from Rodolphe Besserve from Société Générale. Please go ahead.

Good afternoon. On acquisition in the international zone, again, could you just make an update on the recent evolution on pricing of targets? And have you seen emergence of any group that has tried to beat on the acquisitions? And also in Q3 you acquired 13 clinics in Asia Pacific. Is it in a single country and where is it exactly? Thanks.

Those were not in a single country. Again, we -- the pricing I think, as we've talked a number of times about, our target is somewhere in the 5.5 to 7 times EBITDA, and so we are seeing some of them moving into that range, but a lot of them are still way outside of that range. But at that point in time, that's sort of where we feel that it makes sense for to us acquire, unless it's a very large acquisition, then you get the roll up of those. So I'm not trying to be vague but right now, acquisitions are really a 2010 project primarily for us. Okay?

Okay, last one on the entries on ranging investments, are there any new directions you are taking in R&D, or is there anything new you could communicate on?

I think most of our new effort is in two different directions. One of them is that we are clearly developing our therapy products which includes both pharmaceuticals and essentially our standard machines or concentrate. So we are doing some clinical work in the therapy area, bone mineral metabolism as well as anemia. And the second area that we are looking at is essentially revitalizing sorbances so that we can essentially offer a system that operates with no more than six to seven liters of tap water around the world because in five years, we think that will be important too. And also, that allows us to reprocess PD solutions. So it is really sorbance and therapies is where we are doing the new work.

Okay. Thank you.

Our next question will come from Ilan Chaitowitz from Redburn Partners. Please go ahead.

Hi, Elan.

Hi, Oliver, Hi Ben, congrats on a great quarter. Three questions for me to start off with. Just on the DSOs, that was a very good progression in Q3, and that's been coming down now since the end of last year. Can we expect to see that improve further in Q4, or is that done with for now? The second question relates to the cost containment initiatives that you put in place following the Q2 results. And I was wondering, are there quick fixes done and that's as good as it gets, or should we expect further initiatives to have an impact into --well, over the remainder of this year and into 2010? And finally, the last question relates to what still being proposed with regard to an accountable care program in the US. It seems that in Portugal, your comprehensive price payment model is a good example of how you would be able to run a program of this sort. Do you intend to publish any data in terms of the Portuguese program? It's been running for about 18 months now, I think. And also, when would you do that?

Okay. The DSOs -- again, I believe at this point in time, I wouldn't expect to see any additional improvement in DSOs in Q4. Okay? And you'll notice that we are holding the line in international, which is really quite phenomenal. So I would say if anything, they will stay basically in that range. Now, the cost containment, I got to give the guys a little more credit. We've been working on that since almost a year in terms of some things that essentially inflated our cost last year. And as we mentioned, all the first half as we thought those would be pretty well worked out of the second half. So this has really been a long-term product.

Now yes, we believe they will last, we wouldn't expect to see a major increase in cost per treatment in the US. We've gotten negotiated energy, raw material prices. So we think that basically these will carry over for at least another 12 months. But they weren't something that we just put into effect this quarter. They resulted in this quarter, but they've been put into effect all through the first half. Portugal operates very much like the 2010, 2011 bundle in the US. It is a dialysis bundle and, yes, we've seen some very good outcomes. I would expect that our European group would public that sometime in maybe not the near future, but again, you have to get some history behind it to really get a scientific paper. So the answer to that would be, I'm sure that will be published. It's like the bundle in the US, not the accountable care model which is more comprehensive.

Thank you very much. And just one follow up with regard to heparin. Could you please give us an update a month into Q4, how heparin pricing in the US has been proceeding for your business?

Well, I don't know that I can give you the heparin pricing in the US because I don't know that I know it, but I think you didn't hear me talk too much about heparin too much in this quarter, and it was really a nonevent for us in Q3. So I think the heparin issue has stabilized from the standpoint -- or, is stabilizing from the standpoint of the providers because there's some additional players in that market. But other than that, I can't really tell you any more about the pricing. Sorry.

That's great, thanks, Ben.

Thank you, Elan.

Our next question question will now come from David MacDonald from SunTrust. Please go ahead.

Actually, all of my questions have been answered. Thanks.

Thank you, David.

Our next question is coming from, Marcus Wieprecht from Main First. Please go ahead.

Thanks, and hi, gentlemen. Two questions, on the CapEx, the $600 million roughly this year, how much for that would be maintenance and how much would be growth CapEx, and how would you see this split going forward if you assume more or less 5% of revenue above your CapEx in the future? Second question would be on the DSOs again on the international side. Do you see any countries where money collection is becoming more difficult? Some competitors in the healthcare industry mentioned particular countries like Venezuela or Greece. I'm not sure quite sure how present, how strong you are in those countries, but do you experience some significant deterioration in certain areas here? Thanks.

Okay. Excellent questions. As far as the CapEx this year, it's about 50/50. And as you move down towards 5%, it will probably be closer to 60/40 with growth being 60/40. But worst case it would be 50/50, okay, pretty much where it is. As far as money collections, we've seen the same thing ten years ago and in Latin America. And that's why we converted to almost 70% service in Latin America, and it's a lot easier to get paid as a service provider in the country and also, your costs are primarily in that currency. So that's how we balanced over the years our DSOs in some of these regions of the world. So from that standpoint, you wouldn't want to lump us with a basically a med tech company who is actually just selling products, because we've sort of got an anchor here in those countries, which gets us a payment cycle much quicker than would you get in the products area.

All right. Thank you.

Thank you, Marcus.

We will now take our next question from Hans Bostrom. Please -- from Goldman Sachs. Please go ahead.

Yes, hello.

Hi, Hans.

Hi. One question, and that relates to your cost per treatment development on a year-on-year basis. Is it fair to assume that this has been in line with the revenue per treatment increase, or did you start from looking at the operating margin being static year-on-year in Q3 over last year in North America? And assuming that is the case, and it's (inaudible) which is equal to your revenue per treatment increase, can you split that up in terms of labor costs and how much that contributed to the increase and how much was drugs, and -- particularly on drugs where there haven't been any new drugs that you have adopted like Feraheme for instance, that has inflated your costs? Thank you very much.

Okay. Hans, I will try to answer that in a -- best I can. Feraheme is not in the cost, so I can take that one off. The labor costs actually year-over-year have decreased or are flat and again, remember it's Q2, it was fringe benefits which we've renegotiated and they are down. So what you are seeing is, I think if you look at the 4% increase in growth that we've seen in revenue, again, we've also seen, I think somewhere around 3.3 increase YTD through three quarters in terms of the cost increases. I think again, these are on a lower base, so you get a margin pick up.

But if you look at the back half of the year when we talked about these in second quarter, we were closer to 4.5% to 5% growth in costs, okay? So -- and again, it was on a lower base, but it did impact our margins. So I think we are moving into the area where we will see essentially a benefit now with the costs not increasing at the rate that the reimbursement is. And we expect to finish the whole year somewhere in the 3% to 4%, closer to say 3.5% increase in costs on a lower base. Does that -- so then we expect, I think fourth quarter would be reasonably flat to maybe slightly up, but no more than that.

That's very helpful. What are the other parts of the costs? Maybe cost obviously is half or more than that in terms of total costs, the drugs and there are energy costs. Could you shed some light on which are the moving parts here?

I can't shed much light. I can kind of tell you on the deltas, I don't know the breakdown by category, but one of the deltas of course is that depreciation is up this year because we clearly are expanding our IT systems. The other one, obviously, is personnel costs that essentially is increased. And again, you've got some group health and then you have got a whole smattering of other costs, but you also have some improvement in the ASP. So we look primarily at personnel costs, what are we doing on the -- essentially that's 50% to 60% of it and the rest of it becomes a utilization of the clinics and the depreciation getting clinics open and so those are, I can't be more helpful than that. But if you'll notice though on the scorecard, our costs -- the US has done a great job, the costs Q2 to Q3 I think are down about six-tenths of a percent.

So can you give prognosis forecast of 2010 in terms of cost of treatment?

No, we will give you -- basically, we give our guidance in February and at this point, we really haven't put that together at this point. But our target over time, we always say we want to go up in revenue per treatment by 2%, we would like to keep the costs going up at 2%, we get a little bit of an accretive situation.

Okay. Thank you.

We now move to our next question from Andreas Dirnagl from Stevens. Please go ahead.

Yes, good morning, Ben and Oliver. Most of my questions have been answered Ben, but maybe just a quick question. In your comments you made reference to the fact that you've seen some of your developed clinics that you've been awaiting licensing for begin to get license. I was wondering if you could give some color on that in terms of, is it across all areas that you are seeing that, or are there specific states that are now moving forward? Because I still think you have a pretty significant backlog there.

Yes, I think if Texas clearly has come to grips with this, and we are starting to see some movement there. But these clinics are really onesey, twoseys across all the states. And honestly, we did make -- the guys made some good progress this quarter. We went from 49 to 42 and again, you have got to realize that we also turned out about 18 or 20 that we put into the system. So I believe we still got problems but over the next couple of years, it will come down to some natural, basically natural level which is going to be somewhere between 30 and 40, because these things take from five to six months to many times to get everything qualified. So I don't think a 30 level is going to be out of line, okay? So we are still maybe 10 to 12 to go to get back to where I'd say stable.

Okay, great. And obviously, you haven't announced anything on a CFO. I was wondering if you could give any comment or color in terms of how the search is going, whether you have a potential timing sort of timeframe involved there?

I thought I would get through the whole presentation without that question. We're --

You did a wonderful job covering the financials.

Thank you. I don't know about that. But I want to say that we are well into the search. And again, you realize that we are looking for -- it takes the right type of person to work in this environment. But on the other side, we have got a really excellent financial group with the -- basically with the corporate VPs of finance and also the regional CFOs. So we formed the office of the CFO and that's the way it's been operating for the last couple of months, and that allows us time then to find the right candidate. So we are getting closer, we are getting close. But again, this is not an easy -- it has got to be done thoughtfully. So anyhow, but, again, we will let you know when we finally nail it down.

Okay, great. Thank you very much.

Thank you.

(Operator Instructions) We now have a follow-up question from Lisa Bedell-Clive from Sanford Bernstein. Please go ahead.

Hi, again, question about nocturnal hemodialysis. I understand from the current bundling proposal that reimbursement will be effectively on a per treatment basis. I also know that currently there's a trial running looking at dialysis six times per week versus the three per week standard. What happens if that data is very good and the guidelines change so that more frequent dialysis is better? Have you had any discussions with CMS about how that could change under the bundle pricing model?

Yes, but not me personally, but this is clearly a discussion that's going on in the industry. And where we are coming from is that by working, by doing nocturnal, we are clearly get more dialysis, and that's really beneficial for the patients. Our overall view is probably three times a week is not enough, and so you essentially probably need somewhere around four or a little more than that. But I think the bundle will start sort of where it is. We will then be able demonstrate some additional value in terms of overall savings where the comprehensive bundle comes in. I think in time that will change as we develop the -- with these studies that are clear indication that more than three times a week is probably a good idea or more dialysis is clearly a good idea. So it's still in the early stages, but I think we are committed to -- with these studies to really evaluating this, okay?

Great. And just one follow up. You mention the comprehensive bundle. Could you give us an update on how that is going and how many people you have enrolled in that program?

Yes, we are actively increasing it. Again, I think we showed that we went up year-over-year by 40% some, and so it is really is a very successful program in terms of patient outcomes, in terms of essentially cost effectiveness, and so we are expanding it in anticipation that under healthcare reform there will be some sort of pilot opportunity to essentially expand this program even further and again, we are working with the industry with DaVita and with everyone here, because we think this is the right way to go. So yes, we are expanding it. I don't know the exact number of patients, but we must be pushing 1,000 or more at this point.

Okay, great.

(Operator Instructions) We now have another follow-up question from Kevin Ellich from RBC Capital Markets. Please go ahead.

Thanks. Just a couple follow-ups. Ben, I guess starting off with new drugs that are kind of in the pipeline, have you had a chance to -- assessing of them such as Affymax's Hematide? And what potential impact that might have on the market?

Okay. Kevin, yes, certainly there are papers presented at ASCN, and we have patients in Affymax's study. From FMCs standpoint, we are really only interested in having very well proven drugs in terms of safety profile in our therapy developments, because we clearly -- 75% of our revenue and our business is treating patients as a service provider. So we are not a classic pharmaceutical house as you think of it. So from that standpoint, until these products really have a track record, I don't spend a whole lot of time looking at them. But there are clearly some developments out there that are interesting. So from FMCs standpoint, they are still a little early at this point for us to be thinking about them in some of our therapy development.

Got it. That's helpful. And then going back to the comprehensive bundle and right now some demo, could you walk us through -- remind me what the time frame is? So you've got the demo and if it expands and goes into a pilot, and then when could it actually be implemented?

Well, this is pretty much conjecture from my standpoint, but the steps would be, I believe if through some of this healthcare reform there's an opportunity for say DaVita and ourselves to -- or other providers who would like to join to do a pilot of significant size that you could basically demonstrate to CMS and everyone that there is a real financial and medical benefit and that would be 30,000 plus patients, those thing usually run three or four years and then at that point you would consider, is this something that would be instituted as a statute? You are looking probably anywhere from four to five years under -- assuming something happens in the healthcare reform.

Got it. That's helpful. And then lastly, as we exit 2009 heading 2010, thoughts on when you guys might provide guidance and also -- how should we think about operating costs as we have been in this deflationary environment, would you expect raw materials cost to start to pick up again?

Well, again, we -- in a more normal time, we would be looking at somewhere in the 2%to 2.5% increase in costs, okay, in our area. Again, that would be per treatment if you're looking at or that's essentially what we're looking at. So I think that's all I can say at this point. I certainly don't see any inflationary times coming back right now. And you guys know as well as I do what's going on, but we still seem to be hovering in how long is this recession going to take to get out of it on a world basis, okay? Now, as far as our guidance, we will provide that with our year end numbers in February because that gives us a good basis to project forward. It would be with the February numbers.

Thanks, Ben.

Thanks, Kevin.

As we have no further questions, I would like to turn the call back over to you, Mr. Maier, for any additional or closing remarks.

Thank you so much. The only closing remark for me is to thank Ben and to be grateful that actually he did both presentations. So thank you very much, and we are looking forward to talk to you in February when we announce the full year numbers.

Thank you very much for your interest in joining us. Bye-bye.

That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.