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Becton, Dickinson and Company (NYSE:BDX)

Citi 2013 Global Healthcare Conference

February 26, 2013 8:00 am ET

Executives

Vincent A. Forlenza - Chairman, Chief Executive Officer and President

Suketu Upadhyay - Acting Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Controller

Analysts

Amit Bhalla - Citigroup Inc, Research Division

Amit Bhalla - Citigroup Inc, Research Division

Citi's life science tools and diagnostics team, and on behalf of Citi, I'd like to welcome you to day 2 of our annual health care conference. We're pleased to kick off our Tuesday keynotes with Becton, Dickinson. And with us from the company are Vince Forlenza, Chairman, CEO and President; and to Vince's right, Suky Upadhyay, acting CFO, Senior Vice President of Finance and Controller. For those of you aren't familiar with the company, BD is a global medical technology company with businesses in Medical, Diagnostics and Biosciences.

Now, Vince, before we jump into a discussion about the business, I wanted you to lean on your experiences as vice-chairman of the Valley Hospital Board of Trustees, and talk about the market impact you see as the health care system shifts away from fee-for-service to care-based on outcomes and value.

Vincent A. Forlenza

Sure. So I've been Chairman of the Board for 6 years now at Valley, which is in Ridgewood, New Jersey. And I've seen more change over, I would say, on the last 12 months than I have in the previous 5 years. And there's a number of things going on. First, picking up on what you said. Clearly, there is a real push to move away for fee-for-service. And of course, we're seeing doctors' practices being purchased by hospitals. And since the ACO regulations were put in place, a real push on forming ACOs and forming physician networks. Now, that's happening for a number of reasons. One, reimbursements are changing on the doctors, so they're looking at a very different economic equation. And of course, we've seen that in cardiology and other specialty areas. But big focus with the FP/GPs in building out the networks, so you can control the patient and position yourself. So you see that move away for fee-for-service. Second issue is standardization of care. You can do that much better in a staff model. So I see a lot of that happening, not just at Valley, but across the area. The third thing that's being debated is how big do you have to be as the government shifts risk on to the provider community. There's a big debate happening in terms of where that's going to go in terms of offering an insurance product on the provider side. And as I talk to other hospitals and hospital management teams in that capacity as Valley chairman, it's something people are thinking about.

So the first thing is how big do we have to be? If we're $2 billion, do we have to be $4 billion to really manage the risk in a capitated system? Secondly, what kind of an affiliation are we going to do? The New York/New Jersey marketplace has been one of the more unconsolidated markets. So there's a lot of conversation going on in terms of how much of our cost structure can we share and what kind of an affiliation makes sense. So all of those things are coming together and, I would say, have accelerated pretty significantly over the last 9 months.

Amit Bhalla - Citigroup Inc, Research Division

And what we heard yesterday in Peter Orszag's discussion was basically a debate between economic reasons versus structural reasons for health care costs flowing recently. What's your perspective there?

Vincent A. Forlenza

So I actually think it's both. I think certainly economics have played a big issue here, not just because of the unemployment rate, which I do think as families lost coverage, they have put off getting care. I do believe that, that has been an impact and has impacted utilization. But structurally, even those that are covered have high deductibles. You have the health care savings account, so they're buying more carefully, not using as much care. I don't see that going away. And when you combine that with the trend away from fee-for-service, I think there is a big structural component as well for the U.S. Things are different outside of the U.S., of course.

Amit Bhalla - Citigroup Inc, Research Division

And that's a good point. I mean, you were recently at Davos and this was the first year that health care had its own official track there. Talk a little bit about the debate outside the U.S. regarding sustainable health care.

Vincent A. Forlenza

Right. And I've been going to Davos for the last 4 years. And the focus in health care, for the first time, was sustainable health care. And the thinking going into the meeting was, there's not a single sustainable health care system on the globe right now. It doesn't matter if you're spending 2% in China or 18% in the U.S. And the major shift over the last couple of years has been from the focus on infectious disease to a much bigger focus on chronic disease. And of course, then you have countries caught in the middle in terms of dealing with both. Having said all of that, McKinsey secunded a team to the World Economic Forum which worked with 5 governments; 4 of them were European countries, 1 was China on a vision for 2040 and how are they going to attack this issue.

Number one on the list was a broader definition of health care encompassing wellness. And all of those countries started to talk about individual responsibility in a way that I hadn't heard before. And building wellness into it from a broader perspective, including education -- or education system, working with families. Because the actual delivery of health care usually is dealing with the failure of the system, right? Disease, it's a failure. So that's number one. Number two was information technology in a broad sense. Every transaction in health care is a chance to create data. So it's got to be universal, and you have to understand who's going to own it, how you're going to share it and how the patient can be protected. The model that, actually, they were talking about was the Kaiser model. It's probably the one, out of the U.S., that has done this most effectively. And the ministers of health that were in the room and other players were very interested in how do we take that idea and move it more broadly. Lastly, in terms of cost, I would say that this is not policy but the governments were talking about that they were going to have to offer real insurance as opposed to, what I would call, first dollar coverage; and so paying for the car accident, but not for the gas.

Amit Bhalla - Citigroup Inc, Research Division

So let's take these themes that we just talked about, and now take it to Becton, Dickinson and give us a perspective on how you're addressing these health care issues with the products you have developed and the products you have today.

Vincent A. Forlenza

So we really believe that there is an excellent opportunity for BD if you can make the health care systems more effective, efficient and safer. And these are major elements towards making health care systems sustainable. So let me just give you an example, right? So we bought KIESTRA within the last year, which is a laboratory automation system. Automation in infectious disease testing in microbiology has lagged other elements of automation in the laboratory. Well, we can reduce staffing by up to 60% with this automation and take turnaround time down by 24 hours. So that's an economic equation that works in this environment, works very well. Now that's a great example for the developed world. If I go to emerging markets in China, we're partnered with the Chinese government, we signed our third memorandum of understanding on reducing infections in hospitals. Their major hospitals that we've worked with, they've had infection rates of 10x the U.S. You can imagine what kind of cost that drives within their health care system. Over a couple of years, we've -- or actually over 10 years, we trained about 500,000 nurses. But we now have the model program with the Chinese government, whereby, we're working with 12 hospitals, major teaching hospitals within the country which become model hospitals, and we've taken the infection rates down from 10x to 3x, and continuing to make progress. So we do that both with our products and our clinical knowledge and putting that together. Lastly, Amit, I'll just say, from a macro standpoint of BD, we've been shifting our spending in R&D to these sorts of things where they make a bigger impact away from line extension.

Amit Bhalla - Citigroup Inc, Research Division

So the discussion of China makes me think about your overall strategy when you go into new markets. What I've noticed over the last few years is you do spend a lot of upfront time working with governments and understanding the local needs. How is that translated into some of these new product developments?

Vincent A. Forlenza

So that's been very effective for us. We were just talking about China, so I'll stay on that one. When we entered China on the medical product side, the first thing you would see about the Chinese health care system if you go into a hospital, number one, the care was very concentrated in large hospitals. Second thing you would notice was everybody has an IV infusion, once they go into a hospital, even if they go in with a cold. So they had a major problem in infusion therapy. Think about it from the patient's standpoint. They were using steel winged needle sets, which would last one day. So you're in the hospital 30 days, you've been stuck 30 times. So okay, that sounds like simple, bring in a western catheter, but their technique is different. So you're not going to convert them to something different without taking that into account. How they think about infusion therapy was different. So we actually came up with a product which would work in the Chinese environment called Intima. It's not a western catheter, it's not a steel wing needle set, but you insert it the same way. We wrap that around with training, not just on that procedure, but on the Infection Control elements, and really start to change the way they do infusion therapy. So that's one example of this -- the way we work. We do these golden days where we bring multiple hospitals together for these types of training, and it builds tremendous brand loyalty. Yes, you have to continue to invest behind innovation, keep improving the product. So now, we're moving into Phase 2 of this whole strategy and we're putting more R&D into Asia, going into Singapore, going into China and India, and we'll continue to build that over the next years.

Amit Bhalla - Citigroup Inc, Research Division

So there's a lot of upfront work that goes into developing the right products for these local markets. But the flip side of this is that you have a lot of local competitors that can quickly commoditize those products. So how do you deal with local competition once you've made a heavy investment?

Vincent A. Forlenza

So there's 2 elements to that. Number one is continuing to innovate on the product side. So we're on -- I don't know, our fifth generation of our infusion product that I was talking about. So we keep doing that. We have to be very careful about our intellectual property. Yes, at some point, it's going to get copied, but we work hard at that. And then, it's really clinical knowledge that we have in terms of working with these accounts. So the accounts have a choice. They can look at the broader care issue and the economics of that. Now think about this from a hospital standpoint. They are overflowing with people, so if you can get people out of the hospital without these complications, you've actually provided a great service. So the clinical knowledge piece is really important. Thirdly, we think, going forward -- and I'm talking about China right now, but this will be important in other marketplaces, too, is the ability to manage distribution. The Chinese government is very concerned that medical distribution is very fragmented in China. And they're starting to invest behind some of the distributors because they want world-class distribution. Why? Because they see the local mom and pops skimming and really marking up the products. And so they want to see the economics of distribution change dramatically. One of the things we do, it's a core strength for BD, is how we work with distribution across all of our device categories.

Amit Bhalla - Citigroup Inc, Research Division

Got it. And just to round out the China discussion about China as a diagnostics market, you have been making some -- you've been increasing your capabilities in China on diagnostics, specifically. Talk to us about the growth prospects there.

Vincent A. Forlenza

So, Amit, you're right. But for us, it's not just China. We've made a more aggressive move in Latin America, at the same time in India. And in fact, one of the reasons why you see our growth in emerging markets going as well as it is, is because it's not just the medical product side, which is where it started. It's across the entire company. It's also Diagnostics and it's also Biosciences. We're seeing an uptick in PAS, in our Diagnostics business. As China invests in its health care system, they're now modernizing on the diagnostics piece. And so, if you look at the PAS over the last couple of quarters, you would see a nice acceleration there, driven by what's happening, not just in China, but in other emerging markets as well. So we really like the opportunity in China and are doing well there.

Amit Bhalla - Citigroup Inc, Research Division

So we do follow a number of diagnostics companies as well, and we're a big believer that diagnostics at the front end of health care can certainly address the cost issue. But on the other side of the equation here, is that you could argue that reimbursement rates are set up more on a black box and they aren't necessarily paying the right rate for the products that are coming to market. How are you wrestling with that side of diagnostics in the U.S.?

Vincent A. Forlenza

So the reason I'm smiling is because I'm Chairman of AdvaMed Dx and, of course, I hear this from all of the member companies and this is going to be a focus area for AdvaMed Dx going forward. We've only been in existence for about 18 months or so, but -- and we've been really focused on the 510(k) process and of course MDUFA. Now we're really going to take up this value issue that you're putting on the table. The payment schedule hasn't been updated since 1976. It's now so complex as well, it's become -- there's no transparency. And the procedure is to put a new analyte on the schedule; you're cross-walking, your gap filling. And we had a woman from -- not from CMS, but one of the contract providers to CMS on the payment side, walk us through what CMS is paying for and they don't even know. So there's actually good reason to address this issue, both from the payor side and the provider side. And to bring in the right stakeholders to attack the value equation, because they're not in the room when these rates are being set today. There is some legislation that has been proposed. Now everything is kind of on hold as the whole sequestration and whatnot is going on. So it will be a focus for us. Coming to BD, I would say that I actually like where we're positioned within this. I think that there are adequate reimbursements for the products that we have and that we're developing, and that we can make margins above the country company average with the way that we have designed our products. So even in the short run, I feel good as we're ramping up MAX, and as we're working on our HPV test, which is now in clinical trials in Europe, we hope to have out in the fairly near future. So yes, it's an issue, but it's one that, I think, as a company, we can manage with.

Amit Bhalla - Citigroup Inc, Research Division

Speaking of BD MAX, this platform is moving into a pretty crowded market in diagnostics. This won't be the first platform for diagnostic testing. Talk a little bit about how you're going to differentiate the platform and when we're going to see broader menu expansions.

Vincent A. Forlenza

So, Amit, it's not the first molecular platform, but I think it's the first molecular platform with the workflow that we've had established. And yes, there is another random access analyzer out there, but in terms of having both good low-volume workflow, but as the workflow goes up, it's still being really well-suited, the BD MAX is exceptional. In addition, we have the open channel, which allows sophisticated laboratories to take their esoteric assays that they have developed in-house. We provide them with a standard cartridge, sample processing cartridge, and all the reagents they need except for the probes and primers and so they can put them on the system. I was telling you before we came up here that I was in Germany last week and I was at the University of Heidelberg. Well, it was very exciting to see. They have 2 MAXs there, and they have taken their manual assays and they are now automated. And I was asking them, "So how hard was this to do?" And they said, "With what you've done with the standardization on this product, it was very easy to do." So we -- the feedback we're getting from the marketplace is, they really like this combination workflow of any assay, anytime, for the lower volume tests, and the fact that they can put their esoteries on, which is really important in infectious disease. We're expecting to have 15 assays on the system in 12 months. So we can do that because of the standard format and the partnerships that we've created for transplants, for TB, for cancer, for meningitis and those sorts of things.

Amit Bhalla - Citigroup Inc, Research Division

On the menu expansion side, why not faster than 12 months? This is -- you introduced the platform to us in detail, I think at your analyst meeting in 2011 and I remember those were kind of the same targets you were talking about then. Well why not faster?

Vincent A. Forlenza

Sure. So here's what's the issue, which was getting to the standard sample processing formats. So that's what was taking the time. And what that's why the account was now saying to me in Germany, "Okay, Vince, now we can make this happen and we can make it happen quickly." Having said that, of course, then you got to go through the clinical trial process and prove them out, and that's the other piece that's gating us right now. Obviously, we're waiting on C. difficile in the U.S. and we're going back and forth. Normal types of questions and answers with FDA on C. diff. We were hoping to have it January timeframe, we're still waiting, but we believe we're kind of at the end of that process.

Amit Bhalla - Citigroup Inc, Research Division

Got it. If there's any questions in the audience, just raise your hand and we'll make sure to get a mic over to you as we're going on with the discussion.

Vincent A. Forlenza

There's one at the back.

Amit Bhalla - Citigroup Inc, Research Division

I got a question in the back.

Vincent A. Forlenza

All the way in the back.

Amit Bhalla - Citigroup Inc, Research Division

And as we're waiting for the mic to get over there. This is probably a good time to also talk a little bit about M&A and capital deployment. Since the Diagnostics business has opportunity, the Biosciences business has opportunity. Talk to us a little bit about how you're thinking about M&A and capital deployment.

Vincent A. Forlenza

So we're very focused on the idea of moving into adjacencies in line with what I -- where I started in terms of product areas where we can have a bigger impact on the effectiveness and efficiency and safety of health care. I like products -- companies that have real products. Every once in a while, as you know, in Diagnostics or life sciences, you have to take on a science project. But much prefer something where they've got a product, we can put it into our global distribution network, take advantage of that infrastructure, take advantage of operating synergies. So on the margin, we would prefer to be doing that and creating incremental cash flow for the company, and creating strategic options across all 3 segments. And we're doing them across all 3 segments, as you've seen over the last few months. But Suky, maybe you want to comment on acquisitions versus share buybacks.

Suketu Upadhyay

Sure. So...

Vincent A. Forlenza

To finish this off.

Suketu Upadhyay

Yes, when we think about our overall capital deployment priorities, Amit, we think about funding the business needs, paying out a very healthy dividend to our shareholders and maintaining that dividend growth as we've done for the last decade-plus of double-digit dividend growth. And then we look to the balance of acquiring streams of revenue growth and cash flow versus repatriation -- or, excuse me, of repurchasing share buybacks. So this year, we've already quoted that we would buy back about $500 million of shares. When you combine that with our dividend of roughly $350 million to $400 million, you're talking about a return of cash to shareholders of about 80% of free cash flow. So a little bit below where we've been in the past because of the debt we've taken on, but still very healthy return of cash flow when you put us opposite our peer group.

Vincent A. Forlenza

And more in line with our historical needs, if you take out the last 2 years.

Amit Bhalla - Citigroup Inc, Research Division

Got it. So question in the back.

Unknown Analyst

Yes. I was actually going to ask about M&A, too. But hitting on the same point, if you're looking at acquisitions, would you look at anything large and transformative or just more of those plug-in types that you were talking about? And then also, any wanting to get more into genetic testing or is that just not an area that you feel the need to get into?

Vincent A. Forlenza

Okay. The first question on M&A, we do look at larger deals. We looked -- at the corporate level, generally, at larger acquisitions and the plug-ins usually are coming more from the 3 segments. We don't feel the need to do a large M&A transaction. We are focused more on the plug-ins. But we also think it's important to understand what's out there and what we could do, but we're not focused on that or see the need to do that. In terms of the -- moving into the genomics area, there's really 2 thoughts. One is that, we are studying next-generation sequencing, how that will evolve and what a potential play could be. And when I say that, I'm saying we're looking at it broadly. There's equipment in reagents, but there is also services, bio informatics, a lot of different pieces, and we'll continue to study that. We don't see it being big-time clinical for quite a few years from our perspective. So having said all of that, we do see an opportunity in the research market. And just, I think, last week out of our Biosciences business, you would have seen a paper that was published on using flow cytometry and actually analyzing RNA. Flow cytometry appears that it can be an upfront sample processing technique for next-generation sequencing, and we're working with one of the sequencing companies directly. We're evaluating equipment of others in terms of being that upfront sample processing when you need to find that cell that you want to sequence and have a very high purity sample. So we have a very active program there right now. So yes, we're interested in the area.

Amit Bhalla - Citigroup Inc, Research Division

So building on the discussion of genomics, within 1 week or so, we're going to be wrestling with sequestration. How is that factored into the Biosciences business and how are you thinking about that?

Vincent A. Forlenza

So sequestration has been very frustrating. But looking forward, we're expecting that kind of a net reduction in our customers' budgets of about 3%. A 5% total cut, but because of the calendarization, it's going to be a net 3%. I think what we saw in the first quarter was that customers became more comfortable that they could quantify what this cut was going to be and could make plans to management -- manage it. We actually saw a return in the large instrument segment in the first quarter. So it will be interesting to see how this plays out for the balance of the year with some of that use-it-or-lose-it money or is this going to be a continuing trend. So if we continue to see it in the second quarter, I think that will be a very good sign.

Amit Bhalla - Citigroup Inc, Research Division

So when you see -- when you say you saw a return to large instrument segment in the first quarter, you're talking about your fiscal quarter or are you talking about the calendar -- the quarter we're in right now?

Vincent A. Forlenza

I was talking about our fiscal quarter.

Amit Bhalla - Citigroup Inc, Research Division

Okay. So when we think about the balance of the year -- and maybe this is a question for Suky. Help us get to your full year guidance and your targets, because you actually have been doing a little better than those targets so far.

Suketu Upadhyay

Sure, good question, Amit. So if you go back to November when we talked about our year-end results and gave forward-looking fiscal year '13 guidance, we talked about a top line on a foreign currency-neutral basis of 3.5% to 4.5%. And when we talked about that, we said that the bottom half of that range, the 3.5% to 4%, we were really reserving for sort of a big downturn from a macroeconomic perspective. So really, we were pointing analysts and investors towards the upper end of that revenue range. From a bottom-line perspective, we talked about 7% to 8% EPS growth. And if you actually stripped out the medical device tax, the one-time impact we have this year, we were talking about 10% to 11%. So that's the guidance we set for fiscal year '13. Now when we came into our first quarter, we did have a very good first quarter. Revenue growth was a little bit above 5%, so outside and actually above that revenue range. But what we actually saw was an earlier-than-expected flu season. So while flu was in our full year guidance back in November, it came a quarter earlier than we expected. So after neutralizing that, our revenue was, more or less, right back in that range that we provided from a top-line perspective. From a bottom-line perspective, we actually grew EPS by about 15%, as you can see from our results. But again, that was aided by the revenue upside I just spoke about. But we also have some one-time gains within gross margin, which we expected for the full year. And we expect gross margins to sort of moderate over the remainder of the year. So again, we -- based on that lift at the bottom end of our guidance range, both on revenue, as well as EPS, and in addition, we got some tail win because of foreign currency, which we also reflected in our forward-looking guidance. So we think that our guidance is appropriately set. Again, we brought up the bottom end of the range. If we were to see another strong second quarter, we would, of course, recalibrate, as we've done previously.

Amit Bhalla - Citigroup Inc, Research Division

Foreign currency is interesting because even at the point you reset it, it's again moved further in your favor, so how should we calibrate that?

Suketu Upadhyay

Sure, so when we talked about our last earnings release in January, we talked about -- really the primary driver here is the euro, and we've got about $2 billion of euro-denominated sales. And so we recalibrated our assumptions of $1 -- or EUR 1.27 to $1, to EUR 1.32 to $1, and that actually reflects $1.33 for the rest of the year. And we've actually seen the euro pretty much bounce around that midpoint for the last few months. So we think we're appropriately called. We don't see a whole lot of tailwind or headwind based on what we've seen from the euro over the last month or so.

Amit Bhalla - Citigroup Inc, Research Division

Right. So let's go back to M&A, but more historical M&A. There's the 3 deals -- you talked about KIESTRA, SSI and Sirigen are the others. Talk a bit about some of the challenges that you didn't expect from these transactions and talk to us also about some of the upside surprises.

Vincent A. Forlenza

Sure. So I'll start with KIESTRA. We did hypothesize that this was really in line with the current environment and what we're seeing is it's highly aligned. These systems are modular, but they go from a single workstation up to a $2 million complete lab automation system, and we're seeing a lot of interest in the $2 million piece. Now that brings a real challenge, because it takes you about 9 months to actually manufacture that kind of system. Now we're going to have to be very careful about how we do this in the service organization that we built to make sure that we can do this correctly. So off to an excellent start from a demand standpoint and challenges in terms of manufacturing, making sure we get the service right. Sirigen, one -- closer to a science project, some sales, a lot of work to ramp up the dyes more broadly. But excited about the technology and excited about the start we had. Because we are seeing in conversations with researchers, that they see the potential in terms of what they can do with these dyes in terms of separating cells and whatnot, and getting much more power into their experiments. So that one's exciting, but a lot of research work still to do with that as we're ramping up. We have products to sell right now but we have to broaden the product line. Sirigen, very nice, passive safety product, which we're going to sell directly to the pharmaceutical companies. Surprise there would be a very nice pipeline of customers and more work on innovation that we thought doing due diligence. So just closed the deal December 24. Already selling product -- was selling product, but we feel very good about the deal. Lastly, in terms of stepping back from a broader company perspective, making sure that we continue to improve our processes on integration when we buy these companies, but going well across all of them.

Amit Bhalla - Citigroup Inc, Research Division

Got it. Any other questions out there?

Vincent A. Forlenza

Out in the back.

Amit Bhalla - Citigroup Inc, Research Division

A question right here.

Unknown Analyst

Vince, I was hoping you could answer this, wearing both your BD hat and also your hospital hat, and comment on the recent Time Magazine exposé on the difference in charges for a, say, Medicare patient in the hospital for product services and testing versus an uninsured customer and how that's likely to evolve over time?

Vincent A. Forlenza

So I'm not sure if I saw the Time Magazine article, but I think I know what you're talking about, which has been when a patient pays charges, list charges, versus someone who's on an insurance plan who's got managed care or whatever. And this has been an issue going back for a long time and different hospitals have treated it differently. I just -- that population has been disappearing for the last, I'd say, 7, 8 years, and it's a very small part of the charge-paying population. Having said that, I think that there's going to be a lot of focus to go after providers who are charging those kind of really unacceptable rates. I mean, some astronomical rates. I think they're more an aberration than what you're normally seeing. So you have differences -- 2 different sets of differences, right? One is that, whether they're paying in the hospital or outside of the hospital. And if they go outside of the hospital, is the doctor then part of that program or does he just charge them as out-of-network? I think that whole thing is going to get attacked over time because the charges, I think, they were talking about in the Time Magazine article were just -- I mean, just unconscionable. So I don't think it's a broad problem, but I think it's one that's going to get attacked aggressively.

Amit Bhalla - Citigroup Inc, Research Division

Let's move over to the Safety business for a minute here. This has been -- the growth rates in Safety continue to outpace our expectations of kind of GDP-like growth. What's been driving that in the U.S.? Well, U.S. has been so much...

Vincent A. Forlenza

U.S. is relatively flat because we know it's highly converted at this point in time and where we are getting growth is with facile [ph] with a different category of Safety. So what's really driving it is, x U.S. -- and Europe is doing well, but emerging markets are even doing better. And so we had very strong growth in Latin America and in Asia in the Safety category. Now some of the Infusion Therapy that we were talking about in China is one of those drivers. But in addition, of course, we've introduced the Emerald Syringe line now, which was that product, the cost-reduced product, but there is a Safety version within that as well. So now we're getting that, we're moving into segments of the market in emerging markets that we didn't play in before. So you have that nice dynamic. Then lastly, the third thing is in PAS, we talked about the fact that, as these health care systems are being built up, they're starting to modernize and put in diagnostics, and of course that then increases the blood collection piece. So it's across all of those.

Amit Bhalla - Citigroup Inc, Research Division

Got it. So pricing, you've generally assumed about 100 basis points of headwind, and that, generally, is a safe assumption. But you're coming in better on pricing, too, and that's interesting in the broader discussion we're having about the...

Vincent A. Forlenza

Yes, the first quarter was a little better in pricing than we expected. What we're watching is the European marketplace, and in particular, Southern Europe. There's a lot of pressure in Spain. There's a lot of pressure in Italy, Portugal, which is small. And so, what's going on there is, number one, they're trying to aggregate demand into larger tenders. And also, Italy was in the process of trying to mandate from the government standpoint, some price reductions. We'll have to see how that plays out. So that's why we didn't change our pricing assumption for the balance of the year. We're waiting to see how that works out.

Amit Bhalla - Citigroup Inc, Research Division

And Suky, can you give us an update on receivable balances in Southern Europe? How have you been doing on collections?

Suketu Upadhyay

So we've actually been doing quite well. So last year, we went into a major factoring deal in Spain, which significantly reserved -- or reduced our overall receivables. As Vince talked about, there's 2 key markets that we're looking at from a receivable standpoint: that's Italy and Spain. Actually in Italy, some of our more problematic subregions within that country have actually been improving, and we're seeing some stabilization across the rest of the country. So again, we continue to watch that closely. Within Spain, we're actually seeing very good performance from that market subsequent to our factoring deal. So while there's still risk there, we see some recent stabilization.

Amit Bhalla - Citigroup Inc, Research Division

Got it. So I guess my last question of the session ties to operating margin expansion. This target of 50 basis points has some headwinds and some tailwinds behind it. You have on one side, ReLoCo starting to bear fruit. On the flip side, you're still investing in EVEREST, and pension expenses are also creeping up. Talk to us about the gives and takes on operating margins.

Vincent A. Forlenza

So I'll start out and he can add to it. You're right. I mean, we're still jumping over some pension costs, and EVEREST is up $10 million this year. We think that's the peak spending that we're going to have. We have the medical device tax around $45 million, additionally. But ReLoCo is going well, 1 and 2, it's right on track, exactly where we thought it was going to be. Our shared service centers are doing quite well. I was in Poland last week opening up our Polish shared service center. San Antonio is going fine. Singapore is going fine. So we think we've done a good job of getting our arms around G&A. In addition, our acquisitions are doing well. And so that's a tailwind in '13, as we're starting to see the ones we had done improve and become accretive. So we actually have a nice mix of things that gives us a confidence around the 50 basis points this year, which is a big change from where we were over the last 2 years.

Amit Bhalla - Citigroup Inc, Research Division

Got it. Well, it looks like we're right at the end of the session. So Vince, thanks a lot of for your time, Suky, as well. And the next session in this room will be Varian Medical. Thanks a lot.

Vincent A. Forlenza

Great. Thanks for having us.

Amit Bhalla - Citigroup Inc, Research Division

Absolutely.

Vincent A. Forlenza

It's a pleasure being here.

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Source: Becton, Dickinson and Company's CEO Presents at Citi 2013 Global Healthcare Conference (Transcript)
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