Harvard Bioscience Inc (HBIO) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the first quarter 2012 Harvard Bioscience earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Mr. Tom McNaughton, CFO. Sir, please begin.

Thank you, John, and good morning everyone. Thank you for joining us to discuss our results for the first quarter of 2012. 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 comments on the Company's first quarter core business performance, on the status of our regenerative medicine device business, and our outlook for Q2 and the full year 2012. 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 differently purely 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, 2011 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 of any subsequent day. Further information regarding forward-looking statements and risk factors is included in the press release issued earlier today reporting our first 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 fiscal information presented in 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 in this conference call relates to our continuing operations unless otherwise stated. I will now turn the call over to Chane.

Thank you, Tom, and good morning everyone. We are pleased with our first-quarter 2012 performance. Overall, our organic growth in orders was 6% and for revenues was 4% versus first quarter of 2011.

This growth was fueled by a demand in each of our four major product groups, with double-digit growth coming from the Harvard Apparatus behavior product line, the (inaudible) electrophoresis equipment and our Biochrom amino acid analyzers. We also experienced growth in virtually all geographic regions, with particular strength in Asia Pacific and Latin America.

Looking forward to the balance of the year, we are maintaining our 2012 guidance for our core Life Science Research Tools business at $115 million to $120 million for revenues and $0.39 to $0.42 for non-GAAP adjusted diluted earnings per share. We also continue to expect our Regenerative Medicine Device business operating expenses to be about $0.13 per diluted share this year.

We expect revenues for our core Life Science Research Tools business in the second quarter to be in the $28 million to $29 million range, and non-GAAP adjusted diluted earnings per share to be in the $0.09 to $0.10 range. In our Regenerative Medicine Device business, we expect second quarter operating expenses to be about $0.04 per diluted share.

I will now turn the call over to David.

Thank you, Chane, and good morning everyone. In our Regenerative Medicine business, we are very pleased to report that Mr. Beyene, the patient we help to treat for tracheal cancer in 2000 -- in June 2011 is alive and well 11 months after the surgery. Prior to the surgery, he was given 2 weeks to live.

As we previously reported, Mr. Lyles, the second patient we helped to treat for tracheal cancer whose surgery was in November 2011, passed away at 3.5 months after the surgery. The official cause of death recorded on the death certificate was pneumonia secondary to tracheal cancer.

There was no evidence that either the scaffold or the bioreactor played any part in Mr. Lyles' death. Patients like Mr. Lyles and Mr. Beyene elect the regenerative tracheal transplant surgery only after all other therapies they received, such as other surgeries, radiation and chemotherapy have failed, have failed to cure the tracheal cancer, and they have a prognosis of only weeks or months left to live. Hence, these patients are already extremely ill and their bodies also are severely weakened by the previous attempts at treatment.

While we hope that all future patients will do as well as Mr. Beyene, the possibility of further deaths post-transplants cannot be eliminated. At this point the technique is still experimental and can only be used on humans when proper investigational device regulations have been followed.

As we mentioned last quarter, Dr. Mark Holterman of Children's Hospital of Illinois and Professor Paolo Macchiarini have received approval from the US FDA to perform the first regenerated tracheal transplant in the USA. This is a major milestone, as the US FDA is widely regarded as the global gold standard in terms of the use of an experimental device on human patients.

Although this surgery has been approved by the FDA, it is not yet taken place and we do not currently have a date set for the surgery. In addition, there are several other surgeries planned for later this year.

In addition to the progress on our bioreactor business, we've also made progress on our clinical stem cell therapy injector. We are on track to submit this product for regulatory review in the EU and the USA later this year.

We expect the EU submission will be first, and is likely to take place within the next three months. We have recently hired an experienced VP of Clinical Sales, and the first test unit will be manufactured in our Holliston clean room this month. Based on our progress to, date we expect to get our first clinical revenue this year.

As we previously announced, we are reviewing our strategic alternatives for maximizing the value we can create for our stockholders in our Regenerative Medicine Device business. Based on feedback we received from potential investors after the announcement of Mr. Beyene's surgery, we feel that both the publication of the results in a journal, now accomplished, and the first surgery in the USA, now approved by the FDA, could be important steps in the near term that could create value for our stockholders.

Hence, we are pursuing these goals while we continue to progress a possible financing for the Regenerative Medicine Device business. We are seeking additional financing for the Regenerative Medicine business because we believe there may be opportunities to significantly increase the addressable market size in the regenerative medicine field.

Evaluating the best funding options has involved addressing complex tax, corporate governance and securities law issues that have taken longer than we originally anticipated to resolve. We continue to progress to a resolution on our approach to funding the R&D business, and we'll make an announcement via our press release at an appropriate time.

We'll now open the call to any questions.

(Operator Instructions).

If there are not any questions, I would like to add the comment that based on the strength we are seeing in our core Life Science Research Tools business, and the progress being made in our Regenerative Medicine Device business, I'm very optimistic that 2012 will be a very good year for Harvard Bioscience.

I want to thank everyone for joining our call today. Have a good day. Thank you.

Okay, pardon me; we did have one live question, if you would like to take that before we end?

Sure.

Doug Fisher from Kennedy Capital.

(technical difficulty) -- for a very nice quarter. I just had one or two questions on the quarter and then a couple follow-ups on the Regenerative Medicine side. So, first, as far as the quarter's performance, how much was that influenced by order flows from your partner GE? And what is your expectation in terms of order flows from them during 2012?

Actually, GE did not have a lot of impact on the business. We see some increase at -- on the spectrophotometer business, but not as significant as we expected at the beginning of the year. However, they are forecasting more strength in the second half of the year as they are doing a special promotion on the product.

On the Hoefer side of the business, it was fairly flat with last year.

And on the spectrophotometer side, I can't recall if you've given an approximate number for the size of that business. And if we do see some rebound in that from GE this year, how much could that add in terms of topline growth in 2012?

No, we haven't given any precise guidance to that. We typically only give guidance for the revenue overall and then for earnings per share, not by specific product line.

Okay, and in terms of your expectations for cash flows for this year do you -- can have even provide a range, maybe before and after the regenerative spend?

Well, again, we don't --

(inaudible) cash flow forecast out there, Doug, in that specific a way. You can get to it from a non-GAAP earnings if you follow the way we calculate non-GAAP earnings. In some ways, they are sort of a proxy for EBITDA if you back out depreciation and amortization.

We try to get to run rate earnings on cash -- working back to semi-cash basis. So, if you take our earnings forecast that we have out there that Chane gave earlier on the call by the Life Science Research business, which is the whole Company except Regenerative Medicine, and back out Regenerative Medicine. We don't forecast acquisitions, but we are always in the market for them. You would -- get I think you would get in the ballpark.

Okay, and just in terms of capital expenditures, kind of $1 million or $2 million looks like the norm. Is that in the ballpark for this year?

That has been the norm most every year, and in the base business I don't see anything that would change that this year.

Okay. And just as far as the regenerative effort, other than the milestone, as you mentioned, one accomplished and one on the horizon, is there anything we could look to in the next 12 to 18 months that might help us on the outside assess your continued operational progress in that area, whether that would be in terms of the existing procedure that you are involved with, or making progress in other areas potentially with other organs? Anything we might be able to kind of use to gauge your progress?

Yes, I think there are. I think in the business like the Regenerative Medicine Device business, the key markers are the mostly clinical-related. So they are related to proving that these techniques and these products work to address critical needs like tracheal cancer.

So I think the ones that are coming up that I think are -- we can reasonably expect to achieve within the next 12 to 18 months would be the first US surgery. That is the one that we have announced that has been approved by the FDA. But approving it I think is in and of itself is a major milestone, but of course actually doing it, and then having the patient survive for a long period of time are very important clinical milestones as well.

The second one I think is possible within the next 12 months or so, and in fact I think it is quite likely that within that period, is getting 510(k) approval for the stem cell therapy injector product line or the clinical syringe pump product line. That is the one we intend to submit to regulatory agencies within the next few months.

And as I mentioned on the call earlier, we have already hired the VP of Clinical Sales for that. So we are really transitioning that product out of engineering at this stage, and into manufacturing and commercialization.

So, the milestone I think to look for there is one or two things. There is approval by the agencies, and that is primarily the EMEA or European Medical Agency and the FDA in the US of course, and then actually getting first revenue. I think those are the relevant milestones that's likely to come up in the next 12 months.

Okay, on that injector, and can you talk a little bit about pricing or give us any way to get a feel for the market potential of that product? It seems like something where people are getting by without product that operates at the precision level that that one does. So I imagine there may be a period where you have to educate people and create demand for it. Is that the right way to be thinking about that?

Well, let's split it into two. There are two opportunities for that product line. One is for the injection of stem cells into damaged tissue. This is what we have already shown works in animal models. But obviously the purpose of developing a human clinical pump is to translate the success we've had on the research side into the clinical side.

There are currently 150 human clinical trials using stem cells going on in the US alone. And there are 30 companies involved in doing those. 23 of those are pursuing cardiac applications and 7 of them are pursuing neurological applications.

As you mentioned in your question, all of those today are being done by handing a syringe to the surgeon and asking the surgeon something like the following. Please inject 50 microliters steadily over 2 minutes. It is physically impossible for a human being to do that, and it really needs an injector to do that.

Imagine a surgeon with his or her hand holding a syringe over the heart of a patient on the operating table. The heart is still beating and the surgeon is trying to get the stem cells into the damaged area of the heart, not the dead area of the heart, but the damaged area surrounding the dead area in a heart attack patient; not an easy thing to do.

And to do that while focusing your eyes on the gradations on the syringe, or on the plunger of the syringe where your thumb is, is distracting the surgeon from the thing that actually matters, which is just getting the needle into the right place in the muscle wall of the heart. And that is what our syringe pump does that no other device on the marketplace can do, because it is foot switch controlled and it is programmable.

So you do not have to use your thumb, and you do not have to look at the graduations on the syringe. You can look only at where the needle goes, and once you have got it where you want it, press the foot switch and it dispenses the cells into the tissue. So that is where we think we have got a significant competitive advantage there today.

Of course there are clinical pumps available. You can buy them from MEDX and Baxter and other people like that. But those pumps all take 50 cc syringes or 50 mL syringes.

The volume we are talking about here is 50 microliters. It is 1000 times smaller than the volume typically injected by a clinical pump. And that is why you need the precision of a Harvard Research pump, in an FDA-approved pump. That is exactly what we are developing.

So, that's one side of the market. The other side of the market is the $168 million a year hospital market for infusing drugs into patients. We do not intend to go after this marketplace directly ourselves. We intend to do that through distributors and OEM relationships.

So, that is the second part of the market that does exist today. Obviously it is more competitive. But there is an opportunity there in that marketplace for us to gain revenue in addition to the more novel applications in stem cell therapy injection. Does that answer your question?

That's very helpful. Just to follow up, in the hospital portion of the market that you referenced, do you think that at the price point you'll be bringing this product to market at, that it will be competitive? That the capabilities will justify what I imagine is going to be the incremental expense?

We intend to position it at a premium to current clinical syringe pumps based largely off what we think will be a significant improvement in patient safety. A lot of the testing work we've done with nurses up to this point has supported the position that we can deliver a significant patient safety benefit through the way we have developed this pump, which we think will be the safest pump on the market once it is approved by the FDA.

So I think that safety is the key issue in the infusion of drugs in hospitals. It is a big issue at the hospital level. It is also a big issue with the regulators. And so we have aimed our products at delivering a superior benefit for patient safety, and we intend to charge premium for that.

Do you anticipate needing to generate and collect data documenting that, or -- in order for the pump to really gain traction in the marketplace?

Yes, I do.

And that will take in -- if you had to guesstimate, is that something you could get done within a couple of quarters, or --?

Well, I think the data gets better and better over time. I think initially we intend to use more like market research type data. Over time we'll use real clinical data.

Okay. Just one or two more things. Just back to the strategic alternatives that you are pursuing. Can you just talk about the timeline there?

As you mentioned, it is a very complex situation. I certainly understand that. And it has taken longer than you had hoped. But I wonder if this is something that you hope or expect to conclude during calendar '12, or whether something could linger beyond that.

And also, if it turns out that you can't come up with a structure that you think is representative of the value within the Regenerative business segment, then how might we think about the resource allocation towards that area changing, evolving in the next year or two?

Let me address your first question first. Because a lot of the issues that are very complex here, the tax issues and the securities law issues, et cetera with -- the timing is not entirely within our control. There issues that are beyond our control. So, we can't be definitive about the time, even if we wanted to be, but I think saying it could happen within 2012 is a reasonable estimate.

And then you talked about what is sort of the financing plan. I have a very high degree of confidence that we can finance this business in a way that maximizes the value to our stockholders. There are several different alternatives that we are reviewing to do that, and part of this process is making sure that we do it in a way that does in fact maximize the value to our stockholders.

But I have a high degree of confidence that we can do it.

Okay. Well, you guys have been great stewards of shareholders' capital to date. So, look forward to getting an update on that when the time comes, and congrats on the nice quarter.

Thank you, Doug. Thank everyone for joining the call today.

Thank you. And at this time I would like to turn the conference back to Chane Graziano. Did you have any more closing remarks?

Are there any more -- I believe there are no more questions, John?

No more questions today, sir.

Then we are done here.

Thank you, ladies and gentlemen, for your participation in today's conference. You may now disconnect and have a great day.