Hologic Inc (HOLX) 2007 Q2 法說會逐字稿

Greetings ladies and gentlemen and welcome to the Cytyc Corporation second quarter 2007 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Anne Rivers, Investor Relations Manager of Cytyc Corporation.

Thank you. Good morning and welcome to Cytyc Corporation's second quarter 2007 conference call. If you have not received a copy of the press release issued yesterday, please call the Ruth Group, 646-536-7017, and one will be faxed to you.

The following presentation will include forward-looking statements within the meaning of the federal securities laws, including statements about the Company's expected sales performance, operating results, financial condition and business strategy. These statements are subject to a number of risks and uncertainties, including those detailed in the Company's press release issued yesterday and in its Form 10-K and other filings with the Securities and Exchange Commission that could cause actual results and outcomes to differ materially from those projected in the forward-looking statements. Please remember that these statements speak only to today's date and that you should not place undue reliance on them.

In addition, the presentation contains certain financial information determined by methods other than (inaudible) Generally Accepted Accounting Principles, GAAP. Specifically, these non-GAAP measures may exclude items such as charges related to charges in the second quarter of 2007 related to Cytyc's proposed merger with Hologic and charges in the first quarter related to in-process R&D in connection with recent acquisitions. We believe that this information is useful to both investors and to management and can aid them in understanding the Company's current performance and performance trends. Reconciliations from the financial reporting measures prepared in accordance with GAAP, the non-GAAP measures, are set forth in the press release we issued yesterday as well as in the Form 8-K we filed with the U.S. Securities and Exchange Commission, both of which are available on our Web site at www.Cytyc.com.

In addition, please note that this call is being recorded by Cytyc Corporation and is copyrighted material. It cannot be rerecorded or rebroadcast without the Company's expressed permission and your participation implies consent to our taping.

With that, I would like to turn the call over to Patrick Sullivan, Chairman, President and Chief Executive Officer of Cytyc Corporation.

Thank you, Anne, and good morning everyone. I would like to welcome you to our teleconference to report on the Company's second quarter performance. Joining me on the call today is Tim Adams, our Chief Financial Officer.

I will start off with some general remarks about the performance of each of the divisions and then turn the call over to Tim to comment more specifically on our financial performance.

The financial performance of the Company was simply outstanding. We delivered top-line revenue growth of 26% and adjusted net income growth of 20%. Our Diagnostics Products division reached a major milestone in the second quarter by contributing $100.3 million in revenue, a 19% increase over Q2 of 2006. Our ThinPrep Pap Test volume remained constant at 9 million tests and we placed more than 30 ThinPrep Imaging Systems during the quarter, two metrics we believe will remain consistent throughout this year.

We are pleased with the results of our first four quarters selling FullTerm, the PreTerm delivery product we acquired from Adeza in March. Worldwide, full-term revenue in Q2 was $14.4 million. During the quarter, we focused primarily on driving business in existing accounts while getting our entire sales force trained, and they are now actively promoting the product. The integration of Adeza into Cytyc's day-to-day operations is essentially complete.

The premarket approval application for the Adiana device is now complete. Dan and I are conducting a final review of the document to make sure it meets Cytyc's regulatory standards and we fully expect to submit the final module of the PMA to the FDA in mid-August. We expect the 180-day review timeline to conclude during the first quarter of 2008 and we expect to commence marketing at that time.

The ThinPrep Imaging System continues its progress to become the standard of care with 49% of all ThinPrep's imaged in Q2, and at LabCorp, more than two-thirds of the ThinPrep Pap Test slides were imaged. The evaluation at Quest is underway and on schedule at a number of Quest sites. We're pleased with the progress and believe the evaluation will demonstrate to Quest the same benefits that other customers have experienced using the ThinPrep Imaging System.

During the quarter, we continued launch preparations for our new laboratory product, Cellient Automated Cell Block System. Cellient instruments are running at beta sites in the U.S. and Europe and we expect commercial launch in the United States later on this year.

Our Surgical Products division continues its significant growth trajectory, delivering 32% year-over-year growth and contributing $65.9 million in revenue during the quarter. We continue to make significant progress in establishing new physician office accounts for NovaSure. We increased placements by more than 50% over Q1 of 2007 and placed more than 400 NovaSure instruments with 10% of the quarterly growth generated from in-office accounts. Q2 was another record quarter as NovaSure continues as the market leader.

In addition, we believe the recent publication of a practice bulletin by ACOG, the American College of Obstetrics and Gynecology, will help expand the use of ablation as a first-line therapy for patients with excessive bleeding. The practice bulletin states in part that endometrial ablation is indicated for the treatment of [minerage] or patient perceived heavy menstrual bleeding. Failure or intolerance of other medical therapy are important considerations but should not be construed as prerequisites for the procedure.

We believe this publication will really help in the overall growth in the market.

We continue to remain very excited about MammoSite opportunity, and in Q2, MammoSite revenue reached $8.8 million, a 26% increase from Q2 of 2006. Five-year data on MammoSite was presented at the Conference of the American Society of Breast Surgeons in May. This study reported zero recurrences of cancer, good to excellent cosmetic outcome and positive patient's acceptance. The author concluded, the MammoSite balloon bracytherapy as a sole modality for delivering radiation to the tumor bed has been successful in achieving excellent local control in the initial clinical trial of patients with early-stage invasive ductile breast cancer. We believe the presentation and ultimate publication of the five-year data are key milestones in the market acceptance of MammoSite.

The International division had an outstanding quarter as we saw Q2 revenue increase 39% over this same quarter in 2006. This performance was led by very strong growth in Europe by 33%, in Asia-Pacific of 32% and over 150% growth in the rest of the world. We have an installed base of over 1500 ThinPrep Pap Systems, 35 ThinPrep Imaging Systems, and at the end of the quarter, test shipments represented an annual run rate of 10 million tests.

In addition, NovaSure grew by over 100% from prior year quarter led by strong growth in the UK, Canada and Australia. International Diagnostics highlights for the quarter include a continued strong conversion in the UK to the ThinPrep Pap Test and a rapid acceleration of ThinPrep instrument and disposables in the Benelux region. Canada showed very positive adoptions of the ThinPrep Pap Test in key laboratory to help drive dramatic growth in the market. In Asia-Pacific China, continues to lead the growth with continued strong uptick of liquid-based cytology. A highly rigorous study from the University of Sydney was recently published in the British Medical Journal showing a significant increase in the detection of biopsy confirmed silicone disease when using the ThinPrep Imaging System versus conventional cytology alone. We believe this study will be especially important in many international markets where conventional cytology is still largely in use.

Year-over-year, international NovaSure sales have more than doubled as we continue to steadily gain share in all markets were we compete. In addition, we're excited about unlocking the opportunity for FullTerm in the international markets since Adeza did not have any direct international sales presence.

In addition, during the quarter, we announced a definitive agreement to combined Cytyc Corporation and Hologic, forming one of the largest companies in the world focused exclusively on women's health. We're very excited about this opportunity and believe it will enhance our combined ability to improve women's health through earlier and better detection, improved diagnoses, less invasive treatment and improved outcomes.

We're excited about this opportunity, and once the transaction is closed, the combined company will offer a comprehensive line of best-in-class products providing health care solutions for women throughout their lifetime. An annual visit to her gynecologist will provide a woman access to the best cervical cancer screening products, the ThinPrep Pap Test and the ThinPrep Imaging System; the best endometrial ablation technology with the NovaSure System; and in addition, she will also have access to the best mammography system for breast cancer detection with [Celliena] as well as the breast brachytherapy treatment with MammoSite, all coming from the same company.

As you know, Hologic and Cytyc filed a preliminary joint proxy statement and prospectus with the SEC in conjunction with the proposed merger on June 29 of this year. Hologic has received a small number of comments from the SEC and we are working closely with Hologic to address these comments. The transaction remains on track and we believe it will close at the end of September or early October. We urge investors and stockholders to read the joint proxy statements and prospectus when they become available and any other relevant documents filed by either party with the SEC because they will contain important information regarding the proposed merger.

The second quarter of 2007 represents strong performance across all divisions, and I'm very pleased with our outstanding results. Now I'd like to turn the call over to Tim for a more detailed review of our second quarter financial performance. Tim?

Thank you Pat and good morning everyone. As Pat mentioned, once again, we posted another great quarter for this year. Overall, second quarter 2007 revenue increased 26% to $188.8 million over the second quarter of 2006. And, after excluding the expenses associated with the proposed Hologic merger, adjusted net income of $37.9 million was up approximately 20% over the same period last year.

In order to provide you with a bit of color, our Surgical Products division posted revenue of $65.9 million, a 32% increase over Q2 of 2006. Within that division, revenue from our NovaSure product grew to $56.5 million while revenue from MammoSite grew to $8.8 million, representing a 33% and 26% increase, respectively, over the second quarter of 2006.

Additionally, MammoSite revenue was up 10% from Q1 of this year. Our Diagnostic division had a very strong second quarter and we are very pleased with the success of the ThinPrep franchise.

Revenue for the Diagnostics division increased 19% over the second quarter of last year to $100.3 million. The ThinPrep Pap Test continues to be the market leader, and again this quarter, we're seeing new revenue growth from the ThinPrep Imaging System. In Q2, we shipped 9 million ThinPrep tests and generated $20.2 million in imager upcharge revenue, an increase of 33% over Q2 of last year. During the quarter, nearly half of all ThinPrep slides were imaged, showing an increasing trend in conversion and up from an already strong Q1 of this year. [We] shipped 37 imagers in the quarter, bringing total domestic shipments since the inception of the imager program to 484 units. In addition, worldwide sales from the full-term test contributed approximately $14.4 million of revenue during Q2.

Overall revenue from our International division was $22.6 million, representing a 39% increase over the second quarter of 2006. As Pat mentioned, we saw continued growth in all regions outside the U.S.

During the quarter, we shipped a total of 67 ThinPrep processors outside the U.S., bringing our total international installed base to over 1500 systems. As we noted on the Q1 call, in prior years, we reported the non-cash amortization of intangibles from acquired companies in the R&D cost. With the closing of the Adeza acquisition and the transaction of certain R&D projects effective in Q1 of this year, we began recording the majority of amortization of intangibles in cost of sales. As a result of this change, the amortization reduced gross margin by approximately 2.5% to 74.4% for the quarter as compared to 78% gross margin reported in Q2 of 2006. The reported net income of $33.5 million, or $0.27 per diluted share, includes a net of tax charge of approximately $4.4 million for expenses associated with the Hologic merger. Second quarter 2007 adjusted net income, excluding the merger-related expenses, was $37.9 million, or $0.31 per diluted share, as compared to $31.7 million, or $0.27 per diluted share in the same period last year.

Additionally, during the quarter, we made the decision to permanently reinvest the profits from our Costa Rica operations outside the U.S., which resulted in a more favorable reported income tax rate of 34.1% for Q2. We continued to expect the effective tax rate for the full year 2007 to be in the range of 35% to 36%.

Next, I would like to take a minute to discuss 2007 guidance. Now that we are halfway through the year, we will tighten our full-year revenue (technical difficulty) guidance. We expect full-year 2007 revenue to be in the range of $740 million to $755 million, which is consistent with our previous issued guidance. We are confirming our full-year 2007 diluted earnings per share guidance to be in the range of $1.30 to $1.35. This guidance excludes the in-process R&D write-off from Q1 and the Hologic acquisition expenses recorded this quarter. For the third quarter of this year, we expect total Company revenue to be in the range of 187 to $192 million and diluted earnings per share to be in the range of $0.32 to $0.34, which excludes any additional costs associated with the Hologic merger.

Once again, we had another strong quarter of cash generation as our cash flow from operations was over $28 million during Q2. Our cash balance at the end of the second quarter was $33 million and the amount due on our bank credit facility was approximately $55 million. Both of these balances reflect the approximate $410 million of cash we invested during the first half of 2007 to complete both the Adeza and Adiana acquisitions. As of July 31, the amount outstanding under the credit facility was $40 million and we expect to have to this paid down to zero by the end of Q3.

Days sales outstanding of 54 days at the end of Q2 improved from the 58 days at the end of Q1. Inventory turnover was five times as of the end of Q2 and consistent with Q2 of this year.

We're very pleased with the results of the second quarter and we're on track to continue the strong growth in all of our divisions. Thank you and I will turn the call back over to Pat.

Thanks, Tim. Operator, I would now like to open up the call to questions.

(OPERATOR INSTRUCTIONS). Thom Gunderson, Piper Jaffray.

Number one, and I apologize, I got in just a little late, you may have mentioned this. But number one is, is there any update on the Quest evaluation that I think was supposed to be up at the beginning of July? And the second question is, could you talk a little bit about and give a little bit more color on how marketing may have changed from MammoSite now that you have the five-year data out there and usable? Thanks.

The evaluation at Quest continues and we are on schedule at a number of Quest sites. We think it's going well. In the case of MammoSite, the five-year data we have seen, standing room only at the presentation of the five-year data at the actual conference and an increased level of interest from physicians as we reach this significant milestone with the five-year data. So we think it's going to have a very significant impact on the uptake of the procedure.

And Pat, when do you expect to hear something from Quest on their evaluation?

We're in constant dialogue with them. We think it's going well, Thom. We have no visibility into what their intentions are post evaluation at this point.

And regarding the five-year data, has the sales force been given any new tools? Are they out there pushing a little harder than they were before now that they have the data and can convert some of the holdouts?

You bet. We provided the sales force with additional sales tools that they are using to really market the benefits of this procedure. So we are seeing some -- I think starting to see some positive traction in the market.

Okay, thank you.

David Lewis, Morgan Stanley.

I can't believe this could be my last three Cytyc questions, Pat, it's very, very sad. Let's see, a few questions here. First of all, if you could give us the in-office penetration for NovaSure sales for the quarter?

In-office penetration was about 8% during the quarter, but 10% of the growth came from the in-office procedures -- in-office use. We're significantly -- well, we are focused on the in-office use of the device as we get ready for the launch of Adiana early next year. So we're putting a fair bit of focus on the in-office use.

Do you think that, in addition to just where the growth was coming from last year in terms of other factors contributing to growth, would in-office penetration be the single biggest contributor to growth, or would you say alternate indications are higher?

I would say alternate indications. I think that we have done a large number of procedures, and I think the market is -- the physicians are becoming much more capable and confident in using NovaSure. So I think it's expanded use.

And then on ThinPrep, Pat, your two-thirds penetration on Imager at LabCorp, TriPath's numbers in the quarter were flat and you're on the kind of precipice here of penetrating Quest with the Imager. So why are you seeing more just true volume share gains with ThinPrep, and do you expect to see those gains in the back half of the year, potentially?

We're seeing share gains primarily on the Imager. We remain basically flat on ThinPrep at 9 million tests. Imager penetration is 49% in total, and we think we have a fair bit of runway yet to go.

Okay. And then, Pat, your comments on MammoSite, I guess what's strange to me is that on the heels of this five-year data, your afterloader partner is talking about somewhat of a material slowdown in afterloader placement and brachytherapy placement for that product. And I'm trying to kind of rectify those comments with sort of your bullishness in the back half of the year. Is this sour grapes on behalf of the afterloader partner, or they're just seeing something differently than what you're seeing?

I think they're basically seeing something differently than we are. We have adequate afterloader penetration into the marketplace. I don't think, from our perspective, we don't need really to add a whole lot more of the afterloaders into the system to support the MammoSite growth. I think there are basically two independent variables.

Okay, lastly, Tim, just one quick question. Even if we add back the 240, 250 BPS on gross margin, maybe you're still potentially about 100 BPS light. And while the Adeza mix shift is not that material, they still had a higher gross margin. So was there anything else in the quarter that pressured gross margins? Was it mix, International, anything else?

Yes, David. Two other things this quarter as compared to last year. As you know, we mentioned on the last call that we shut down our facility in Mountain View and relocated a lot of those operations both to here in Marlborough and Costa Rica, and so there was some charges that were charged to cost of goods. And the scrap rate this quarter was up a little bit higher than it was a year ago.

Thank you very much I will jump back in queue.

Doug Schenkel, Cowen.

First thing was, I don't think you guys -- and I apologize if I missed this -- but I don't think you guys provided an update on Gestiva, so I was just curious to see if there was anything of note there to report?

Nothing really new to report. We have commenced during the quarter the animal study that the FDA has requested and believe we're on track for approval at the back half of next year.

Back half of next year, okay, thank you for that. On FFN sales, it sounds like there was not a material ramp international on the very small base that Adeza had on a stand-alone basis. Assuming that's correct, where do you guys stand on building out the infrastructure to the extent it's needed in rolling that out, that product out internationally?

We have the infrastructure in place in large part across the world to take the Adeza product or the full-term product direct. We have notified many distributors in many of the countries that that is our intention. I think there's just a function of, they have inventory they are selling to wind down. They didn't place any orders obviously during the quarter and we just have this little transition period where we take over the direct presence in those countries. So I think we're very excited about the opportunity in many of the countries across the world, but there's a little bit of transition as we go from the distributors to a direct presence.

And the regulatory hurdles, they are pretty insignificant at this point?

That is correct. We are in reasonably good shape there.

Last question. On the timing of the deal, I think you talked about being on track for an end of September, beginning of October close of the deal with Hologic. The questions that you've gotten, and I understand that there's not a lot of detail you can provide, but would it be fair to say that there's nothing that would rise to the level of concerns about antitrust or anything of that magnitude?

There's no concerns. We cleared the antitrust with the [SEC] -- Tim.

Doug, we've been working with [Glen] here over at Hologic on clearing the comments from the SEC. It was a limited review. The comments were primarily focused on the acquisition, the deal itself around the pro formas. And then certainly, the SEC has asked both companies to update the S-4 with the most recent June 30 numbers. So that is work that is ongoing at both companies right now as we speak. We hope to clear the comments in the next couple of weeks and that should put us on track to close the merger the end of September, early October time frame.

Okay, that's great. Actually, just one more, and I know you've talked about this, but I want to make sure I have it right. On Adiana, you talked about being on track for a Q1 '08 approval and launch. Is that correct?

That is correct.

Thank you very much.

Peter Lawson, Thomas Weisel Partners.

Pat, just thinking about the sales force, has there been many turnover since the beginning of the year, and are they getting familiar with Hologic products?

We have the usual turnover, I wouldn't say anything unusual in terms of turnover. We run at about a 15% turnover rate in the sales force, which is very on par with most either pharmaceutical or diagnostic companies. Our sales force is aware of the Hologic products, but we have not gone any further in making them more broadly aware. We're holding that out until we close the transaction.

Our sales force is actually very excited right now. We continue to have great success with the Imager, so all of those account executives calling on the labs are certainly very busy. With the Adeza acquisition, we have a new product to hand our sales force that they're out selling in the market today and they are all very excited about the release of Adiana that's coming out in Q1 of next year. So when they look at their pipeline of opportunities just within Cytyc, it's very positive. And of course the opportunity to talk about digital mammography down the road we think is just more upside for the sales force.

Okay. And then, Tim, where do you think normalized gross margins are heading for the rest of the year if you remove any one-off charges?

Peter, I would say roughly in the 75% to 76% range, which now includes that amortization of intangibles in it.

That's including the amortization?

Yes, that is including the amortization.

What was the effect on earnings from stock options?

In the quarter, the gross number was just about $5 million on a pretax basis.

Okay, thank you so much.

Bruce Jackson, RBC Capital Markets.

With NovaSure, did you happen to mention the number of disposables that were sold during the quarter?

Bruce, we did not, but I will give that to you. It was about -- a little bit over 55,000, which is up very nicely, up more than 10% from Q1 of this year.

Okay. And then also last year about this time, you put a price increase through. Do you have any plans to do something like that this year?

At the moment, we do not have any thoughts of doing a price increase on NovaSure at this point. We are the price and market leader.

Okay. And then, there was some discussion about reorganizing the sales force to help sell Adeza and you were thinking about 10 maternal fetal specialists, plus the lab reps and the office reps. Where do the numbers stand right now for the Adeza sales effort?

Basically, the sales effort on the Adeza product remain unchanged from the first quarter of this year. We still have the obstetrics specialists that are focusing on the maternal medicine specialists, as well as 120 of our PMRs are promoting the product as well.

Finally, do you happen to have the Gliasite sales for the quarter?

Yes I do. That number was about 600,000.

Great, thank you very much.

Amit Hazan, CIBC World Markets.

Just a few questions. I guess, first of all just on Pap Tests and ASPs, just trying to back into my domestic ThinPrep revenue number and I'm coming a little bit short. Did you have any pressures on ASPs or can you give us some color there?

The revenue from ThinPrep domestically for the quarter was just under $60 million. That is inside of that $100 million [domestic] (technical difficulty) diagnostic revenue number we mentioned. The ASP is very consistent with what we saw in Q1.

Meaning it was not down.

Down a couple.

A [skoshe].

Okay, a skoshe. And just on LabCorp, I'm wondering if I can get a little bit more color in terms of the Imager penetration. It looks like it was up nicely, but still if I'm kind of thinking about the last year or so, we were at just under 60% at June of last year. We're now kind of at two-thirds. Where are we going here? Is it becoming more difficult to get to -- are we going to 100% here, or is this kind of slowing to -- where is it going to stop and why has it kind of slowed over the last year?

I think, if you think about LabCorp for a moment, the percentages, although we have seen a nice increase of percentage, the volumes have also increased significantly at LabCorp. There has been some mix shift as you know from -- in the large lab segment because of the shift to the United Healthcare contract, and therefore, we think LabCorp can go and will go to 100% imaged slides. They see major benefits both from a reimbursement as well as a productivity enhancements that the Imager provides. So I don't think there's any real dealing to the growth in LabCorp.

Just a couple of questions on Adiana. First of all, I think you said that PMA is complete, but did I hear you right saying that the final module is going to be filed in mid-August?

That's correct.

So that seems to be a delay from what you said last time. Can you give us some color in terms of how you think you're going to get through to launch in Q1? Does that mean you're not anticipating an FDA panel?

We won't know whether we will have an FDA panel until it's actually accepted for filing, so we would expect that during the third quarter, we would be notified by the FDA one way or the other. There is a panel already scheduled routinely in December, that if there is a panel hearing, would likely be the December panel meeting. There really is no other color other than I want to be confident that the submission that we are putting into the FDA meets our quality and regulatory standards. We have a very strong track record of getting products through the FDA, the PMA process and I basically am the one that am responsible for making sure that it is slightly delayed because I want to take the time personally to make sure that it's done right.

Do you care to reveal the number of pregnancies in study?

I don't care to.

Okay, I tried. Have a nice day.

Jayson Bedford, Raymond James.

I just have a couple of quick questions. On NovaSure, did you give the number of controllers that were sold in the quarter?

Over 400.

Okay. And what accounts -- that seems like a big step up from the March quarter, which was a big step up from any quarter in '06. Has pricing come down, or what are the dynamics that's really fueling that acceleration here?

There was principally a focus on in-office use. Again, part of the whole strategy of making sure, as we prepare for the Adiana launch, that we have NovaSure in many physician offices.

Okay. And Pat, when you look at -- let's say there's an installed base of a little over 3000 out there. How many of those physicians are using it in office right now?

About 8%.

Okay. So it's 8% of volume, as well as the number of users, it's pretty consistent there?

That's correct. And I think I said on the first quarter conference call, we expect to be at about 10% by the end of the year.

I'm just wondering, is there some sort of shift where in-office users are using the product more?

I think that's in fact what we are seeing, that the use of the product in office tend to do more than when they have to travel to the hospital on average.

That's it for me. Thank you.

(OPERATOR INSTRUCTIONS). Ed Shenkan, Needham & Co.

It was a strong quarter on the sales side. I was wondering about cross-selling. Now that the sales force has additional Adeza product, how that is working out as far as helping actually the ThinPrep business perhaps. And then, when you add Adiana, what impact do you think it will have as they have so many products in the bag?

I think there's a significant cross-selling opportunity as well as face time with physicians. When your -- ThinPrep has been out there for about 10 years now, not really a lot new other than the Imaging System, which we're focusing the PMR efforts on. But, the fact that we now have Adeza, the fetal fibronectin test, in the bag, makes for more face time for physicians. And I think it has a positive impact on all of our products.

How is that impacting the NovaSure? Is that also helping quite a bit, because NovaSure obviously has the attention already of the docs.

I think it makes us a broader product offering and being able to talk to the OB/GYN on a number of different products. I think we have more credibility and improved access that we just didn't have before.

And when you add Adiana, do you expect changes to the sales force? Or I'm just wondering if the bag is going to be overloaded for a short time period or not.

We are looking into that. We think we're going to add -- it will be specifically to the territory managers, the PMs who focus virtually 100% of their time and energy on NovaSure. So for them, I think it will be a very logical, easy fit. We're looking at the PMR that -- you know, making sure that they have enough breath to adequately promote other products. But I think overall, it is very positive with just physician access and really improves our ability on a number of fronts.

And you see it as advantageous to keep all of the products with the same rep, not to divide up the sales force, with these products?

Well, the TMs again are more specialized on NovaSure and will be specialized on the Adiana product. They really don't spend all of that much of their time on ThinPrep or the full-term test. Those are primarily promoted by the PMR.

Okay, thanks.

Caroline Corner, Montgomery & Company.

I just had a follow-up question around NovaSure. It looks like it's being very successful in the office so far. You have mentioned previously that the lifestyle market is about two to three years off. Are your experiences in the office right now implying that maybe the lifestyle markets and your penetration of that market might happen a little more nearer term?

The two or three years off that we are out that we're talking about for the lifestyle market is all related to our conducting and having the FDA approve our indications for use, our IFU, to be for that lifestyle market. We do know that, although we are not able to promote the use of that product for that indication, that some physicians are in fact -- have performed the procedures at the request of patients. I think the ACOG bulletin that I mentioned earlier talked about whether if a woman perceives that she has -- is having menstrual believing, that thermal -- that ablation may be indicated.

Thank you. One quick follow-up question regarding the Quest trial. Is that still at four locations right now?

We are currently in the sites that we started out with.

Thank you very much for taking my call.

Matthew Scalo, Canaccord Adams.

I just wanted to ask a couple of quick questions on Adeza. How many of the original Adeza sales reps remain?

We brought about 30 reps on the Adeza side over to the -- enhance our PMR force.

And that's down from somewhere in the 70s or --?

They had a number of contract representatives that they were basically through -- basically a rent-a-rep type use. They also had some part-time reps, but we ended up with about 30 full-time reps that we brought over, which takes our total PMR force to about 120 or so. We had some vacancies that we were able to fill with the Adeza reps, as well as a total net add.

And of the $14.4 million, can we assume that 100% is coming from the signs and symptoms market, or is there some percentage that's coming from the high-risk population?

We believe there is some percentage coming from the high-risk population. It's very difficult to try to quantify that because of -- you don't have those indications when you sell product into the laboratory.

Are there plans to directly address the high-risk patient population that has changed over the last six months or so?

Yes, we're putting plans in place to do that. The high-risk market is larger in terms of total number of tests, but we are putting marketing effort behind that.

And of the guidance that you provided for the full year, can you carve out what the fetal fibronectin test might contribute, or contribute to that?

Last quarter when we increased the guidance due to the closing of the Adeza acquisition, we increased guidance around 45 to $50 million. So it's still in that ballpark.

Terrific, thanks guys.

Vivian Wohl, Federated Kaufman Fund.

Just a couple of questions. Internationally, I had not realized quite how well you're doing with system placements, and I'm wondering if the international community is paying you on a per-click charge, like in the United States, or if they buy the systems outright?

It varies by country, but I would say in large part, it's the U.S. model.

Okay.

But, we will sell on occasion Imagers directly.

Can you give us some idea what the per-click range might be? I'm sure it's broad across the various countries.

Vivian, on average, ThinPrep pricing is about 85% outside the U.S. compared to what we have in the U.S. It's a little bit stronger in Europe and it's a little bit less in Asia.

And the same is true for the Imager?

It's in that general ballpark.

Okay. And then just on MammoSite, with MammoSite doing a little bit better, is that being driven by just greater training of physicians? Are you making some -- do you need to make more strides in reimbursement, or is reimbursement fairly well established across the board?

I think in large part reimbursement is pretty well established for MammoSite across the board. I would say one of the things that I would attribute the increases to are really the sales force is really clicking. They're hitting on all cylinders right now, and we have them up and trained and I think they're just being more productive.

And you grew that sales force a little bit, right?

Yes. After we acquired Proxima in 2005, we had some reductions in force, and then we grew it from about 30 reps to almost 60 now.

Thank you very much, congratulations.

Amit Hazan, CIBC World Markets.

Sorry, just a couple of follow-ups. Can you tell us how many sites Quest has running right now for the Imager?

Yes, they have a number of sites that they're running the Imager.

But specifically, is it four or five?

We're not being specific.

Again, just out of respect for Quest in confidentiality, we just don't get into a lot of the details. We can tell you, they're being very deliberate and very thoughtful with the evaluation. They have a great team of people on it, we have a great team of people on it and we're very pleased with where we are right now. But we're just trying to stay out of some of the details, let the folks in operations do what they need to do and hopefully we can roll this thing out.

From our perspective, we're very pleased with the way the Imagers are performing in their sites.

Okay. And then just on NovaSure and Adiana, when you're looking at NovaSure in office, are you thinking at all about Conceptus in-office doctors, and are you focusing on them at all? And then secondly on Adiana, have you done anymore market research since your acquisition that you can share with us?

We continue to do market research on Adiana. I cannot recall whether it was before or after we announced the acquisition, but we think from particularly an ease-of-use perspective that physicians, when given a choice, I think prefer -- the vast majority prefer the Adiana procedure versus the Conceptus procedure. So we're very bullish on that. And I think we are getting prepped for the market launch early next year. It's our intention to train the entire sales force at the annual January meeting that we conduct every year. We're going to train them up on the Adiana device, whether we're through the update process at that point or not.

And on the focusing on Conceptus doctors, are you doing that at all for NovaSure since there seems to be a -- possibly, that could be a good thing since they're already doing procedures in office?

I think we'd focus on the high-volume NovaSure users initially that -- not necessarily focus on Conceptus docs. I think there is -- we have a large number of physicians (technical difficulty) using the NovaSure device. We do a couple hundred thousand of those procedures ever year. Those women need to be on some sort of contraception, and we think Adiana is a very logical next step for those patients.

Okay, thanks very much.

There are no further questions at this time. I would like to hand the floor back over to management for any closing comments.

Great, thank you operator. We have made very solid progress during the first half of 2007. In the second quarter, each of our key organic growth drivers and surgical products and the ThinPrep Imaging System revenue on an international business grew more than 30% over last year. We completed the acquisition of Adeza Biomedical, which has full-termed the fetal fibronectin test to our Diagnostics division.

In addition, we're very excited about the proposed merger with Hologic and look forward to working with Hologic as we integrate two well-respected industry leaders in the women's health care and diagnostic marketplace. After the close of the transaction, we will continue to focus on our shared goal of improving women's health to earlier and better detection, improved diagnosis, less invasive treatment and improved outcomes more quickly. Thank you for your participation in today's call. Thank you, operator.