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Operator
Good day, ladies and gentlemen, and thank you for standing by. Welcome to the second-quarter 2011 Harvard Bioscience earnings conference call. (Operator Instructions). As a reminder, this conference is now being recorded.
I would now like to introduce for your host today, Mr. Tom McNaughton, CFO. Sir, please begin.
Tom McNaughton - CFO
Thank you, Regina, and good morning, everyone. Thank you for joining us to discuss our results for the second quarter of 2011.
Chane Graziano, our CEO, and David Green, our President, are also on the call today. After the Safe Harbor statement, I will turn the call over to Chane and David, who will present comments on the Company's second-quarter core business performance and the status of our new Regenerative Medicine Device business, and our outlook for the third quarter and this year. Following those comments, we will open the call to any questions.
In our discussion today, we will 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, 2010, 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 on any subsequent day. 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. 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 will now turn the call over to Chane.
Chane Graziano - Chairman, CEO
Thank you, Tom, and good morning, everyone.
We are pleased to report a 25% increase in non-GAAP adjusted diluted earnings per share and 5% increase in revenues, compared with the second quarter of 2010, for our core Life Science Research Tools business. We achieved these results despite some softness in the academic and government-funded research lab markets. Major contributors to this performance were the acquisition of Coulbourn Instruments, expansion of the operating margin at Denville Scientific, and operational improvements at Panlab, our Spanish subsidiary.
We are maintaining our Life Science Research Tools business revenue and earnings guidance for 2011. For the third quarter, we expect our revenues to be in the $28 million to $29 million range and non-GAAP adjusted diluted earnings per share for the core Life Science Research Tools business to be in the $0.10 to $0.11 range.
For the year, we expect revenues to be in the $113 million to $115 million range and non-GAAP adjusted diluted earnings per share for the core Life Science Research Tools business to be in the $0.41 to $0.43 range.
Our CMA Microdialysis acquisition, which closed on July 1, and the continued impact of operational improvements will be key factors in achieving this performance.
In our Regenerative Medicine Device business, we participated in the world's first successful transplant of a synthetic trachea, or windpipe. We provided a custom bioreactor used to grow the patient's cells on a synthetic trachea scaffold that was then implanted in the patient, who suffered from late-stage tracheal cancer and had only a few weeks to live.
The procedure saved the patient's life. We are proud to have been part of this breakthrough medical event.
Going forward, we will continue our investment in Regenerative Medicine Device initiatives and expect to spend at our budgeted rate as we complete the development of a clinical stem-cell therapy injector. We expect our investment to be in the range of $0.01 to $0.02 for third-quarter 2011 and $0.05 to $0.06 for the year.
Therefore, our overall non-GAAP adjusted earnings per share, combining the earnings of the core Life Science Research Tools business and the investment in Regenerative Medicine business, to be in the $0.08 to $0.10 range for third quarter and $0.36 to $0.37 range for the year. Our guidance does not include the impact of any future acquisitions.
I will now turn the call over to David.
David Green - President
Thank you, Chane.
We are very pleased to report the 25% year-to-year growth in non-GAAP earnings per share for the core LSRT business. We achieved it despite the continued softness in the overall economy.
Despite the softness in the market, we were able to grow revenue 5%, due mainly to the acquisitions we made last year. Acquisitions have always been part of our growth strategy and have helped us to maintain revenue growth even when the overall economy is weak.
Although U.S. academic spending rebounded strongly from the weak level in Q1, it's still soft compared to Q2 last year. Japan remains very weak, and is down 27% year to date in the Harvard Apparatus business.
In addition, our revenue on nano-view spectrophotometers to GE is down significantly this year, due to GE building up inventory in 2010 and hence reducing the order rate to us in 2011. This inventory destocking effect at GE created a decline of approximately 3.5% in total Harvard Bioscience revenue in Q2 2011, compared to Q2 2010. In other words, if we take out the effect of the temporary GE destocking of nano-views, our organic growth would have been approximately plus 2%, despite the weak economy and Japan.
We remain cautious about the outlook for growth in the U.S. academic sector, but expect Japan to recover. Additionally, we are confident that GE will resume purchasing nano-views from us late in 2011, and this will likely lead to strong growth in 2012 for our Biochrom subsidiary.
On 5% revenue growth, we delivered 25% growth in non-GAAP adjusted earnings per share for the LSRT business. This increase was driven by the operational improvements put in place last year at Harvard Apparatus in Spain, Biochrom in the UK, and Denville in the U.S. As a result, non-GAAP operating income as a percentage of revenue increased from 14.4% in Q2 last year to 15.7% in Q2 this year.
We expect to continue driving operational improvements and have already implemented improvements at both our Hoefer and Coulbourn businesses, which will have a positive impact in the second half of 2011, and in 2012 should add approximately $0.02 per share.
We're also very pleased to have completed our acquisition of CMA Microdialysis. CMA is the market leader in the field of research microdialysis with a well-recognized brand and strong technology base. Microdialysis is a technique often used in neuroscience research to sample chemical messaging in the brain.
CMA founded the microdialysis technique in 1984 and is still the gold standard for this research. The CMA product line is mostly consumables, and hence it increases the percentage of our overall revenue that comes from consumables. With the addition of CMA, over 30% of our total revenue now comes from consumable products.
Consumables tend to be the least volatile, most predictable, and most recession-proof revenue stream in the life science market.
CMA began at the Karolinska Institute in Stockholm, Sweden, and, as a result, gives Harvard Apparatus a subsidiary in Sweden. We intend to use this as a place to grow the Harvard Apparatus business in the Scandinavian area, an area where historically we have been relatively weak.
We expect that CMA will add approximately $3.5 million in revenue and approximately $0.02 in non-GAAP adjusted earnings per share in 2012, and approximately $1.8 million in revenue and $0.01 in non-GAAP adjusted earnings per share during the balance of 2011.
In addition to the strong profit growth and acquisition of CMA, I am very pleased to report on the achievement of a major milestone in our Regenerative Medicine Device business. Two months ago, our InBreath bioreactor was used for the world's first successful transplantation of a synthetic tissue-engineered windpipe.
For the first time in history, a patient has been given a new trachea made from a synthetic scaffold seeded with his own stem cells. The seeding was done in an InBreath bioreactor we made specifically for this patient. The patient, Mr. Andemariam Beyene, who had been suffering from late-stage tracheal cancer that before this surgery would have been inoperable, is alive and well two months after the surgery. Before the surgery, he was given only two weeks to live.
The surgery was performed by Professor Paolo Macchiarini at the Karolinska University Hospital in Stockholm, Sweden. We have been collaborating with Professor Macchiarini to design the next generation of organ transplant bioreactors since 2009, when we exclusively licensed the InBreath bioreactor technology from his research group.
The InBreath was first used to perform a human windpipe transplant in Ms. Claudia Castillo in 2008. Ms. Castillo is alive and well today, almost three years after the surgery.
Ms. Castillo's surgery established for the first time that organ transplants could be achieved without the need for immune suppression therapy. Immune suppression therapy is almost always required with donor organ transplants, as the patient's immune system recognizes the transplanted organ as foreign and destroys it.
With Dr. Macchiarini's technique, the immune response is avoided because the organ donor cells are stripped off and replaced with cells taken from the bone marrow of the patient. Hence, there is nothing foreign for the patient's immune system to reject.
With Mr. Beyene's transplant in June this year, Dr. Macchiarini achieved another milestone. By using a synthetic plastic polymer as a scaffold, there was no need to find an organ donor. Since the scaffold was manufactured in laboratory in just a few days, there was no need for Mr. Beyene to join a waiting list for a transplant. The stem cells seeded onto the synthetic polymer scaffold were taken from Mr. Beyene's bone marrow.
Since there was no organ donor, there was nothing for the patient's immune system to reject. Like Ms. Castillo, Mr. Beyene is not taking immunosuppressive drugs.
With these two surgeries, Dr. Macchiarini has removed both of the barriers that have historically prevented patients from getting organ transplants. The first is immune rejection, which was solved by using the patient's own stem cells. The second is the waiting list for donor organs, which was solved by manufacturing the scaffold in the laboratory.
The significance of this clinical breakthrough was recognized by the global media, including the BBC, ABC News, and CNN, and by leaders in the field of regenerative medicine such as Dr. Alan Russell, who is the Director of the McGowan Institute for Regenerative Medicine at the University of Pittsburgh, who stated the following about the transplant. "It's yet another demonstration that what was once considered hype in the field of regenerative medicine is becoming a life-changing moment for patients." Dr. Russell had no connection to the surgery.
Of course, the trachea is not the only organ for which patients need transplants. There are over 100,000 patients in the U.S. alone on waiting lists for major solid-organ transplants such as the heart, lungs, liver, kidney, and pancreas. While no surgeon or scientist has yet created a regenerated human solid organ, we are collaborating with Dr. Macchiarini with the goal of creating a regenerated human lung for transplant.
We're also continuing our long-term collaboration with Dr. Harold Ott at Massachusetts General Hospital in Boston in pursuing the same goal of a regenerated human lung. Dr. Ott was the first to succeed in regenerating and transplanting a completely functional lung, but so far this has only been done in rats.
In addition to the longer-term goal of a regenerated human lung transplant, we continue to support Professor Macchiarini in performing tracheal transplants on human patients in Europe and the U.S., and we expect the first U.S. patients to be treated later this year.
With this major clinical progress achieved, it's worth reiterating Harvard Bioscience's strategy in regenerative medicine, which has four major elements. One, to create medical devices, not discover pharmaceuticals, as creating devices like the InBreath bioreactor reduces risk compared to trying to discover new drugs.
Two, to create these new medical devices in collaboration with world-leading surgeons like Professor Macchiarini and Dr. Harold Ott.
Three, to build these devices on our existing technologies and brands, as this reduces the investment needed to get to market.
And four, to develop devices with a significant disposable revenue stream, as this is both clinically safer and allows us to participate on a per-procedure basis, and not just on the sale of an instrument.
We estimate the nascent market for regenerative medicine devices could potentially grow to hundreds of millions of dollars annually.
As we previously stated, we are reviewing our strategic alternatives for maximizing the value we can create for our stockholders in our Regenerative Medicine Device business. We are doing this because we believe there may be opportunities to significantly increase the addressable market size in the regenerative medicine field.
We believe that Mr. Beyene's transplant, the world's first successful transplant of a synthetic tissue-engineered trachea, is both a clinical milestone and a milestone for us.
We have had discussions with a range of possible strategic and financial players regarding the best way to create value for our stockholders, and are pleased with the progress so far. If a significant event, such as an investment or a partnering agreement is reached, we will annnounce it in a press release.
With 25% growth in non-GAAP earnings per share, the acquisition of CMA, and our participation in the world's first transplant of a synthetic windpipe, we are very pleased with our achievements for the quarter.
We will now open the call for 20 questions.
Operator
(Operator Instructions). Sir, I am showing no questions in queue. I'd like to turn it back to you for further comments.
Chane Graziano - Chairman, CEO
Since there's no questions, I'd like to say that we appreciate you joining our call today.
We want you to know that, despite some weakness in the economy, we are optimistic about the outlook for our core Life Science Research Tools business. And we are very excited about the future opportunity in the Regenerative Medicine Device business. Thank you.
Operator
Thank you. Ladies and gentlemen, this does conclude your call for today. You may now all disconnect. Thank you very much, and have a wonderful day.