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Haemonetics Corp (NYSE:HAE)

February 26, 2013 1:30 pm ET

Executives

Brian P. Concannon - Chief Executive Officer, President, Director and Member of Operating Committee

Gerard J. Gould - Vice President of Investor Relations

Analysts

Matthew J. Dodds - Citigroup Inc, Research Division

Matthew J. Dodds - Citigroup Inc, Research Division

Okay. Good afternoon, everyone. I'm Matthew Dodds with Citigroup, for those on the webcast, and I am pleased to introduce, next, Haemonetics. We've got Brian Concannon, who is the President and CEO; and also with us is Gerry Gould, who is Vice President of Investor Relations. While I don't actively cover Haemonetics, but I can tell you, it has outperformed my MedTech index 3 years running and they're off to a good start this year, up 13%, which is about 2x the MedTech average. Brian's going to give a short presentation and then, we're going to move to Q&A. So with that, Brian, thank you.

Brian P. Concannon

Great. Thank you, Matt, and thank you for making time to join us today. Obviously, we'll start with our Safe Harbor documentation here and remind you all that what I'm going to talk about today will certainly contain some forward-looking statements. I want to start this presentation -- for those of you who have seen Haemonetics in the past, a little bit of a different presentation. I'm going to start by really building -- what have we done over the last 9 years?

Matt talked about what we've done over the last 3 years, but what have we done over the last 9 years? This is a management team that came in, in 2003, really looked at the mandate of how do we make this company a better company financially. But are there some strategic gems that allow us to bring a value proposition different from our customers? And that's what we did and that's what we found, and we've been successful with that. So let me take the time to kind of build for you what does that mean and what have we accumulated as an organization and our focus today on going from being a medical device company to being a blood management company.

So I'll take you through our product portfolio very rapidly here. For the first product list here is eDonor, and this is software -- we'll start with software. Because software is really the enabler of blood management solutions, and eDonor is software that allows our blood centers to manage their most important asset, the donors. So both the recruitment and the retention of the raw material for blood donation, the donor. The second product that I'll talk about here is Donor Doc, which is the pre-donation questionnaire, which allows us to automate what has been, for the most part, a very manual process. Anybody who has donated blood knows that the first 20 minutes of any donation is taken up with a very manual process that you repeat every time you donate blood. This will automate that process and maintain that record as we go forward.

The second component here is ElDorado Donor -- I'm sorry, the third component, ElDorado Donor, and this is the software that our blood centers use to manage the blood center in total. So it's really the mainframe, if you will, of the computer system for our blood centers. That brings us to paperless phlebotomy. In practice today, with our plasma customers, that this is how we automate the manual collection process and data gathering that takes place at the point of donation. Something that is done today for plasma, something that will be done in the future with our wireless data automation as we roll out automated whole blood beginning next month. All of that connects with our devices so that we automate the collection process and in this case, from a collection standpoint, our PCS2, which is our mainstay plasma collection device and our multicomponent device, which is really focused on helping customers collect, in an automated fashion: platelets, double red cells and plasma.

Beginning next month, we'll begin the rollout of our automated whole blood product. The first phase of that being our wireless data automation which, of course, is the paperless phlebotomy component I talked about earlier. Followed shortly after by the tower, which will allow us to, then, automate the mobile drive. An important component and a big difference between plasma collection and the blood collection, is that plasma collections are fixed site, donor comes to the plasma collection site to donate. Blood centers run anywhere from 20 to 40 mobile drives a day. So that automation process needs to be managed much differently. The next phase of automated whole blood is an acquisition that's pending for us, which brings new science into the whole blood collection process, which is a company called Hemerus, and a product called SOLX. And this is a solution that, as I said, brings new science. In the U.S. today, when you collect a unit of blood from the time that it leaves the human body, you have 8 hours to process that blood in the lab, basically, breaking that blood down into its components: red cells, plasma and platelets. So you have 8 hours to do this. This is pending FDA approval for both 8-hour hold and 24-hour hold. What does that mean? For the first time, it will allow our -- when approved for 24-hour hold, it will allow our blood center customers the flexibility of waiting as much as 24 hours before they process that blood. Why is that important? For blood centers that are doing mobile drives that are a long distance from their fixed site, 4, 5 hours, they can eliminate expensive shuttles to get their blood back in time to process. And for all of our customers, these are not-for-profit customers, it will help them to eliminate a very expensive component of their production, which is night shift labs. So this is important science as we introduced this to the industry. This has already been CE-marked in Europe, which would allow for the storage of red cells for 56 days versus the industry standard today, which is 42 days.

The next and third final component of our automated whole blood launch is the actual collector. This is the most simplistic device we've ever invented. It's one way, it only takes from the donor, whereas all the other devices we have invented and used in the field both take and give. So it not only self-regulates the donation process, but it introduces the anticoagulant at the point of the needle, which will allow our blood collectors to use smaller needles for donor comfort and allow our blood collectors to use all blood collected regardless of the challenges they face today. These 3, together, are important. Today, we estimate -- and we were told, we're low, that about 5% of all blood collected is discarded due to mistakes, challenges and errors in the collection process. So this is really designed to help our blood center customers get at the key compliance and the collection efficiency within that space.

The next product here is Surround, which is a software product used by our blood collectors to manage the blood samples within a laboratory. As we move past that, we move to SafeTrace Tx, this is a software that's used in the hospital and basically connects the blood center software with the hospital in the management of blood within the hospital environment. As we move past that, we go to a new product of about 2 years ago, which is called, BloodTrack. The best way for me to explain BloodTrack in this setting is hopefully, many of you are familiar with Pyxis, our product that was owned by CareFusion, previously, it was owned by Cardinal and it's used to manage drugs at the point of care within the hospital environment. What Pyxis is to drugs, what BloodTrack is to blood. Think about storing blood at the point of care, the point of use necessary for clinicians to practice. The next product is our diagnostics product, Thrombelastograph, which is a diagnostic product that helps our clinicians to determine the clotting cascade of a patient and understand their proclivity to bleed. We then get into our cell salvage products. In a very simple explanation, these products are used to salvage the surgical field, primarily for cardiovascular, orthopedic, trauma and transplant surgeries. We will salvage the surgical field, our device will then separate a patient's red cells from everything else that's salvaged from the field. It will push the waste off into a waste bag. It will then wash the red cells -- patient's red cells, it will push the waste off from that washing and then, it will put the patient's red cells into a separate red cell bag, allowing the patient to get the best blood back, their own blood, the freshest blood that they can get back. And the final product that I'll talk about here is our IMPACT Online. And again, you've seen that we've gone all the way from the arm of the donor to the arm of the patient. But IMPACT Online allows us to mine a customer's data in the clinical setting and help customers understand the appropriate application of blood products at the point of care, minimizing the application of blood product use and also affecting the clinical outcomes of that -- of the blood use both in terms of infection rate and length of stay.

So what this is designed is to really help you understand how we're addressing, what I call from the arm of the patient, all the way to the arm of the donor. We're on both the demand side and the supply side of this supply chain and it gives us the most comprehensive suite of products that focuses on the blood management space. And another way to look at this, on the collection side alone, for the first time in our industry, our collectors can purchase all of their blood collection needs from 1 supplier. Over the last 9 years, we've grown from about $300 million to a company that will cross to $1 billion next year in a market today that's estimated to be about $4 billion. And we really put ourselves in a very good position in the key elements of this business.

First, the plasma business, and this is really the commercial plasma industry. Those customers that collect human plasma and use that plasma for the manufacturing of the plasma-derived biopharmaceuticals such as IG, such as albumin, Factor 8, Factor 9 . These are big companies like the CSL, Grifols, Baxter, Octapharma. And we have 70% market share in this space. Then, you move into the hospital and the blood center side of the business, and the blood centers are the big blood collectors, think in the U.S.: American Red Cross, UBS, OneBlood; think outside the U.S.: the Japanese Red Cross, the French EFS, NHSBT in the United Kingdom, German Red Cross, et cetera, et cetera. And then, of course, the hospital customers and the focus on the appropriate management of blood in that space. That red bar becomes the most important piece to understanding this because that's the enabler. We use software to mine the customers' data, turn that data into information, understand our customers' pain points and use that to solve our customers' problems. That's the enabling aspect of blood management.

Let me take each of these sections and break them down a little bit further for you.

First, starting with plasma. As I said earlier, we grew from about 40% market share as we introduced software into this space, starting in 2006 to a 70% market share by 2010. We have under contract today, 98% of that business through the third quarter of fiscal '15 and 75% under contract through the third quarter of fiscal '17. So a solid business, but importantly, this is where blood management was first -- came to light. As we use data in that way that I talked about, turning data into information and using it to solve our customers' problems. When you think about the plasma space, this is really the razor, razor blade model. About 82% of Haemonetics' business is generated off the single-use disposables that are used in the devices that we either placed or that we sold. So a very good market position for us in this industry, an end market that's expected to grow somewhere in the mid-single-digit growth range over the next several years.

As I shift into the blood center collection environment -- how many people here have donated blood? Show of hands? How many people have donated plasma? So we can always find those who donated plasma in college for beer money, and you chuckled because we have 2 board members that will proudly raise their hands, having donated plasma in college. The reason why I asked is that difference is because it's a real compare and contrast in the automation today of a plasma donation versus the somewhat manual aspect of blood donation. And in many respects, the industry is quick to blame our customers. I would tell you, it's not our customers' fault. What industry has ever transformed beginning at the side of the customer? The customers have always wanted us to transform, but industry needs to introduce that catalyst. They have to bring their new technology and that new science. In our industry, nobody's been positioned to do that until now, and that's what we are bringing to this space. But the automation that we brought to plasma that allowed us to grow from 40% market share to over 70% market share in 4 years, that same concept of automating what is a manual-data-driven process today is what we're bringing to this space. We made an acquisition this current fiscal year that we're in today, which is the Pall acquisition, the largest acquisition that we made in the history of our company. It provided us a 15% market share at whole blood, that's important that we have that position in advance of our launch of our automated whole blood product beginning next month. And then, Hemerus, in the middle of the year, really, is not something we needed to be successful in this space, but it's certainly something that will accelerate adoption if it's approved by the FDA and brings that new science to that space. So we're very excited about what this means in this space, leveraging this acquisition, leveraging the disruptive technology we'll begin introducing next month, automating the manual collection process much like we did with plasma and bringing new science to this space over the next 3 years. So this is a part of the business -- not a growth driver today, but we expect to be one of our growth drivers when you think fiscal '15 and beyond.

Now when you think about what we're doing in that blood center space, the other piece that we're trying to do there is to help our blood center customers become more relevant. Okay? And this becomes an important piece because the demand side of this supply chain is really what's going to drive addressing the logistical proportion of a broken supply chain today. Hospitals are going to dictate different ways in which this business needs to be run. And when you look at this business today, you have blood center customers that merely respond to bids for blood. If you think about it, we have an industry today -- blood is an organ, we have an industry today where our blood centers compete on price for organs. And this is an industry where we can do much better than this. And again, I don't blame our hospital customers and I don't blame our blood center customers. I blame the industry for not having responded up until this point, and that's our focus. When you look at health care reform and what's taking place today, you cannot be successful in this space unless you're a company that is focused first on bringing real, true economic value to the customers you serve, and I'm not talking about reducing nursing time by 2 or 3 minutes, I'm talking about meaningful economic savings that our customers can take to their bottom line. And at the same time, improving the quality of what we bring that also addresses clinical outcomes and in our case, it's infection rates and length of stay. So we feel very good about where we're positioned in the suite of products that we brought to the space that allows us to address what has been, for the most part, a broken supply chain.

Here's an example of a customer that used our IMPACT Online process to mine their data and in this case, specifically related to understanding a patient's clotting factors, both preoperatively, interoperatively and postoperatively. And in this case, this customer was able to drive savings that exceeded $107,000 in just one product line. This is only the cost of blood product and you can see the reductions that they generated. 32% reduction in platelets, 12% reduction in cryo. You can see what it meant in red cells, with a 30% reduction. So these are very significant reductions. But what this does not speak to, and we don't try to address that with our customers on the front end, it does not speak to the clinical elements of whether we had to improve care both in terms of infection rates and lengths of stay. So very significant savings for our customers.

As you look at Haemonetics now, as we take these 3 pieces of our business -- 4, including our software, where do we see ourselves growing over time? We've talked about these but certainly, the big growth drivers for our business today, automated whole blood will be a growth driver for the future. As we've entered that space with the acquisition of Pall, introducing disruptive technology at the end of this fiscal year, which is beginning next month, so we'll see this rollout over the next 3 years. We're very excited about what we can do in this space, much like what we did in plasma. We look at our blood management solutions, the gray quadrant, which is really how do we help our customers manage blood differently as they go forward? And there's 3 areas here. The first piece is our Hospital business, we're driving success there, up 11% for the first 3 quarters of our current fiscal year. Our Diagnostics business, up 19%. So you look at the success that we're driving there. And then, there's -- the green area is our emerging markets. This business has grown for us. It's been a double-digit growth driver for us for a period of time, but we did an outside study to really look at the Chinese market and understand how we could grow more rapidly in that market and replicate that, not only in the BRIC countries but in other fast emerging markets. And we've been successful with this business, continuing to grow double-digit for us this year and China, alone, up almost 30%. And of course, we continue to feel very good our plasma market and the end market growth in the mid-single digits. As you look at this company from an investment standpoint, we clearly talked about our advantaged market position. We are a cash-generating model, about 82% of all of our revenue is generated off the single-use disposables that are used on the devices that we place or that we sell. We're bringing significant new value to our customers in the form of blood management on both the plasma side, as well as the hospital and blood center side. And we are clearly growing profitably in our business. As Matt, I think, eloquently covered in the beginning of this. Why do we feel that we can be successful? Well, this is what we've done for the last 9 years. This is a business that's had a CAGR over the last 9 years of 9% growth on the top line and 16% growth on operating income and earnings per share. And at that point in time, we didn't have assembled all of the solutions that we now have assembled to bring a comprehensive blood management solutions to our customers as we do today. With that, I will simply say thank you for being here today. I know that you may have some questions. I'll turn it over to Matt to moderate a question-and-answer period. Thank you very much.

Question-and-Answer Session

Matthew J. Dodds - Citigroup Inc, Research Division

All right. Thank you, Brian. I'm going to kick off a few. We can start with the tough stuff first, the near-term headwinds that came across on the last call. First one, the French National Blood Service, the temporary impact. Do you think that -- will, actually, how long do you think that might last? Is this something that's more systemic with their usage of collection? Or is it something you think is temporary?

Brian P. Concannon

No, I think that's permanent. What Matt's talking about here is the French who, through the EFS, collected their own plasma and then, they will provide that plasma to a quasi-governmental fractionation facility so that they were self-sufficient on their plasma-derived biopharmaceuticals or, at least, more self-sufficient. They opened up that market to the plasma-derived biopharmaceuticals from the larger companies out there today, Grifols, CSL, Baxter, certainly, a much more competitively priced product; in some cases, higher-quality product and what they saw was that market shift, almost overnight, into where they are no longer collecting their own plasma and that end market is now being served for those large plasma-derived biopharmaceutical manufacturers.

Matthew J. Dodds - Citigroup Inc, Research Division

Now France alone isn't a big part of Europe, I don't think, to your business. Are there any other countries where you have significant exposure to self-collection?

Brian P. Concannon

We have a certain amount of business with all of our customers. But every one of these customers is trying to understand what do they need to do for the future. I think the U.K. has recently announced that they'll take a different path, but they're looking to see if one of these larger companies might want to buy their fractionation capability, so they come at this differently. The benefits of this is, is that we have 70% share in this industry today. So the chances are, as to whether they'll shift in this business, too, we're still providing a device in disposable in the collection of that plasma.

Matthew J. Dodds - Citigroup Inc, Research Division

Okay. And then, switching to OrthoPAT. That franchise took a bit of a hit after a little improvement in the prior quarter. Why has the activity in the small hospitals slowed or stopped? What is it about small hospitals?

Brian P. Concannon

Yes, this is a product that has a bit of a more hands-on requirement. So I talked a little bit about cell salvage. So if you think about cell salvage, primarily practiced in cardiovascular and orthopedic surgeries. In cardiovascular surgery, it's standard of care to use cell salvage. And the primary focus of that is interoperatively. For orthopedic surgery, there's a fair amount of blood that's lost postoperatively. Think about knees, a tourniquet is applied during the operation. Now once the knee is done, if the clinician puts a drain in, that drain will then be connected to our OrthoPAT, or to some other type of collection device, but that will travel with the patient, the pack used will remain with him. So this is a device that requires a little more hands-on and what we've seen with our smaller hospitals, they're waiting until we come out with our next-generation product, which is the OrthoPAT Advance, which addresses a number of those ease of use issues that they face. We will be launching OrthoPAT Advance, our next-generation device there in the first half of this next fiscal year.

Matthew J. Dodds - Citigroup Inc, Research Division

You stole part of my next question, but you didn't take it all. Why a 6-month wait on that launch? What's specific about that timeline?

Brian P. Concannon

I can talk about a lot of things that we've done well as a company. One thing I'm not proud of is how we've approached the OrthoPAT as a device in these customers. Yes, it's a different market. Yes, it's a different approach to cell salvage, but I don't think we could come up with -- very many more creative ways to have screwed this up. We need to make sure we do this right. And so we're going to walk -- we're going to crawl before we walk, we're going to walk before we run. We're going to make sure that we do this with these customers the way that we need to do it. This development team that's on Advance will not be disbanded. I believe that we'll probably have at least 1 or 2 more generations of upgrades to the OrthoPAT Advance that will follow shortly thereafter, as we get more and more feedback from these important customers.

Matthew J. Dodds - Citigroup Inc, Research Division

Okay. But the initial rollout, the testing is occurring now?

Brian P. Concannon

That's correct.

Matthew J. Dodds - Citigroup Inc, Research Division

And then, the IMPACT accounts, we heard this a couple of times in the presentation, it seems to be creating a bit of a headwind in some of the blood management like platelets, sort of, it slowed down 30%. How long does it take to kind of right size the IMPACT accounts, no longer creating a headwind?

Brian P. Concannon

What Matt's talking here, we were a victim of our own success. So a hospital that are using less blood, blood centers are selling less blood therefore, collecting less blood. But this is where blood centers have to decide. How are they going to be more relevant in that space. So it's not just blood or the red cell components. But blood centers have to figure how they get past simply bidding for blood and how they start bringing blood management solutions in a real meaningful way to our hospital customers. Think of it this way. 2 decades ago, every hospital had their own kitchens, they made their own food. Today that's all outsourced. Every hospital had their own laundries, right? Today, that's revenue-generating space and big trucks from Angelica and Standard Textile roll up everyday and takes old linens and drop off fresh. The blood centers have to decide how they're going to be more relevant in that space. Today, we have some customers that are actually using our BloodTrack product, remember what I said, point to use? And they are buying BloodTrack, there are placing it in hospitals and they're consigning blood. They're taking blood out of the ordering pattern of blood management, so that when a patient needs blood, they simply go over to the BloodTrack unit, 150 units all typed and cross matched, the patients typed and crossmatched. By putting in the clinician number and the patient number, that gives the unit of blood that most matches the clinical needs for that patient. What happens then? Through automation, that's all connected, our BloodTrack, to our SafeTrace Tx to ElDorado. The blood center now knows that, that blood has been used. They now know they can bill the hospital for that blood and it goes right through to patient record. They also know that they need to replace that blood the next time they deliver to the hospital. They also know, Matt, that you donated that blood 2 weeks ago. And through our eDonor software, your profile says you only like to be communicated with a text message. So you'll get a text message that says, "Remember the blood you donated? I want to let you know that you just saved the life of a patient today. We wanted to say thank you. Oh, by the way, you can donate again in 10 weeks. And there's 2 mobile drives in the area. Would you click on this link and donate again." And how do we automate that entire process? How do blood centers become more relevant there? Yes, we're going to see blood and blood component demand decline, but we're going to see a rising need for more effective blood management and blood centers have that opportunity.

Matthew J. Dodds - Citigroup Inc, Research Division

Okay. And then, one last thing on the blood collection. Your long-term growth forecast here, I'm not sure if this was a couple of year point in time or if it was the -- through fiscal '15. It sounded like it was over double-digits. Is that with Alzheimer's, or is that what you think the market can grow? Because I think you said earlier, mid-single digits in collections.

Brian P. Concannon

I'm not sure I understood your question. What part was double-digit growth?

Matthew J. Dodds - Citigroup Inc, Research Division

The blood collection. I think I saw a couple times that it said over 10 -- potentially, over 10% either in fiscal '15 or through fiscal '13.

Brian P. Concannon

I see what you're saying. First of all, we're launching our automated whole blood collector. We've not been public about what we've seen in terms of growth for that in the future, but that's a market share much like what we saw -- market share gain, much like we saw in plasma. While the plasma market now is growing at the time that we began launching that, those of that remember the plasma industry you had ups- and downticks in that industry as that consolidated and vertically integrated. But what we're looking at, is plasma end market growth mid-single digits? But we are a company, from an aspirational standpoint, that looks at how do we take our growth rates from what our mid-single digits today as we launch these new products, as our growth drivers really drive growth up to -- upper mid-single digits to high-single-digit growth? And how do we consistently drive double-digit operating income and earnings per share growth, as we've done for the last 9 years. And our aspirational growth, those are 12% to 15% in terms of that growth, as we leverage and grow both gross and operating margin.

Matthew J. Dodds - Citigroup Inc, Research Division

So if Alzheimer's hit, that would be upside to you?

Brian P. Concannon

That's correct. Alzheimer's is not included in any of that guidance. What Matt's talking about is the -- any upside with the Phase III trials today to the treatment of Alzheimer's without IVIG.

Matthew J. Dodds - Citigroup Inc, Research Division

So could you just update us on the regulatory status of Hemerus and it's -- and so I think, it's supposed to be approved initially in August, right? Just kind of in the -- well, track the track at FDA.

Brian P. Concannon

Yes. So where do we stand with Hemerus? Hemerus, we've not acquired it yet. We've acquired the rights to acquire. We've purchased the rights to acquire Hemerus for about $1 million. And what do we want to do? We want to -- we like the science, but we wanted to derisk it. We expected initial approval in September of last year and that was really based off of the filing pattern that Hemerus had the -- the timing of when they submitted to the FDA. We received 2 notices in September. The first was from the FDA requesting additional information. We've seen that information. It's not difficult, it's not challenging, doesn't require any additional clinical trials. Hemerus will submit that data here in the very near-term and we expect to receive approval from the FDA -- they expect to receive approval from the FDA some time in early fiscal '14 for us, which begins -- our fiscal year is April to March. The second notice that we received in September was from the European Union, and we received a CE Mark, approving the SOLX solution to store red cells for 56 days. The standard in the market today is 42 days. So it's the only solution out there today that's been approved to store red cells greater than 42 days.

Matthew J. Dodds - Citigroup Inc, Research Division

And just for me following up on that, you have -- there's 2 angles here. One is extending the days, the other is extending it from 8 hours to 24 hours. Is the plan in the U.S. to potentially get both? Or would they be separate approvals?

Brian P. Concannon

They will be separate approvals. This product was developed in conjunction with -- by Hemerus, in conjunction with the United States Army. And the focus initially, in the development, was the extension of the red cells. Think about it. Battlefields, getting blood to the battlefield and the life of a red cell by the time it got there. As they looked to submit to the FDA, the FDA said the real commercial value of this product is going from 8-hour hold to 24-hour hold. Because of what that means for these not-for-profit customers. So the initial claims filed with the FDA was for 8-hour and 24-hour hold. They filed for a CE Mark in Europe for extending the life of the red cell. In Europe today, Europe regulators allow for 24-hour hold. It's a bit of a challenge for the production of the blood components, waiting that long, but they have that clearance today.

Matthew J. Dodds - Citigroup Inc, Research Division

Do you have any idea what percent of whole blood does not make the 8-hour window and is lost? They can't collect the -- you can't pull out the components?

Brian P. Concannon

I don't know what that number would look like. I do know that we estimated about 5% of all blood collected is discarded due to problems and challenges in the collection and manufacturing process. We've been told that we're grossly underestimating that number, so I don't know what that number is.

Matthew J. Dodds - Citigroup Inc, Research Division

If there's any other questions? I've got a few more, but I'll open it. Okay. For me, emerging markets. You've done really well there in China with the TEG disposable cell saver. How much of the 50% plus installed base year-to-date has come from emerging markets from China in particular? Is it the vast majority of that growth?

Brian P. Concannon

No, China is a small base for us. So of the 2,400 devices we placed year-to-date -- and devices are important because that's the leading indicator. Remember what I said, 82% of everything that we sell is the single-use disposables on the devices that we either place or sell. About half of the TEG devices have come from emerging markets in China and about 10% of our cell salvage growth has come from that.

Matthew J. Dodds - Citigroup Inc, Research Division

So outside of China, what are the other big emerging markets for Haemonetics?

Brian P. Concannon

Well, we're taking share on cell salvage. Because realize, cell salvage, we launched a new product right at the end of the last fiscal year, which is our Cell Saver Elite, which has gone extremely well for us, up 14% year-to-date. So this is a market where we're a standard of care for cardiovascular cell salvage. So we're taking share from the competition. So that's really happening in both the U.S. and in Europe. And then, as well, you see emerging markets starting to use these technologies more, not just China, the typical BRIC countries but even other emerging markets like Turkey, Poland, Korea and throughout Latin America.

Matthew J. Dodds - Citigroup Inc, Research Division

Okay. And then, just a couple more for me. On the automated whole blood collection, it's still listed as fiscal '15, there were a couple of earlier milestones, I think, for getting the key software electronics set this March, is that still the goal?

Brian P. Concannon

That's correct. Paperless phlebotomy.

Matthew J. Dodds - Citigroup Inc, Research Division

And then, 1 year from that, a finished device?

Brian P. Concannon

So what you've got is 3 phases. It's actually 2 years from that, would be the finished device. So Phase I is the launch of the paperless phlebotomy, much like we did in plasma, which will be followed several months later by the tower, which will allow us to take what we do in a fixed blood center and take it to the mobile drives. So you automate the mobile drive and eliminate the manual data gathering that occurs there today. The second phase of that will be the launch of the SOLX, pending FDA approval, but why does that look to be a year away launch if we expect approval in the first part of our fiscal year? Because realize that the SOLX solution is approved on a Hemerus-developed red cell filter, and that is not in the market today. And it's unlikely that blood centers will go through the FDA changes to implement that red cell where they'll wait for us to do the work to qualify the Pall filters on that solution, so that will take about 1 year. And then, the final phase, so 2 years from next month, will be the actual device and disposable. People think that's the magic in this. The magic is what we're launching next month. It is the data. It is the software. It is how do you automate a manual process? That's what made the difference in plasma, that's what will make the difference for these customers as we move through this process.

Matthew J. Dodds - Citigroup Inc, Research Division

And then one last piece on that. If we get everything approved on time in fiscal '15, what do you think is the primary risk to adoption upon approval?

Brian P. Concannon

Yes, not unlike what we saw in plasma, we acquired the software business for plasma in December of 2001. We had a lot of work to do with that software, not as much for blood centers as we did with plasma. But what you see there is adoption rates start to take off, 2006, and then, you really saw it start to penetrate that market and we had 70 -- went from 40% market share to over 70% market share by 2010. I think you'll see that start to happen more rapidly. Our focus in the launch of automated whole blood is that we'll begin with 1 blood center next month. We give them our products, we get the data. We understand where the pain points are, we'll use that information to then launch the power, which will then allow us to automate their mobile drives somewhere in the neighborhood of 20 to 30 mobile drives. From there, we'll go to 2 to 3 more blood centers and we'll phase this into the market. At that time, we'll know what this means economically for our customers. And what does it drive in terms of compliance, the key component and efficiencies and effectiveness, the cost of collecting a unit of blood.

Matthew J. Dodds - Citigroup Inc, Research Division

Okay. There's no more questions. We can wrap there. Brian, Gerry, thank you very much.

Brian P. Concannon

Thanks, Matt.

Gerard J. Gould

Thank you.

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