ICU Medical Inc (ICUI) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, welcome to the Q3 2010 ICU Medical Incorporated earnings conference call. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator instructions). I would now like to turn the conference over to your host for today, Mr. John Mills of ICR.

Thank you, good afternoon, everyone. Thank you for joining us today to review ICU Medical's financial results for the third quarter ended September 30, 2010. On the call today representing ICU Medical is Dr. George Lopez, Chairman and Chief Executive Officer; and Scott Lamb, Chief Financial Officer. We will start the call by reviewing key operating and financial achievements, then Scott will discuss third-quarter financial performance and revenue and earnings targets for fiscal 2010. Dr. Lopez will wrap up the call with a review of current business trends, then the Company will open the call for your questions.

Before we start, I want to touch upon any forward-looking statements made during the call, including management's beliefs and expectations about the Company's future results. Please be aware they are based on the best available information to management and assumptions that management believes are reasonable. Such statements are not intended to be a representation of future results and are subject to risk and uncertainties. Future results may differ materially from management's current expectations. We refer all of you to the Company's SEC filings for more detailed information on the risks and uncertainties that have a direct bearing on operating results and performance and financial conditions.

With that said, I will now turn the call over to Dr. Lopez. Go ahead, Doc.

Thank you, John. Good afternoon, everybody, and thank you for joining us today. We are pleased with our financial and operational achievements during the third quarter, highlighted by strong improvements in both the top and bottom line. For the three months ended September 30, 2010, our total sales increased 40.3% and our net income was up 41.9%. Based on our strong performance for the first nine months, driven by all of our major product categories and current business trends, we believe we will exceed our previously established full-year fiscal guidance. We are raising our sales and earnings targets, and Scott will discuss this increases guidance in detail.

On the operational front, we also accomplished several significant milestones during the third quarter. We completed the transition of the Critical Care operations we purchased last year from Hospira and began operations at our plant in Slovakia and made additional investments in R&D, quality control and manufacturing efficiency. I will provide more information in a few minutes, but would I now like to turn the call over to our CFO, Scott Lamb, to review our financial results. Scott?

Thanks, Doc. Before we begin, let me remind all of you that the sales numbers we are covering as well as our financial statements are available on the investor portion of our website for your review.

As Doc mentioned, we reported another strong quarter. Our total revenue increased 40.3% to $75.7 million compared to revenue of $54 million for the third quarter of 2009. This growth was attributable to double-digit improvements across all of our major product lines. Our earnings for the third quarter of 2010 totaled $9 million or $0.65 per diluted share compared to $6.3 million or $0.42 per diluted share for the third quarter a year ago.

For the nine months ended September 30, 2010, our revenue increased 29.2% to $209 million compared to $161.7 million in the same period last year. Net income for the nine months ended September 30, 2010 was $20.9 million or $1.51 per diluted share compared to net income of $19.1 million or $1.27 per diluted share for the same period last year. Third-quarter sales by product category were as follows -- CLAVEs represented 34% of our third-quarter total revenue and grew 26% to $25.7 million from $20.5 million a year ago. The $5.2 million increase was primarily attributable to higher shipments to Hospira as they continued to prepare for potential increased business due to market conditions and a switch of their IV tubing from DEHP to non-DEHP material. We expect this current increase in orders by Hospira will be completed in the fourth quarter of 2010. After 2010 we expect orders to return to normal, long-term growth levels due to the product efficacy and our well-established distribution agreements and industry relationships.

When modeling our expected CLAVE growth going forward in 2011, we believe a growth rate of mid-to high-single digits is the correct growth rate. Custom sets, which include custom oncology, custom infusion and custom Critical Care, represented 37% of our total third-quarter revenue and increased 46% to $28.3 million compared to $19.4 million a year ago. Similar to CLAVEs, performance of custom sets was positively impacted by Hospira's increase in orders due to their conversion from DEHP to non-DEHP materials in their IV sets. Also this third quarter included three months of sales from custom Critical Care compared to just one month of sales last year, due to our acquisition of this product line from Hospira on August 31, 2009. Custom Critical Care and custom infusion sets were up 89% and 48%, year-over-year, respectively. We believe that in 2010 sales from custom products will grow in the low 20% range and, going forward, in the mid-to high teens, contributing approximately the same or more revenue than CLAVE beginning next year.

Sales from standard Critical Care products increased 66% to $12.1 million compared to $7.3 million for the third quarter a year ago, and represented 16% of our total revenue. This growth was primarily due to the inclusion of three months of standard Critical Care sales compared to just one month of sales last year. Now that the transition process is behind us, we look forward to further stabilizing and growing this product line and transforming it into an even more profitable business.

Standard oncology sales totaled $1.7 million, representing an 11% year-over-year increase. Rapid adoption of these products outside of the US resulted in a 43% growth in standard oncology sales internationally. During the third quarter we temporarily reduced our sales and marketing efforts in the oncology area in order to implement certain performance improvements into the Spiros and GE products. Even though this decision will result in a temporary slowdown of sales in the third and fourth quarter of 2010, we expect to be back in full production and sales efforts by the end of this year and capitalize on this market opportunity. Demand for these products remains very strong around the world, and we are confident that they represent a tremendous long-term growth opportunity for our business. We expect to achieve approximately $7 million in revenue from our oncology business this year, which will be a 32% improvement over last year.

Now moving to our third-quarter sales by distribution channel, US sales to Hospira were up 53% year-over-year, to $32.6 million. The increase was driven by strong contributions from CLAVE and custom infusion sets due to the reasons I discussed earlier. For the third quarter of 2010, US sales to Hospira represented 43% of our total revenue compared to approximately 40% for the same quarter of 2009. Our domestic direct sales combined with our specialty distributors grew 38% to $25.9 million year-over-year, mainly due to the Critical Care followed by custom infusion sets and CLAVE. International sales increased 29% to $16.3 million year-over-year as a result of strong performance of custom sets, CLAVE as well as Critical Care, primarily in Europe and the Pacific Rim.

In the third quarter of 2010 international sales represented 21.5% of our total revenue, compared to 23.4% a year ago. Our gross margins for the third quarter of 2010 were in line with our expectations of 44.9% compared to 46.7% in the second quarter and 46.4% a year ago. The year-over-year decrease was primarily due to product mix, Critical Care integration cost and higher freight cost, which were partially offset by manufacturing efficiencies at our factories.

SG&A expenses totaled $18.3 million or 24% of sales compared with $16.8 million or 31% of sales for the third quarter last year. The percentage decrease was due to higher than expected sales to Hospira and some leverage we are beginning to achieve from investments we made in building our direct sales force. These costs, including preproduction start-up costs for the Slovakia plant, were offset by lower legal expenses.

Our research and development expenses increased to $1.1 million compared to $0.7 million for the third quarter of 2009. We continued to make investments in our R&D to build our new product pipeline and expand our current product portfolio. For the third quarter of 2010 our operating income increased 91.5% to $14.6 million or 19% of total sales compared to $7.6 million or 14% of total sales a year ago.

Now moving to our balance sheet and cash flow, as of September 30, 2010, our balance sheet remained strong with $81.9 million in cash, cash equivalents and investment securities. This equates to approximately $6.05 per outstanding share. We also have $168.7 million in working capital. Additionally, we generated $18.7 million in cash flow from operating activities for the first nine months of 2010. Our capital expenditures totaled $5.7 million during the quarter and primarily included our investments in the US and Mexico operations.

Days sales outstanding for the third quarter were 68 days, which is in line with our past four quarters. The increase during the past four quarters was due to an increase in direct sales and our significant sales expansion outside the United States. We expect DSOs to be approximately 70 days in the foreseeable future.

And now let me discuss our updated financial outlook for the full fiscal year. Based on our strong performance during the third quarter and current business trends, we are increasing our guidance ranges for the full year of 2010 as follows. We took into account the following assumptions for the fourth quarter when increasing our forecast. As I mentioned earlier, during the third quarter Hospira ordered additional product. We estimate this order pattern will decrease and be completed in the fourth quarter. Additionally, we expect fourth-quarter sales in Europe and other foreign countries to decline on a sequential basis as hospitals use up their annual budgets prior to year end. Finally, our standard oncology products are now estimated to contribute approximately $7 million to our total sales.

As a result of increasing demand for our products beyond the points I've just discussed, we are raising our revenue guidance and now expect our fiscal year 2010 revenue to be in the range of $277 million to $282 million compared to our previous outlook of $270 million to $275 million.

As the Critical Care transition process is behind us, we are positioned to benefit from improved manufacturing efficiencies and expect our gross margins to start expanding on a sequential basis. However, these positive effects will be offset to a degree by the start-up cost and low utilization of our plants in Slovakia during the fourth quarter and well into 2011. So, we estimate our gross margin to be approximately 45% for the full fiscal year.

Our SG&A for our fiscal year 2010 are expected to be approximately 27.5% of total sales. We continue to closely control our expenses and focus on improving our operating margin by gaining leverage from our investments in our direct sales force. Our R&D expenses as a percentage of sales are expected to be approximately 1.5% to 2%.

Because of a strong top line and operating efficiencies in our business, we are raising our EPS guidance range. Now for the full year of 2010, we expect to achieve diluted earnings per share in the range of $2 to $2.07, compared to our previous guidance of $1.85 to $1.92. We believe capital expenditures, including the additional investments in our facility in Slovakia and our manufacturing facility in Mexico, to be $20 million to $22 million in 2010. Our operating cash flow is expected to be approximately $35 million to $40 million in 2010.

Now I'd like to turn the call back over to Dr. Lopez.

Thanks, Scott. Based on our results to date, we are pleased with the direction our Company is taking and optimistic about opportunities ahead of us. We are pleased to announce that operations in our new facility in Slovakia have begun. We have obtained ISO certification. We expect to start shipments of products from this new facility during the fourth quarter. International markets represent a tremendous growth opportunity for our products. As a result, we are constantly evaluating global demand and investment opportunities outside the US that will contribute to our growth longer-term.

Centrally located in Europe, the Slovakia plant provides us with a favorable strategic location which will greatly improve time-to-market for our customer sets and is expected to lead to further manufacturing improvement and cost efficiencies. Also, this project supports our goal of becoming a leading provider of high-quality custom sets in Europe.

In conclusion, let me update you on our recent investments in manufacturing. As I mentioned on our previous call, we started to expand our manufacturing facility in Ensenada, Mexico, by increasing its cleanroom space by 22,000 square feet. This project should be completed in early first quarter next year. In addition, we completed the transition of Critical Care manufacturing in our plant in Mexico and added two-beam extrusion capability. These accomplishments will result in further improvement in efficiencies and reduce costs.

In our plant in Salt Lake City we have continued to invest in high-cavity tools and automation and the vertical integration of key components to meet the growing demand for our products. We have an invested in automated data retrieval for our automated product assembly machines and real-time feedback to our production. We believe all these improvements in the manufacturing area position us for higher growth opportunity and faster speed to market with reduced costs.

Looking forward to the remainder of the year and into 2011 we believe, we are well positioned for strong year-over-year growth. We're confident that our positive cash flow, our leading distribution partnerships and expanding product portfolio, our investments in direct sales force and an improved operating efficiency position us well for continued long-term growth and profitability and delivering value to our shareholders. Now I'd like to turn the call over for your questions.

(Operator instructions) Matt Dolan, ROTH Capital.

Congrats on another good quarter. First question, on the revenue line -- maybe you could help us quantify what you saw from Hospira in terms of the impact of some of these what seem to be nonrecurring components of revenue. Is it the majority of the sequential uptick? Is that a fair way to look at things?

Yes. For both the CLAVE and custom sets, a significant portion came from these additional orders from Hospira. Also included in the custom sets was the addition of three months of Critical Care versus only one month last year.

So as we look, Scott, you mentioned some things about 2011. As we look to the following year it looks like Hospira is, I'll call it contributing $5 million to $9 million this year in these types of orders. But you mentioned growth staying in a consistent fashion relative to what you're looking for in CLAVE this year, mid-to high single digits. Is that inclusive of what will be a more difficult comp next year? Maybe walk us through the overall growth trajectory in the next year considering these orders.

We will talk more about that in our fourth-quarter call when we give out the 2011 guidance, but that would be excluding these what I call special orders, if you will.

Then on the gross margin side of things, I know you talked about some sequential ticks up from here. The gross margin has been fairly choppy over the last three quarters. Can you help quantify or give us some order of magnitude of how that progression should track and ultimately what you are targeting on the gross margin line, once these efficiencies and once Slovakia is up and running?

Sure. I think the fourth quarter coming up, that will be a more normalized growth margin going forward. To break down the differential (inaudible) quarter, the third quarter, product mix contributed to about 120 basis points down, along with integration and freight costs about 180 basis points down. Those are offset by factory efficiencies.

Thanks a lot, guys. I'll let somebody else on.

Junaid Husain.

Relative to your manufacturing facility in Slovakia, it sounds like you're going to be live in Slovakia in the fourth quarter. How should we be thinking about capacity utilization may be out the door?

Once we have all of our product transferred from Mexico -- these are the sets being manufactured for Europe -- once that is complete towards the end of the fourth quarter or early first quarter, then think of it as about 20% capacity.

And then how should we be thinking about gross margins, just given the ramp up in Slovakia in the fourth quarter and then heading into 2011?

Well, certainly going into the fourth quarter we'll start to see the costs related to Slovakia running through COGS, no longer running through SG&A. Those costs, by the way, year-to-date, are approximately $1.6 million. Once they start flowing through the COGS line, they will have an effect of about 75 basis points pressure downward on the margin.

And then, Doc or Scott, as you talk to your friends over at Hospira, do you get the sense that Hospira is starting to win pump business and maybe the incremental CLAVE and custom is as -- is the result of this incremental business? Or alternatively, do you think they're just building up inventory on CLAVE and custom ahead of what is expected for 2011?

I think you need to ask Hospira. We're probably not your best source of information for Hospira.

Fair enough, and then last question for Doc. Doc, back in August, you and a bunch of other manufacturers received a letter from FDA regarding positive displacement needle connectors and maybe some problems associated with these products. Can you remind me -- I don't believe you have too many of these products in your portfolio, maybe just TEGO and CLC?

TEGO is not involved, and that's -- we contacted the FDA and TEGO is not involved. Our products are neutral. 99% of our products are neutral, and these eliminate the positive pressure devices. We have small sales on a product called CLC, and most of those sales are going to China. So we -- the only one that's involved is that, and development on that is very small. All of our five, including the Neutron, the new product, are completely neutral. The answer is, it has no effect on us whatsoever.

Jayson Bedford.

Good afternoon and thanks for taking the questions. Just on the gross margin at 45%, I thought it may have been a little higher. Just wondering, can you give us the impact of the [TSA] related to Hospira in the quarter?

Well, like I said, it was -- between that and freight, it was about 180 basis points.

And that will not recur going forward?

Right, but we will have some impact now from Slovakia putting downward pressure on the margins.

And just so -- my math may be off here, but the implied fourth-quarter gross margin is a tad over 46% to get you to 45% for the year. Is that right?

Yes.

And that's a number you expect to build on in 2011?

Well, that's the number I expect for the fourth quarter. We do expect continued improvements in the gross margins, but those will take time. Factory efficiency improvements will help, along with new products.

Fair enough, and then just the strength in the custom business -- in the past you've talked about potentially benefiting from Hospira paring back on non-standard sets, which is a very different dynamic than build up in front of potential share gains. Are you seeing growth in custom related to Hospira paring back on some of those non-standard sets?

I think that was me who said that, and yes, we believe we have some results of that. They're making the right decision, it appears to me that they're making the right decision to decrease their SKUs and focus the Company on a narrower line that is much more productive to the Company and in the meantime still have the business. Some of the business has gone our way. There's always people that will want custom sets, so the answer is yes.

And then last one for me, just in terms of thinking of the impact of the Slovakia facility up and running here, I'm guessing that will enable you to deeper penetrate that market. And so I'm wondering, have you purposely held off in going after new business in Europe, maybe not realizing that you can't turn the product over quick enough? And then secondly, will you have to add sales infrastructure in Europe to take advantage of this opportunity?

We already have a sales force in place as we speak. And the differences -- we had to ship product from Mexico all the way to Europe, and that's by ship, quite a number of days involved there. Europe is based on tenders, whereas the more differentiated the product the better it is for your company to have a differentiated product. And we think it's going to be very helpful (inaudible) quick inventory turns and finish -- start (inaudible) we think it's going to do very well there in Europe. So we're looking at it as a growth opportunity. And the sales force is in place. That's part of the expansion that we've been going through.

So can we assume you will be more aggressive now that this facility is up and running?

Aggressive how?

Just going after that business.

For sure.

Gregory Macosko.

Could you talk a little bit about foreign exchange? Was that much of an impact on sales in the quarter? And what are you -- are you expecting it to be a factor going forward?

Well, it had about a $1 million impact top line on the quarter. Bottom line, it was insignificant. We do have most of -- actually, all of Europe is in euros, and so we hedge in that manner. Where the euro is going is anyone's guess.

But you will be manufacturing and sourcing for a lot of your European product in Europe, correct?

it's in Europe, yes, and it should be self-funding.

You mentioned something with regard to international sales regarding Hospira, and I didn't quite catch it. Did you say it was going to be weaker near-term because of some of the infill or whatever?

I'm not sure I follow the question, sorry Gregory.

Well, Hospira -- you're kind of complete in fourth quarter. Was there a lot done overseas or internationally for them or with regard to revenues?

No. I think maybe you're combining international with Hospira. So let's -- Hospira was up about 53% in the quarter, and we expect that during the fourth quarter that increase will decrease somewhat and they will be done with the additional orders by the end of this year. As far as international goes outside of Hospira, international was about 21.5% of our total revenue for the quarter, versus last year, about 23%.

With the addition of Hospira.

Yes.

Okay, and with regard to the R&D, you mentioned 1.5% to 2%. Is that for next year, of revenues?

No, that would be for this year.

Well, year-to-date I thought I saw it was 1.4%. Am I wrong on that?

That's about right. So we do expect to start making some additional investments in Critical Care and other R&D efforts.

Are those one-time-ish?

They will be ongoing for a while.

Okay, good. And then the question with regard to the high-single digits on CLAVE. You are saying, even with the fill or the added orders by Hospira, you still expect that high single digit in 2011?

Yes. That would be excluding those special orders, however.

Oh, so we should exclude those orders? Okay, fine. And in oncology -- you are saying that that will pick back up in 2011 after some sales/marketing? Could you go through that sales/marketing reductions and things and reason behind it?

Well, we have some problems in the field with the Genia (inaudible). They are still using it, but we could make a better product, so we took the foot off the gas pedal and stopped selling the product. In the meantime we have made the corrections and in fact we will be back in the market this next quarter, fourth quarter.

Okay, good. And the sales force overall, both Europe and the US -- the direct sales force, I mean -- is basically all in place and you are satisfied with what you have now?

Yes.

Okay, and there's really -- they are pretty well trained, so we should see them ramping up very quickly from here?

(inaudible) nothing ever happens quick enough. It depends on how you define quickly.

All right, well thanks very much for answering my questions.

Matt Dolan.

Just a couple of quick follow-ups -- on the Hospira side, maybe another way to look at it -- could you provide us with what you are seeing in the sell-through data that you received relative to the bolus of orders you saw?

Well, certainly I don't want to disclose the sell-through data that we are seeing. I can tell you that on the CLAVE side that we -- that our sell into Hospira is growing faster than sell-through data, which is what we discussed on the last two earnings calls. And that is obviously a decision that Hospira has made to build some additional inventory.

Maybe I missed this point, but did you tell us why you have reduced your operating cash flow expectations this year? Is it a Slovakia or working capital issue or something else?

Working capital, obviously, to fund the additional revenue (inaudible).

Any updates for us on the new product side of things, any products we can better define and talk about the market opportunities?

I think we are going to stay with our position that we'll talk about new products after they become meaningful. We have two pretty exciting products, but when they hit $1 million in revenue, then I'll come back and tell you about them.

Okay, fair enough. I don't know if you said it, but did you complete any of your buyback in the September quarter?

Did not.

Mitra Ramgopal.

Just a few questions. First, just going back to the international market for a moment, if you can give us a sense as to what the opportunity is or maybe what your market share is right now, based on the revenue you're generating?

As far as marketshare goes, it depends on which market and product category you're talking about. By then, in the IV therapy, oncology as far as custom sets and CLAVE goes, we still have -- Europe is just starting to get more aware of the significance of infection control, custom sets, custom set capabilities that we are bringing to the marketplace. All of those are large indications to us that there's still plenty of room for growth international, particularly Europe, and that's where we have been making our investments in the direct sales force and obviously in production capabilities with Slovakia. Oncology -- we've seen very good growth in oncology coming from Europe, especially. Again, that is a brand-new market as far as we're concerned for these new products. And so we expect and anticipate good growth continuing in sales outside the US.

And in the US I don't know if you can give us an update in terms of how the premier agreement has been working out for you. Is it fair to assume that each quarter, since you've been -- you continue to see a nice sequential growth?

Yes, that's a good assumption on your part.

And just on the general question again, one thing we have been seeing the last couple of quarters, especially with companies related to hospitals, in terms of doing business we have been here but volumes being soft, procedures being down, etc., and companies just having a tough time. Clearly, that doesn't seem to be applying to you.

It seems not to, Mitra.

Sorry?

It seems not to. Our products are really used on very sick people, and there's obviously demand for our products. So we are not -- they are used very specifically for critically ill patients for, for the most part.

So is this pretty much, I would say, recession proof?

You asked us that question when the recession started, and I said my opinion is, we were recession-proof, and I still hold that same opinion.

James Terwilliger.

First of all, congratulations on a good quarter. My first question is going back to the sales force and going back to the Critical Care, you indicated you are fully staffed in this area. Can you indicate how many people you have in the US at this time?

Yes, we have approximately 100 direct sales people in the US and approximately 30 outside the US.

And then 30 outside? When you look at -- if I would back out Critical Care, can you give me what the sales force looks like for the other products in the US, and then outside as well?

Well, Critical Care we have about 18 or so, and those are all in the US.

They only focus on Critical Care. They only sell Critical Care.

And then if you would look at -- you just got this facility up in Europe, and you were shipping that product from Mexico. What is your next-strongest international market outside of US? Is there another area where it would make sense to go build another facility to streamline your processes?

Yes. Following Europe, it's the Pacific Rim.

Not time to build a facility there yet, but at the same time that would be maybe the next step if you were to continue to expand the manufacturing?

Similar to building for Europe, as sales increase, sales and marketing increase in that area of the world, we would certainly look at potentially building the manufacturing close to home.

I think the Slovakia plant will be a good indicator of growth expectation or growth possibility for the custom sets, because as I said, they're all tenders in Europe, and tenders mean differentiation and customization. So -- because you can't bid on something unless you have all connectors and the IV lines in the right place and all the attachments to the right place. So I think this -- let's see how we do in Slovakia first, and I have no doubts that it will do well.

Now, and maybe real quick some housekeeping. Scott, should we be looking at a tax rate of 35% going forward?

No, I'm glad you asked that. 36% for this year.

Okay, so 36%? Now when I'm looking at the model, year-over-year I've got a 21% tax rate in Q3 of last year, Q3 of 2009?

Yes, there were some R&D tax credits that kicked in as legislation was approved last year in the third quarter. This yet, that has not yet happened, along with some decreased items going the other way this quarter.

Okay, so don't bake into the cake any tax credit; go with 36%?

Go with 36, yes.

And then on the stock buyback, can you just remind me how much -- update me as where you stand on the stock buyback?

Sure. We have a $40 million authorization that the board made back in July, and during the third quarter we did not buy back any shares.

And so how much is remaining?

$40 million worth.

The whole 40? Okay, sorry. And lastly -- I've got two questions. One is if you could talk a little bit about the Neutron, the new product that you announced recently, and the other is with some of the issues with these bloodstream infections, or BSIs, did that drive any incremental additional business to you?

I can't say that it has, as of yet. We're taking, certainly growing that business well, so I can't really say that it has or it hasn't. But it's a very good thing for ICU Medical. Just because of the death of three people, which is unfortunate, three children, which is unfortunate, but the market is going to go neutral. It's not going to go positive, it's going to go neutral. That created positive pressure, and the market is going to go neutral. So we've got no (inaudible) business I can talk about or point to, although we are switching new accounts. So I hope that answers the question.

I knew there were three deaths, I didn't know they were children; that's terrible. But the majority of your business is neutral pressure; correct?

Correct, almost all of it.

And this was something that was not tied to any one particular device or one manufacturer, one hospital? It was just more of an issue out there in the field that, hey, we can do better? Is that how I should be understanding this? I tried to read everything I could, but I just want to see if you can respond to that.

It seems to be, and we agree, the R&D department and myself agree, that if you have an internal fluid pathway, you do not have problems. If you have an external or outside fluid pathway, imagine fluid going outside, and those seem to be the danger. The FDA has correctly identified the problem. Now, the positive pressure device companies, such as Medegen, CareFusion and such, that are positive pressure -- they have to respond with a very lengthy couple-year study to prove to them that -- the FDA that those products are safe. And I don't believe they will pass, though it's --

I appreciate your comments on that. Thanks very much, Doctor Lopez, and thank you, Scott, and congratulations on a good quarter.

Mr. Mills, there are no questions at this time.

Okay. Well, thank everyone for participating today. As a reminder, we will be attending a few conferences the next few months and look forward to updating everyone on our 2010 progress on our fourth-quarter call, which will occur towards the end of January 2011. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.