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Operator
Good day ladies and gentlemen and thank you for standing by and welcome to the second quarter 2010 Harvard Biosciences, Incorporated earnings call. At this time all participants are in a listen-only mode. Later we'll conduct a question and answer session and instructions will follow at that time. (OPERATOR INSTRUCTIONS)
As a reminder this conference is being recorded. And now I'd like to turn the program over to Mr. Tom McNaughton, CFO. Sir please go ahead.
Tom McNaughton - CFO
Good morning. Thank you for joining us to discuss our results for the second quarter 2010. Chane Graziano, our CEO and David Green, our President are also on the call today. After the Safe Harbor statement, I'll turn the call over to Chane and David who will present an overview of the second quarter and comment on our outlook for the year. Lastly I'll present some additional financial highlights related to our balance sheet. Following those comments, we'll open the call to any questions.
In our discussion today, we may make statements that constitute forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from those projected due to risks and uncertainties, including those detailed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and our other public filings.
Any forward-looking statements, including those related to our future results, represent our estimates as of today and should not be relied upon as representing our estimates as of any subsequent date. Further information regarding forward-looking statements and risk factors is included in the press release issued earlier today reporting our second quarter results.
Please note that during this call we will discuss non-GAAP financial measures because we believe those measures provide an enhanced understanding of how our businesses are performing. These non-GAAP measures approximate information used by our management to internally evaluate the operating results of the Company. For each non-GAAP financial measure discussed, we have made available as part of our press release or on our website in the Investor Relations section, a reconciliation to the most directly comparable GAAP financial measure.
Additionally, any material, financial or other statistical information presented on the call which is not included in our press release will be archived and available in the Investor Relations section of our website. Look on the Investor Relations section of our website and then click on the Investor Presentations or website icon as appropriate. A replay of this call will also be archived at the same location on our website. Our website is located at www.harvardbioscience.com.
Lastly, all financial information presented on this conference call relates to our continuing operations unless otherwise stated.
I'll now turn the call over to Chane.
Chane Graziano - CEO
Thank you Tom and good morning everyone. Harvard Biosciences financial performance for the second quarter of 2010 was very strong. Despite some weakness in our Harvard Apparatus subsidiary in France and Spain, our overall organic growth increased by 11% compared to second quarter 2009. This growth was primarily driven by increased market demand compared to the second quarter of 2009, the introduction of new products and expansion of our field sales organization.
The acquisition of Denville Scientific continues to meet our expectations and to be a significant contributor to our overall growth.
For the third quarter 2010 at current currency exchange rates, we expect revenue to be in the $25 million to $27 million range and non-GAAP diluted earnings per share to be approximately $0.08.
Our previous guidance of $0.36 to $0.38 for 2010 non-GAAP diluted earnings per share was calculated using currency exchange rates of 1.6 to the British pound and 1.4 to the euro. At current exchange rates we expect earnings to be at the lower end of this range.
Our previous guidance of $109 million to $112 million for 2010 revenues was also calculated using currency exchange rates of 1.6 and 1.4. At current exchange rates and due to the weakness in Spain and France, we now expect 2010 revenue to be in the range of $106 million to $108 million.
Our guidance does not include the impact of any future acquisitions.
David will now comment further on our second quarter results and our current business outlook.
David Green - President
Thank you Chane and good morning everyone. One of the major drivers of the success in Q2 was the acquisition of Denville. Denville has been accretive for earnings per share in every quarter since the acquisition. In addition to Denville's positive impact on the quarter, the core business also performed well.
Excluding Denville, we delivered 11% organic growth in the quarter with growth coming across all major product lines. Denville's organic growth, as though we'd owned it during Q2 last year, was also 11%. The strong organic growth, the highest we've had since the first half of 2006, was achieved despite some weakness in southern Europe.
The main drivers of organic revenue growth in Q2 were a general strengthening in the market, the investments we've made in new product development and the expansion of our sales force. In Q2 we launched a third of four major new research syringe pumps in the Harvard Apparatus business. Syringe pumps are our biggest single product line.
The new pump called the Pump 11 Elite is a major upgrade to our best selling Pump 11 product line that now incorporates a Teletouch screen user interface, method storage and programming without a separate computer and USB connectivity.
The fourth major new product is expected to be launched later in 2010. These new products have been having -- have been contributing to organic growth at Harvard Apparatus especially in the USA.
Also during Q2 we launched a major upgrade and expansion of our spectrophotometer product line in our Biochrom business. Spectrophotometry is our second biggest overall product line after syringe pumps. Spectrophotometry is the core of the Biochrom product line and this new product platform provides both proven [statistical] specifications such as accuracy and reproducibility as well as ease of use by adding a Teletouch screen user interface.
In addition to our traditional strengths in single beam spectrophotometers, we'll now be adding -- excuse me -- dual beam instruments which are inherently more accurate than single beam instruments and also variable bandwidth instruments which provide significant extra flexibility to the user.
With these new products, we'll be able to act as a larger segment of the entire spectrophotometer market. Initial response (inaudible) has been very positive. We think that these new products will help us to drive organic growth during the second half of 2010 and beyond.
In addition to driving growth in our core research markets, we announced on our year-end call we started investing to create new products to address the longer term growth opportunity in the emerging field of regenerative medicine. Regenerative medicine is using stem cells to repair damaged organs and to grow organs outside the body to transplant. US Department of Health and Human Services projects that the US market for regenerative medicine is $100 billion.
Our strategy is not to become a therapeutics company but instead to provide tools to enable regenerative medicine. These new tools currently form two main categories - bioreactors for growing tissue and organs outside the body and injectors for stem therapy. These new tools we're creating are being built on our existing technologies such as our market leading Harvard Apparatus Precision Syringe Pumps and market leading Hugo Sachs isolated organ systems.
Our first bioreactor product -- I'm sorry, our first bioreactor is a product that was used to perform the world's first human transplant of a regenerated bronchus. Dr. Paolo Macchiarini and I reported this success in "The Lancet" in November 2008. I'm pleased to announce that during Q2 we took our first orders of this product making it what we believe is the world's first commercially available bioreactor that's been used to perform a human transplant for a regenerated organ.
While this is a small step forward, it marks an important milestone in the development of the regenerative medicine field as a tool [evolved] from one-off to commercial quality products. I'm also pleased to report that one of our collaborators, Dr. Harald Ott of Massachusetts General Hospital succeeded in regenerating a lung and subsequently transplanting it into a rat.
In collaboration with Dr. Ott and Mass General, we designed and developed a novel bioreactor that we used to grow this lung. The work was published online in [HM] Medicine in July. We congratulate Dr. Ott for being the first researcher to accomplish this milestone in the field.
The bioreactor used by Dr. Ott was a modified version of one of our market leading Hugo Sachs isolated organ systems.
In addition to the bioreactor that I described, we also started the development of a clinical version of one of our market leading Harvard Apparatus research syringe pumps. We anticipate that this pump will be used to inject cells in to damaged tissue in cell therapy. The US FDA has recently announced its intention to focus greater attention on safety, particularly with the user interface and clinical infusion pumps.
We're still evaluating the effect of these new requirements and it's possible that complying with them will delay the submission of the new product for US approval. However, we still anticipate launching our first clinical product during 2011.
As always, we continue to pursue acquisition candidates and have a pipeline of potential candidates that if completed will add to our growth and revenue profits.
In short, we're very pleased with our results for the second quarter. Despite some weakness in southern Europe, revenue was up 44%, non-GAAP operating profit was up 55% and non-GAAP earnings per share was up 60%. We're also pleased to see the effects of the launch of our new syringe pumps and anticipate growth in the launch of our new spectrophotometers.
And finally, we're making progress in developing bioreactors for stem cell therapy (inaudible) long term growth in a very promising new market of regenerative medicine.
I'll now hand the call over to Tom to (inaudible) comments.
Tom McNaughton - CFO
Thank you David. During the first six months of 2010 we generated $6.2 million in cash flow from our operations. During that period we made the final $1.5 million payment on the Denville acquisition. This payment results in our recognition during the second quarter of $400,000 gain from the revaluation of an acquisition contingency. We have excluded that gain from our non-GAAP earnings.
We repurchased approximately a half million shares of our common stock during the second quarter for a total of approximately $1.8 million. We made these purchases through a (inaudible) repurchase plan. At the end of June 2010 we had approximately $3.2 million remaining on our share repurchase authorization. We've been in the market since June 30 and we expect to spend our remaining authorized share repurchase amount during the third quarter.
We repaid $2.2 million on our line of credit during the first half of 2010. At June 30, our outstanding balance on the line of credit was $11.2 million. However we had cash net of the acquisition of $4.6 million on that date. As David mentioned, acquisitions continue to be an important part of our business strategy.
Looking forward, we believe that with our cash balances, operating cash flows and bank borrowing capabilities that we can finance up to 20% annual revenue growth through acquisitions for the foreseeable future.
Lastly, I'd like to address our non-GAAP income tax rate. Our forecasted rate for 2010 is 32.3%. Our 2009 tax rate was 29.5%. The year to year increase is due to the fact that Denville is principally a US business and our recognition during 2009 of some nonrecurring R&D tax credits.
Our Q3 2009 non-GAAP tax rate was 26.7% as we recognized that the R&D tax credits in that quarter and we owned Denville for only one month of that quarter. In Q3 2010 this tax rate differential will have a negative effect on our quarterly year to year non-GAAP earnings comparison of almost $0.01 per share.
We'll now open the call to any questions.
Operator
Thank you. (OPERATOR INSTRUCTIONS) One moment for questions to queue. (OPERATOR INSTRUCTIONS)
Tom McNaughton - CFO
If there aren't any further questions or --
Operator
Actually sir, we do have a question in queue now.
Tom McNaughton - CFO
Alright. Thank you.
Operator
You're welcome sir. It comes from Robert Anderson with [ANKEP]. Please go ahead.
Robert Anderson - Analyst
Congratulations on a wonderful quarter. And I realize that the value of the pound and the value of the euro is beyond your control so we won't worry about that. Anyways, David, my question, can you hear me okay?
David Green - President
Yes. We can hear you fine.
Robert Anderson - Analyst
My question relates to the regenerative medicine, the one that you mentioned in the rat and the bronchus. When does this area begin to be significant enough to be a real factor in your revenues? I guess at this stage it's real early on and it's just developmental but when could this become a significant contributor to revenues? Give us a little background.
David Green - President
Well you're absolute right. It's early days, but obviously we've made some initial progress in this area. I think you'll see the revenue develop for us in three phases. The first phase is going to be revenue for research and we've already seen that, as I mentioned. We sold two of the bioreactors used for the bronchus transplant. Most of the customers that are interested in that are interested in buying it not to do another clinical transplant, that's already been done, but to do further research.
So I think the research market is going to be stimulated by these papers getting published with the breakthrough in regenerative medicine. I think we'll see a very similar effect with the publication of Harald Ott's paper. It's going to stimulate them on for regeneration work on larger organs such as lungs and heart.
So the first phase, and this will happen this year, we'll see revenue this year but I don't think it'll be any -- of any great significance because I don't think you'll see it as a material effect on our top line growth.
Next year, as I mentioned, I think we'll start to see some revenue for the clinically approved products such as the stem cell therapy injector and as the bioreactor starts to move beyond just basic research into clinical trials. I think when some of these techniques move into full phase clinical trials, you'll see revenue that will be noticeable in our top line but I don't think it's going to be huge.
And then the big revenue really is the third phase when the clinical trials conclude and some of these transplant techniques or stem cell therapy techniques achieve FDA approval, and then the markets are very large indeed.
As I mentioned in my comments, the US Department of Health and Human Services estimates the US market alone for regenerative medicine products is $100 billion. The estimated worldwide market is $150 billion. These are clearly huge numbers compared to our current revenue and although I think those numbers really represent the total market size of the transplants. Obviously not just the market size of the tools, the tools will be a significant proponent of that.
So if that all plays out, then once those clinical trials are concluded and the FDA approvals start coming in, I think the impact on our revenue will be transformative. Does that help you out a little bit?
Robert Anderson - Analyst
Yes. In other words, don't think in terms of one year. Think in terms of several years.
David Green - President
I think that's right, yes.
Robert Anderson - Analyst
Okay. Thank you.
Operator
Thank you. (OPERATOR INSTRUCTIONS) There appears to be no additional questions in the queue at this time. I'd like to turn the call back over to Chane Graziano for any closing remarks or additional comments.
Chane Graziano - CEO
No further questions, therefore I want to thank everyone for joining our call today. We're very pleased with our results for the second quarter, optimistic about the outlook for growth in the remainder of 2010 and beyond. Have a great day. Thank you.
Operator
Thank you sir. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. Attendees, you may now all disconnect.