賽默飛世爾科技 (TMO) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter one 2005 Invitrogen Corporation earnings conference call.

My name is John, and I will be your coordinator for today.

At this time, all participants are in a listen only mode.

We will be facilitating a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded (multiple speakers).

I would now to turn the call over to Mr. Adam Taich for closing (ph) remarks.

Great.

John, thank you so much.

Good afternoon.

Welcome to Invitrogen's conference call.

I want to thank you for joining us.

I am Adam Taich, as he said.

Joining me on the call today are Greg Lucier, our Chairman and CEO;

David Hoffmeister, our Chief Financial Officer; and Ben Bulkley, our Senior Vice President for Commercial Operations.

Before we begin today's presentation, I want to caution our listeners that our discussion today includes forward-looking statements that are subject to a number of risks and uncertainties that can actual results to differ materially from those in the forward-looking statements.

It is our intent that those statements be protected under the Safe Harbor created by the Private Litigation Reform Act of 1995.

We refer you to the risks listed in today's press release and in our SEC filings, including our most recent 10-K and our 10-Qs.

On today's call, as we have in the past, we will discuss our pro forma financial performance, which includes non-GAAP financial measures as that term is defined in Regulation G. We provide pro forma financial information, as it provides an indication of the profitability and cash flows of our business, apart from the initial sum costs of our acquisitions.

In addition, we use these measures internally to evaluate the performance of our business.

In today's discussion, we will be consistent with the definition of pro forma that we have used in the past.

Under this definition, pro forma financial figures are calculated by adding back acquisition-related amortization and other similar costs net of income tax effect.

On the Investor Relations page of our website, we present the most directly comparable GAAP financial measures and a reconciliation of GAAP results to pro forma results.

Now, I will turn the call over to Greg Lucier, who will comment on our first quarter (technical difficulty).

Adam, thanks very much.

Good afternoon to everybody.

And I am pleased to report record first-quarter results for Invitrogen.

Our revenues exceeded the previous high-end guidance at 266 million by $11 million to $277 million, for a variance versus last year at 10%.

The pro forma earnings per share were at $0.88, an increase of 42%.

Now, that $0.88 included a onetime set of positive impacts to our Company of $0.05.

And we will be talking more about that later.

But even without that, we exceeded guidance.

And more importantly, we would have well exceeded guidance, yet, we took the opportunity to continue to invest ahead of time in our Dynal acquisition integration, our Zymed integration, and we are accelerating our R&D investment.

We knew the business was going to be good, and so we took the time to invest into these growth-building activities.

And as you can see, we leveraged the revenue growth and had a faster increase in EBITDA of 12%.

So again, record revenue in pro forma EPS.

We were able to close on the Dynal and Zymed deals, and really begin integration ahead of time.

Our operating margins are at the high end of our range.

Previously, as we have disclosed and guided to between 24 and 26%.

So we are positive about that.

And then we had very strong free cash flow of $51 million in the first quarter.

So a solid quarter, and let us now give you some more color on the performance.

If you go to page 5, as you can see, we took a step, jump, leap in our quarterly revenue growth, up to $277 million.

Now, in this BioDiscovery segment, the organic growth stood at 3%.

We are still calling our organic growth rate target at 4 to 5%.

And in that particular segment, I think there are really just two points to be made.

One, we had some very tough comps versus this same quarter last year due to our Japanese business.

And due to those cops, actually, the organic growth rate would have been higher at about 5%, right in zone of where we want to be.

The very encouraging aspect of BioDiscovery, though, is that our organic growth rate now in the U.S. is at 6%.

This is our largest market.

And as of last year and the year before, was absolutely the toughest market we were playing in.

And we have been able to rebuild the team, rebuild the momentum, and now get that thing growing at 6%.

So we are very encouraged by BioDiscovery.

And I think it just should be noted that we are dealing with a comp issue versus the same quarter last year.

Now, in BioProduction, it is also just a little bit of a onetime thing.

The organic growth is at 5% for the quarter.

We are still very committed to 11 to 12% for this segment.

And again, in that one, it is due to some timing issues as some larger BioProduction orders we had in Asia-Pacific.

And we are confident that that gets corrected here as we move into the second quarter.

So, again, still very committed to an organic growth rate of 11 to 12%.

And for the purposes of those on the call, the timing issues affected organic growth rate by about 3 points in the quarter.

So we would have been at about 8%, which is certainly near the zone where we wanted to be.

So that is just some more color commentary.

Now, what I could do if we go to page 6, is take you around the world and to give you even further input on what is going on with our business.

Again, in the United States, we had our strongest organic growth rate in about two years' time, and we are feeling very good about that.

Very strong growth in BioManufacturing.

Academic, we are actually growing now in high single digits.

Really, our only trouble spot in the United States at this point is NIH.

It is off to a slow start, low single digit growth.

And I think everyone understands the challenging funding environment.

But again, our goal here is to win more at the customer.

And we have already laid plans in to, hopefully, get that growth rate up a few points.

In Europe, because this is such a run rate, day-to-day business, the Easter holiday had an impact on us because last year, believe it or not, Easter was in Q2.

This year it was in Q1.

And it is a vacation time for our clients.

So we lost a couple of million dollars due to that in Europe.

But beyond that, Europe had a good quarter.

We are developing new channel strategies around inside sales, around specialist teams that I think are really gaining nice momentum.

And the team in Europe is very committed to the integration of Dynal and DRI, and that is going well.

In Asia-Pacific, China continues to grow strongly for us.

Bio Asia, Dynal -- Dynal had a very strong business in Asia -- in China, I should say.

And we continue to add direct sales professionals in those -- that country.

Again, as we talked about in the previous page, Japan had a -- didn't have the best quarter due to, first, comp issues and then, second, timing issues.

But we are very confident that second quarter this thing comes right back where we want it to be.

So they are still very much on plan for the overall year.

And finally, in terms of our strategy of must-have products, a lot of releases this past quarter.

ChargeSwitch, our nucleic acid purification technology, is really doing quite nicely.

It has very strong applications in forensics and plant biology.

We are growing at incredibly high double digits in qPCR reagents.

And really, becoming the Switzerland of qPCR, to where our technology is targeted to work on anyone's instruments.

And I think customers really like that liberation that it brings about.

And then we continue to invest in the protoarray.

So now we are exceeding 3,000 proteins.

And as we stated before, our goal is march down a path where we ultimately have every human known protein on a chip.

And we are continuing to stay focused on that.

And then you can see the (indiscernible) around BioProduction.

So lots of good new technologies coming out the door.

What I would like to do is turn it over to Ben Bulkley, head of Commercial Operations, just to talk about one particular customer segment that, as we have chatted with many of you, the analysts, about a challenging environment, of how we intend to win there, and win very successfully.

Ben?

Thank you, Greg, very much.

As we like to talk about from time to time some practices that are helping us increase our organic growth, this is directly applied where -- we assembled five teams of four or five senior executives in the business to spend a very concentrated and intense week visiting our top accounts around the world.

We met with over 70 senior executives at 20 key accounts.

And the purpose of the visit was to elevate the discussion in these accounts and talk about ways in which we can help them.

We found not only immediate opportunities for volume, but as importantly, some longer range collaborations, and especially to build the depth of our relationships at that level.

The practice is especially helpful, because we see a cross-section of the market and the applications at one time, and come back and spend a day debriefing what we have heard and what we have seen, and develop specific actions to help grow and support our clients.

Some of the discussion points with these clients about the value of Invitrogen and the value of a relationship.

Of course, we offer economies of scale, because it is very important now to help our clients consolidate vendors -- you know, particularly a customer here in the United States indicated in one month's time they had 540 suppliers touching one lab.

And this is an opportunity for us to have a rich discussion about how we can help them, because certainly, being touched by that many vendors is not productive.

Collaborations and outsourcing, whether it is assay development or optimizing production from an upstream/downstream perspective, was very much a part of the dialog, and really opened up a perspective on how we can help people connect the upstream and downstream activities from research to production.

And finally, we are not only a science-based Company.

We have terrific opportunities in helping in a business-to-business environment, supply chain matters, and helping distribution capabilities within an account, making it easier for clients to find a solution and get it as quickly as possible.

We have Six Sigma projects underway with a number of clients.

And in the end, it really just helps us solidify and elevate our relationships with our clients.

Greg?

Thanks, Ben.

I am going to turn it over to Dave Hoffmeister now to take you through gross margins and some other financial measures.

Thanks, Greg.

And if you turn to page 8, you can see our gross margins for the quarter are up slightly over 1% from 60.6% in the first quarter of 2004 to 61.8% in this quarter.

Our margins improved in both of our key segments.

In BioDiscovery, we are up 2 percentage points to 72% in the first quarter versus last year, an increase that is primarily due to sales of -- or higher sales of more proprietary products like NAP and qPCR, which Greg referred to earlier.

And our Probes business continues to do extremely well, and that helps to enrich our mix.

In BioProduction, the gross margin rose from 46% to 48%.

And that is driven by improving margins in our BioReliance business, as well as higher sales of the animal origin free Media, which is a key component of our BioManufacturing business.

If you look at the next page, just to quickly summarize again.

Revenues are up overall 10% in the quarter versus the prior year.

Pro forma operating margin was up 12%.

And as Greg said before, we are maintaining our high operating margins.

We are actually at the upper end of our margin target, while increasing our investments in research and development.

Pro forma net income grew by 43%.

We have got earnings per share of $0.88.

As Greg said, that includes $0.05 of one time items.

Those items are outlined there on the page for you.

It is basically two key elements.

One was the sale of an equity investment.

This was some shares of a company that we gained through an acquisition -- as part of an acquisition that we did.

And the other was a gain on some currency.

The net effect was about $0.05 per share.

If you take that out, our earnings per share for the quarter were $0.83.

As Greg said, about $0.01 above what our top -- the upper end of our guidance range was.

On page 10, free cash flow -- it continues to be very strong.

Cash flow for the quarter from operations was 63 million versus 30 million in the first quarter of last year.

We actually increased our capital expenditures by $5 million.

They were 12 million in the quarter.

For a total free cash flow of 51 million, which is more than double what our cash flow was in the first quarter of last year.

Just quickly on the balance sheet items, the only real item of note there is the -- our 500 million in convertible notes, of which are due in 2006.

Callable at the end of this year.

We had the opportunity just a couple of weeks ago to repurchase a significant portion -- 125 million of those bonds at below par.

We took the opportunity to do that.

That has had no impact on the quarterly numbers that you are looking at here, but it will affect our earnings per share numbers going forward to the tune of about $0.03.

And when we show you our updated guidance, that $0.03 will be in those numbers.

One of the questions that we get asked quite a lot is -- how are the integrations going?

And so we thought we could take this opportunity to update our investors on one particular case study -- a more recent one here -- Zymed laboratories, the antibody company we acquired in January of this year.

This has been one that has moved at absolutely lightning speed.

Because the overall integration philosophy was that we could take a great company, leverage our distribution quickly, and really get the sales pumped up out to our massive client base.

And what I would like to do is just take you through the success story of how we were able to do that.

April 1 -- so we will start to get the impact of this in the second quarter.

You can go on the Invitrogen.com site and see an antibody central portal that has the entire Zymed Laboratories product line on it.

And you can order through Invitrogen, and it is very seamless in terms of how you interact with us.

And so we have immediately made available, both through phone, fax and Web the Zymed Company through Invitrogen.

So this is really, I think, positive.

We will be doubling the Zymed pathology sales force by the end of June.

We have been able to recruit some real experts from other companies in the pathology business.

And that is not only to sell the current antibody technology we have into pathology, but to get set for Kitsch technology if that gets FDA approval, hopefully, in the future.

And then you can see some other areas.

For example, in research and development, there is some really cool technology where we can take the Alexa fluor dyes out of molecular probes, conjugate that with the secondary antibodies from Zymed, and really create something quite unique in the marketplace.

And there are lots of other ideas going on now between Zymed and Dynal and, again, Invitrogen Probes.

So everybody has been retained.

We have a new site leader, Don Delft (ph), a longtime Invitrogen player.

So we can continue to do the enculturation.

And overall, this has just been a terrific integration.

And I just wanted to share that with you.

So if we could turn now to page 12, just to bring it to a close.

Let us give you the updated 2005 outlook.

As you recall, when we got together in December, we gave you some guidance of sales around 1 billion 80 to 1.1 billion.

Upon the acquisition of Dynal in the beginning of February we raised that guidance, as you can see, with earnings per share between 3.40 and 3.44.

What we are now doing is updating our guidance based on our performance here in the first quarter to 1.179 billion to 1.195 billion, an increase of 16% over 2004.

And the earnings per share have gone up to 3.50 to 3.53.

Now, what I would like to focus on is -- why do we still feel very bullish about the 6 to 8% organic growth?

First of all, we think that we are a very good acquirer of companies.

But what we always -- perhaps not always convey externally, is how focused we are internally on driving organic growth.

And as I said, this is our goal this year, and we are taking it up next year.

But the first thing is that the first of April, we sent out over 200,000 catalogs.

We were trying to measure the effect of the catalogs on which quarter, and so we are doing a little bit of an experiment.

We will see what its impact is in the second quarter.

But more importantly, there are thousands of new products in it that are just really exciting, and provide a great opportunity for a fresh conversation.

Lots of new product introductions in spaces for us.

Antibodies are entirely new, and we are building that up.

The Illumina partnership will really come online late in the second quarter, but provide a nice kick in the third and fourth quarter.

And then we have talked in the past about nucleic acid purification.

I think Ben Bulkley and his team has done a great job reshaping our sales force, and we have talked about that.

And Japan will be right back on track in the second quarter.

So overall, it's a good start, and we are only in April.

So we feel pretty good about what the team has done in the last 90 days.

With that, Adam, I will turn it back over to you.

Great.

At this point, we would be happy to answer any questions that you may have.

Operator?

(OPERATOR INSTRUCTIONS) Aaron Geist, Robert W. Baird.

Congratulations on a really nice quarter and start to the year.

If you could sort of give us a better sense of gross margins in the BioProduction area?

You talked about 3% organic growth from contracts -- orders into Asia.

Do you have any idea what gross margins would have been like how those orders shipped, and had they already shipped during the current quarter?

Aaron, just to get clarification, are you saying gross margins or organic growth?

I am talking about gross margin.

So you talked about 3% that shifted because of timing.

You would have picked up 3% more organic growth.

Correct.

I am trying to understand what the gross margins would have been like for the BioProduction segment had that 3% impact happened in the first quarter.

Well okay, great.

Well, as you know, the gross margins on BioProduction did expand in the first quarter.

And I think those orders -- we are just doing a quick check here -- it would have been consistent with the balance of the business.

So they would have been unchanged.

In the third and fourth quarter you had started to see gross margins expand above 50%.

Can you talk a little bit about the product mix that resulted in the trend in the first quarter of a sub-50% gross margin?

That was the essence of the 3% question.

I see.

The margin -- just let me give two points of perspective there.

First, is the margins do continue to expand as chemically defined media continues to grow.

And the second is that we do see this seasonal trend of more FBS in the first quarter.

That obviously has lower gross margins.

So it seems to have been for the last couple of years heavier in the first quarter.

And I think that is what would explain the difference between first quarter and subsequent quarters.

But given the similarities between quarter to quarter in the first quarter.

Let me ask the question in a different way.

And I'm sorry I am monopolizing.

But that 3% you talked about, was that all animal free media?

Will that media hit in the second quarter, and should we expect gross margins to expand because of those orders?

You know, it is a couple of different orders.

It is some chemically defined media.

It is some FBS.

It is really a mixture, and that is why I think our safest answer to you, Aaron, is that it would have been unchanged.

Derik de Bruin, UBS.

It has been a long week.

Thanks for not joking. (multiple speakers) That said, so just given that context, that it has been a difficult week, could you talk about what you are hearing from pharma customers, and just give us a little bit more color on some of the dynamics going on?

Because it just looks like that companies are reporting results all over the place.

And what is playing into your favor, I guess?

Well, I think a lot of things are playing into our favor at this point.

One is I think a lot of the credit goes to the folks that work with me.

They have done a really terrific job in the last year or two getting set for a new competitive profile that a lot of us saw a couple of years ago when we came in.

That is one -- so it is it tougher competitor now.

I would say, two, is that we do have geographical and product line diversity.

So it does balance out the portfolio to a far greater extent than perhaps other companies in this space.

Third is that if you leave aside NIH, which is not a huge chunk of our business anymore and has its own explanations, the only other segment of our business that is "a challenge" is big pharma, like it is for many.

And in fact, though, the more we spend time at big pharma, actually, I think it plays to our advantage.

Look, they have way too many suppliers.

They have not enough standards and reagents.

They can barely to a design of experiment to standardized inputs.

This totally plays to our idea of an Invitrogen operating system, and we can save them a ton of money.

So the error of one-off, little reagents suppliers here and there, I think, we are in the twilight of that.

And I think we are in the new zone of -- you have got to professionalize how you do your experiments, and standardize on reagents wherever you can.

And I think that totally plays to us.

I would suggest, though, just talking to our clients, that those that supply instrumentation into this environment, that is a tough game.

Capital expenditures are going to be tight.

We are not in budget cycle.

We are just operating expenses.

Okay.

That was actually -- the softball pitch on the first one was actually to setup for the second one, which is -- given these difficulties, how confident are you in your ability to hit the organic number, since that seems to be what is the key focus for most investors?

Well, look, Derik.

I wouldn't put it out there, if I didn't think that we were confident.

I am not a futurist, though.

So we will just have to see quarter to quarter, as it goes.

So at this stage, we are pretty darn barn confident we will get the 6 to 8% organic growth.

And we have lots of different levers on how to get there.

And that is our guidance to our investors.

Okay, and then just one final question.

So the -- of the new products you are introducing this year, how many of those are coming from technologies that you have incorporated from recently acquired -- I guess, how good are you doing, right, in terms of synergizing your R&D from acquired companies to deliver new products?

I think, actually, that is where we are doing amazingly well.

Over 50% of our new products are combinations of different -- what we call SBU's inside the Company.

So Probes and Carlsbad combining their technologies, DRI and -- et cetera.

So I actually think that cross-fertilization of technologies is very powerful inside the business.

Adam Chezan, Pacific Growth Equities.

Greg, I was hoping you could maybe tell us a little bit about the plans on expanding Zymed's pathology group in terms of focus for the Company going forward.

Clearly, this is a new, I think, opportunity for folks.

And when you roll up them and Dynal, you suddenly have an interesting business addressing the clinical diagnostics marketplace.

How does that factor into the plan for the balance of the year?

How do those products stack up in your mind in terms of potential for further either margin expansion or growth opportunities?

Yes, we very much have a vision of seragnostics (ph).

And so a key element in that is clearly what happens in the pathology space.

And our near-term focus is on expanding our sales force worldwide to, again, sell these antibodies that we think Zymed is the leader on; expanding their product line to have more; so we are really exciting their new product introduction of antibodies; and then getting set for, hopefully, FDA approval on the Kitsch technology that we think will be very dynamic.

Now, having said that, I would just tell you that -- stay tuned.

That is just -- that is part one of the act.

Tycho Peterson, JPMorgan.

Thanks for taking my call, and congratulations on the quarter.

You guys had a terrific quarter last quarter with BioReliance.

Can you talk a little bit about what you saw this quarter from margin expansion, and just how the new management team is doing there?

Yes, thank you, Tycho.

So BioReliance was able to improve their gross margins by several percentage points, quarter-to-quarter comparison.

They continue to really revamp this business.

As I said before, an entirely new management team, so they made nice progress to continue to expand gross margins.

And more importantly, really setting up new service offerings that provide higher growth than the Company was pursuing just before our acquisition.

So overall, I think BioReliance had a good, strong quarter.

And we are really encouraged by the pipeline we see for the balance of the year.

Okay, second question.

In your discussions with large pharma, are there areas that -- I guess you have gaps in your portfolio.

I mean, one area I think about is informatics.

And you know, informatics has not been a huge part of the business, but other areas, i.e., informatics or service that you look to expand in terms of offering to pharma?

Well, I am not so sure informatics is a good business.

So -- we actually are increasing our informatics development efforts, but for us it's for different purposes that are to really provide the glue between our product lines, and really create this -- an operating system we are after.

But selling informatics to pharma is a waste time, in my view.

Do we have product lines?

I think that is all a matter of how you define the future.

And so we are constantly looking at where science goes next.

And as you do that, you inevitably have gaps.

And so that is why you will continue to see us develop new products and also acquire new products, because there are several areas we think have to happen that we don't have right now, and we will have to go get.

So I would rather not disclose what gaps are right now.

But there is nothing glaring.

It is really just more opportunities.

Okay, and then two quick questions on Asia.

One, can you comment on how operations are going in India?

And then also, I guess I am wondering what gives you confidence that Japan will be back on track?

Yes.

I will take the first part, and I will have Ben Bulkley handle the Japanese question.

In terms of India, we have got our labs fully equipped, and we are hiring people as we speak.

I think we have a total of eight folks on board now in Bangalore R&D center, and our goal is to get it up to 53 folks.

And we will do that fairly rapidly over the next couple of months here.

And what you should know is that this is going to be a heavy informatics center for us, amongst other things.

So we are gearing up our development of Informatics, but again, for our own internal consumption.

So that is going well.

And, Ben, I will turn it over to you about Japan.

So in Japan, again, we had comps on a number of very large orders quarter over quarter.

So -- but the team keeps chugging away and the fundamentals are very good.

This is one of the best teams in the business.

It continually outperforms.

The markets are fine.

So we continue to invest and help that business grow.

So we feel great about Japan, still.

Okay, thinks.

I look forward to staying in tuned on the progress.

Ted Tenthoff, Piper Jaffray.

My congrats, as well, although I have to say I knew you wouldn't flub the quarter, so (multiple speakers).

Just a real quick question.

In the first quarter, I am wondering, what what is, if any, the impact of Dynal and Zymed to BioDiscovery in the first quarter?

Right.

So in terms of BioDiscovery, Dynal was not in the numbers.

And we are not in the process of disclosing what elements of BioDiscovery are up or down.

But it was just a small piece of BioDiscovery with Zymed -- very small.

But what I would just tell you is that we had started ahead of time integrating both of those companies, and we did rack up some expenses that obviously could have, if we didn't do it in the first quarter, could have dropped to the bottom line.

So we were comfortable with where our earnings per share were ending up, and so we took the opportunity to accelerate integration.

Tony Butler, Lehman Brothers.

Greg, you made some comments about gaining share in Europe.

Specifically, could you help us understand which products are gaining share most?

Thanks, Tony.

And, Ben, I will turn that over to you.

Yes, I think -- Tony, thanks -- the nucleic acid purification is an area, qPCR -- many of the products that Greg highlighted earlier that is driving some of the growth we are seeing organically is completely consistent in Europe.

So there is nothing unusual in Europe that we are seeing that stands out to help us drive that growth.

It is a great team.

It is a very technically savvy team.

And so these products that are more technical play very much to our advantage.

Frank Pinkerton, Banc of America Securities.

Can you speak to the build out that you have going on, both the GIBCO and molecular probes, are those on track?

And are there any other kind of expansion efforts under way from a capacity standpoint we should be tracking this year?

Great question.

So the area I would just talk about is in capital expenditures, and how we think about capital expenditures.

The major investments this year are a new chemistry facility at Molecular Probes, and then a multi-year effort, of which we just started this year, on new ERP systems -- a new ERP system for the Company.

We are going to get to a single instance of J.D.

Edwards worldwide and getting started on that this year.

It's a very expensive effort, but very fundamental to our competitiveness.

Next year, we will be investing in capacity expansion in our GIBCO business.

That business -- the BioProduction side especially is just booming.

And we have the good fortune of having a great product portfolio right now, where we are lined up with some winners.

And then we will also be investing in the R&D center in San Diego here in Carlsbad to continue to expand our R&D footprint.

So that is what is up on the roster.

And then again, this ERP effort is multi-year.

Now, what guides us though is that while we could spend a heck of a lot more on CapEx, we try to really contain it, and try as much as we can to keep it to a one-to-one ratio, in and about that.

One-to-one in terms of investment to depreciation.

And I think we have done a pretty good job of that last year.

And this year, we are a little above it.

But I don't think -- at least our hope is not to have anything that is well in excess of that.

Winton Gibbons, William Blair.

Congratulations.

I have kind of three areas.

First of all, you talk about pharma being one of the kind of weak spots; yet, if we look at the potential for repatriation, both announced and unannounced, we are talking tens of billions of dollars to be spent probably over three years.

Now, they can shift things around and maybe do things they are not supposed to with that money.

But somehow that money should trickle back or trickle down to the life science reagent companies such as yourself.

So can you talk a little bit about if you have heard anything specific about timing, about magnitude that you might see over the next few years?

You know, Winton, the folks that we deal with -- I don't think that type of kind of galactic positive news has trickled its way down to the folks really living and driving the business day in, day out.

Our fundamental -- look, you could have a very good insight there that ultimately plays to our benefit.

And I hope it absolutely comes true.

We are just planning for something different.

Okay.

Then on -- you were talking about on the BioProduction side, that you are kind of lined up behind some winners.

Did any of those winners appear to have at least short-term capacity constraints that could actually mitigate some of the run rate that you have been seeing?

Winton, we could see this coming.

We have continued to expand capacity.

Our GIBCO operation is running 24 by 6, and probably will go to 24 by 7.

We are deploying tons of lean experts into it, etc., etc.

So right now we are able to meet the demands.

And we have been able to clearly communicate that to clients.

And we are continuing to modify our investment plans to make sure the capacity meets the demand.

Great, and then just one last question.

Desmond (ph) just bought this SPRI technology.

And we understand that they are essentially looking at integrating and closing the nucleic acid purification portion, at least on the medical diagnostic side.

And so we are just curious here if you see that as, A., something that may only occur on the medical diagnostic side, kind of the closing of the purification front, or if you see that maybe eventually coming back into life sciences, and how you might be positioned there?

Or if this is either a threat to your growth plans, an opportunity, or maybe just cuts off the growth a bit?

Well, a couple of thinks.

First, quite a price paid.

Second, is that in terms of closed systems in research, I have not heard of one yet that has ever been successful.

But again, that is just my own perspective.

And our message -- and it really does resonate -- is open system, choice, and best reagent technology.

And we have teams of people that do nothing but make sure our reagents work great on anyone's instrument.

It is truly FRAM oil filter.

So I would be surprised if they brought in the research, but if they do, okay.

We will know what we will have to do.

Bob Eyre (ph), Bennett Lawrence Management (ph).

I want to know the timing of catalog shipping, is that in February, March, January?

Usually, it's in the first quarter, January.

And this year, we moved it to April.

And so it just went out here the first and the second quarter.

Another quick question.

I don't remember -- when did you close the Bio Asia deal?

We closed the Bio Asia deal -- well, we announced the acquisition in December.

And then we just closed in the first quarter.

Correct, right -- end of first quarter.

Paul Knight, Thomas Weisel.

What was the tax rate on the foreign exchange in the quarter?

The tax rate on the foreign exchange gain?

Yes.

Same as our standard tax rate, no different.

Greg, how significant is the RNAi and the kinase product lines for you at this point?

Or when do you expect it to be impactful?

Well, I think it already is starting to be impactful.

We are seeing really strong growth in kinase profiling.

The RNAi business does very nicely.

So they just have got to get to a magnitude in terms of its impact on a 1.2 billion Company.

So that's our issue.

But the growth rates are nice.

What was the pricing environment like in the BioProduction area in Q1, Greg?

Well, you know, the BioProduction area is very stable.

It is very stable.

Are you getting pricing?

Are we getting price?

The answer is yes.

Okay.

Look, again, I would just emphasize -- I think this is a very responsible market, and we are a responsible player.

And the situation is such that due to our quality and our reputation, we are able to -- it looks like now get some price, so we are pleased.

And then pricing usually occurs in Q1 of the year, doesn't it?

Not necessarily.

Aaron Geist, Robert W. Baird.

You posted 6% organic growth from the BioDiscovery area, which is higher than you have posted in many, many quarters.

You talked about the NIH being soft and pharma being an opportunity, which would imply that biotech was very strong.

Is that so?

And do you think you are seeing a resurgence of demand from that market?

Do you think you are capturing market share?

We started off the call talking about a lot of uncertainty this past week with a lot of companies, yet you have managed to post very, very strong growth, particularly in the U.S. market.

Yes, it is a great question.

So just to clarify your question, the overall organic growth rate of BioDiscovery worldwide was 3%.

6% in the U.S.

That's right, Aaron.

So I am going to focus my comments on U.S. and as to your question.

And the answer there is that we are doing so far, okay in big pharma.

We are doing extremely well in biotech, both small and large.

And academic is doing nice, you know, good, single digit growth that we think we can target even higher single digits.

Where would you say that that growth in the biotech market -- let's say it's double-digit growth -- in the U.S. market is coming from -- increased market share?

Yes, I would say that is coming from increased market share for sure.

Derik de Bruin, UBS.

So do you have any further intentions to repurchase debt in this year?

And I guess along those lines, do you have any updated cash flow -- free cash flow projections?

Dave?

We are not changing our free cash flow projections.

We are keeping those the same for the year.

That's 230 million?

230 million -- 235, I think, is the updated number.

And then in terms of plans to repurchase additional debt, basically as I said, we have got 500 million of convertible debentures that are callable in December of this year.

And we are taking a look at what we want to with that.

If we have the opportunity over the course of the year and going forward to repurchase that debt at a favorable price, we will do that.

We have got to cash to do it.

And we are not going to repurchase it, obviously, prior to the end of the year at par.

So it has got to be at something less than that.

And we had the opportunity for it, and so we took it.

Okay.

And just because I got quite a few questions on this week following the Herceptin news coming out of Roche and Genentech.

So, can you give us an update what's the timeline on the Kitsch product, and how you see that product expanding?

Yes.

It would be the first part of next year, assuming we would get FDA approval.

And we are gearing up, assuming positive news.

Ladies and gentlemen, this concludes today's question-and-answer session.

I will now turn the call back over to Mr. Adam Taich for closing remark.

We just want to thank you all for joining us on the conference call today.

We appreciate your continued interest in Invitrogen, and we look forward to seeing you soon.

Goodbye.

Ladies and gentlemen, we thank you for your participation in today's conference.

This concludes the presentation, and you may now disconnect.

Have a great day.