Joe Griffith – VP, Finance
Kevin Hrusovsky – President and CEO
Peter McAree – SVP and CFO
Dory Eve [ph] – Leerink Swann
Caliper Life Sciences, Inc. (CALP) Q4 2008 Earnings Call Transcript March 12, 2009 9:00 AM ET
Good day, ladies and gentlemen, and welcome to the fourth quarter 2008 Caliper Life Sciences earnings conference call. My name is Ariba 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).
I will now like to turn the presentation over to your host for today’s call, Mr. Joe Griffith, Vice President of Finance. You may proceed.
Good morning and thank you for joining Caliper Life Sciences fourth quarter 2008 teleconference. Before we begin, we will be referring to a presentation, which is available to you on Caliper’s website under the Investors page under the sub header Investor Events.
This morning, Kevin Hrusovsky, President and CEO; and Peter McAree, CFO, will discuss Caliper’s financial results for the quarter ended December 31, 2008. Following these remarks, management will take questions.
Management will be making forward-looking statements during the teleconference, including projections of future financial results. Reference to what we expect, believe, intend to do, plan, hope, estimate, or other statements referring to future events or results are intended to identify those as forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties. Further information on risks faced by Caliper are included under the caption “Risks Related To Our Business” in Caliper’s Annual Report on Form 10-K for the year ended December 31, 2007, filed with the Securities and Exchange Commission on March 14, 2008, and in our other SEC reports. These SEC filings are available on the website maintained by the Securities and Exchange Commission at www.sec.gov.
Caliper does not undertake any obligation to update forward-looking or other statements in this conference call to reflect any change in Caliper’s expectations with regards to such statements or any change in events, conditions or circumstances on which any such statements are based.
During this call, we will be referring to certain non-GAAP measures. A reconciliation of the non-GAAP financial measures we plan to use is available as an attachment to our earnings release. To the extent we use additional non-GAAP financial measures during this call, we will provide reconciliations promptly on the investor information location of our website.
I will now turn the call over to Kevin.
Thanks, Joe. Because of a lot of strategic transformation we have gone through in the last 18 months, I am going to use a presentation once again for this call to help illustrate some key fundamental points.
The first slide is slide two where I am just going through the agenda, I'm going to start with some highlights, then I'm going to describe the strategic roadmap, I am then going to describe the growth by SBU, there is three SBUs that we form ourselves into, that would be research, imaging and service, I would like to describe those three business units and how we see both 2008 and 2009 as well as the quarterly performance in Q4, Q1 and what I consider to be the key growth catalysts. And then I would like to describe what I would call longer term 2010 plus value creation catalysts and then close with our guidance and key milestones for 2009.
So slide three is the highlight slide, and in summary, we substantially improved our outlook with enhanced balance sheet, top line growth, cost reductions, recurring revenue and patent production. We are excited about our Q4 performance, but we are more excited about our overall 2008 performance and the way it set us is up for 2009.
We had good momentum in Q4, we completed a couple of divestitures and we sharpened our SBU focus. We achieved 36.7 million in revenue, which is even a little better than they we showed at JPMorgan. We did hit close to the top end of our guidance. We delivered positive EBITDA in Q4 for the second quarter in a row of positive EBITDA despite eliminated earnings from divested businesses.
We enhanced the balance sheet, which is very significant. In September of 2008, we had total available cash of $15 million and we had a net cash position of negative 6 million. And we had a loan due date of June of this year, 2009. So that was a fairly precarious position, we were in back in September. I would like to now contrast that to where we are today with some fairly formidable announcements over the last couple of months. our total cash position has gone from the 15 now to 35 million. Our net cash position has gone from negative 6 to positive 12, and our loan due date, because of its extension is no longer June of 2009, but November of 2010. So we have extended it out another 18 months, which is fairly significant change in our balance sheet.
We also launched some key products in 2008 in the second half. First was kinetics, which strengthened our IVIS leadership, and the second was the LabChip GX, which is just rocketing. We sold 40 of them since we launched it July of 2008. We actually sold 26 of them in Q4. So that represents 70% growth in the fourth quarter of 2008 versus 2007. We also reduced our cost position by $12 million in 2008, lowering our breakeven due through mix improvement as well as cost reductions, our EBITDA breakeven for revenue from 155 million to 138 million.
Slide four illustrates now the overall strategy. Basically in 2003, when we started down this path, we were what we called a microfluidics company. We sold instruments, chips and we had a lot of IP. Today we are more of an applications company that is focused on drug development and molecular diagnostics and we are focused on molecular applications both in the plates as well as chips as well as in animals. Our LabChip and imaging platform are our core IP protected estate where we're growing out a lot of our future products.
The two strategies that we have, number one is Assemble “tool box” of leading technologies for research and molecular diagnostics; and number two then is to sharpen the focus on molecular applications and recurring profitable growth. Let me speak to each of those two strategy points.
Slide five illustrates our strategic transformation where we now have three businesses units which I talked to before, this is our pro forma 2008 numbers, 57 million in the research business, which is where we divest two product lines in automation. Services are 20 million and imaging is 46 million. And you can see the relative market growth. It’s primarily strongest in our imaging market as well as within research there is a sub segment in microfluidics has fast growth, but automation is, as you know, fairly flat to maybe small single digits, low single digits. Services got a market growth of about 10%, little bit less this year due to the economy, but in general 10%.
Slide six is the next slide shows our revenue and EBITDA outlook. And you can see here we made considerable improvement over the years in our revenue with the acquisitions of Zymark, NovaScreen and Xenogen and then integrating them. And what you can also see here in 2008, the black is the revenue from the divested operations, and now you can see 2009, we're projecting 5.5% organic growth as the mid point from 4% to 7%. 65% of revenue in 2009 is patent protected, 15% of our sales will be reinvested in R&D.
Our EBITDA breakeven is starting out the year 138 million. We have full intentions to get that down to at least 133 million by year-end, may be lower. We are approaching EBITDA breakeven. We have been EBITDA positive the last two quarters, and will probably go negative for the next two quarters, but we would expect once again in the second half to be positive.
We are starting the year this year with $35 million of available cash, a big difference from where we were three months ago with a net cash position of negative 6 million, and we project by year-end to have 25 million plus cash. So you can see this is a very different company today than it was just a year ago, even a quarter ago. So the transformation is very formidable.
The next slide, slide seven, illustrates the way we are continuing to refine our strategy and continuing to build value for the future. In the imaging business unit, we're trying to focus on new disease categories beyond oncology. We are focused on cardiovascular, CNS, we are now moving into stem cells with the President’s new initiative on stem cells. And we are also trying to evolve modalities, not just our modalities that we have with luminescence, but also going into fluorescence, and we are going to be looking at other modalities as well like CT X-ray and other modalities.
In the area of research where we have already shed two businesses in the past quarter, we are going to continue looking at opportunities to shed those businesses if it makes strategic sense. We have a couple that could fit in that category but for the moment we are holding off because we don't want to deleverage our overall fixed cost base. We also have some interest in some potential acquisitions in the area of molecular imaging. However, at this moment, we are making sure we are nailing our numbers as we have had a couple could quarters we want to continue that progress and use them as equity to help us build out the further refinement of that strategy.
So in the area of research what we are doing is we are focusing all of our efforts on molecular applications and that is with the launch of the GX. We just launched three weeks ago a new product called the GW, it is the Genomics Workstation. So now we have got a couple of different products in this category and that is moving our growth upwards. And then in the area of services, we are continuing to try to gain share in that market using these patent protected products.
So then the next slide, slide eight, starts to now describe this roadmap and how that has been transforming our business. We mentioned some of these points earlier, this is a summary of the cost savings implemented from 2008 and 2009. This is actually a slide from our JPMorgan presentation. We divested the two product lines with a 180% price premium, that is what allowed us to bring in so much cash and correct our balance sheet, and we did mention we are going to try to approach EBITDA breakeven and generate cash to fund imaging growth as well as LabChip and a potential move into molecular diagnostics with our microfluidics chip.
Okay, slide nine, now starts to get into the specifics around our growth. The first column on my show on slide nine is in fact that 2008 GAAP growth for the three business units in the total. The total GAAP growth was minus 5%, a lot of this was due to the divestitures. so we think that the next column in actually a more important column to look at. That would be organic growth, which is a combination of the pro forma removing the divested businesses as well as taking out exchange rate effects.
And in 2008, we actually benefited from exchange rate by one percentage point. Our growth on an organic basis was 6% in 2008 and we're projecting it is going to be 6% again in 2009. Given the uncertainties in the market we think this is a pretty formidable level of growth. Versus most of our comparable companies we are actually projecting positive organic growth and we are feeling very confident about this.
In the area of research products, we grew 4%. We think we can do that again particularly with this very strong momentum we have with the GX and now with the GW being launched, we feel very good about that 4% organic growth. Imaging, we grew 13% this past year. There was some exchange impact as well for these businesses but going into 2009, we expect 10% organic growth, continuing double digits despite some of the uncertainties.
We think actually the NIH, the stimulus package is going to really benefit this business as time goes on as well as stem cells. There could be some short-term – won’t be a lot of short-term impact because it is just the timing of getting this out. We think the earliest we are going to start to see good impact from the stimulus package in this business is probably September, may be more likely in December when some of those first grants get reviewed and approved.
And in the services business, we had a bad year last year because of Pfizer and EPA contracts being delayed. We had minus 6% organic this coming year. In 2009, we're projecting 4%. So we feel very good about these numbers, we feel we have got good conservatism in them given the uncertainties that are out there but we feel very good about this level of progress in our business.
The next slide illustrates the same numbers on a quarterly basis. We do show Q4 GAAP, Q4 organic growth and then once again the Q1 organic growth. In Q4, there were some timing effects as well as the economy was challenged and we had some disruptions with two divestitures. As well in Q4 we had negative 2% overall organic growth. In 2009, Q1 however, we're projecting that we will have positive 3% organic growth in this quarter that we are currently in.
We feel we have got pretty good visibility and that is the midpoint of our range basically is the 3%. That’s 10% research products, primarily on the back of this new GX and GW products, we feel very good about them, primarily due to GX. We are expecting we are going to sell over 20 units again in the first quarter for GX. Imaging, we are expecting 3%. It is always slow to start out the year, I mean imaging, but we are overall for the full-year expecting double-digit growth.
And then in services, we know we are going to have another challenging quarter in Q1 due to some of the government contracts coming off and EPA will not kick in until third quarter, and so we're projecting negative 18% organic growth in Q1 for services. But overall, when you add it up, it is plus 3%, so we are feeling pretty good about that visibility given that we are this far along in the quarter.
The next slide, slide 11, is a summary of what I would call the growth catalysts and how we see 2009. The first category, research, you are going to see here the first offering is molecular liquid handling platforms, we sold 45 units in 2008. We're projecting 80 in 2009. 2009 revenue will be 4.5 million, that is 75% growth for this category. Molecular LabChip platforms, we sold 62 of them in 2008. We're projecting a 100 in 2009, that is $5.5 million of revenue, 40% growth, and we could still shed some non-core product lines, but nothing is immediately projected on that category.
Imaging, IVIS platform, this includes kinetics. We sold 143 units of those units in 2008, we're projecting 160 in 2009, that is the $30 million of revenue coming from those products. That is 12% product growth for the actual instruments and the cameras. In the areas of services, EPA, we're going to sell 3 million this year. That is up from 1 million in 2008, that is 200% growth. Pfizer, we're projecting 20% growth at 2 million. And Wyeth, 50% growth for a million. So there is three good projects we have got working in our services business to cause it to be a very good contributor to our performance in 2009 versus 2008.
We also are projecting that we are going to have 15% growth in Asia and that is going to end up being $15 million of revenue in 2009. We had a very strong 2008, greater than 20% growth, and we are expecting that this is going to continue based on what we see in our current pipeline.
I just wanted to show you these next two slides to give you an illustration of just how powerful this new GX is. We had one investor that has been studying next gen sequencing and studied also the overall sequencer and felt that we might be on to something that’s got that level of impact. We are very excited as we start to look deep into the product line and what it can represent.
The first slide illustrates the companies that have bought this product in the last two quarters for protein therapeutics is a primary area. That is a big area. That is the reason, one of the key reasons Pfizer bought, Wyeth, it is a key reason that Merck’s looking Schering-Plough, is the very strong rapid growth of biologicals.
We have got an instrument that can do quality by design, QBD assays, and actually in the technical application groups, build out those assays for these biological production. It is going to allow it to be made more routine and be able to predict what the outcome is going to be from these various factors that we're building assays. We are actually going to be launching two more assays in the first couple of quarters of this year and I think the second what might be in early third quarter, but these are going to continue to rocket us.
So there is a lot of molecular biology laboratories, university core facilities, molecular diagnostics reference labs, reagent manufacturers, all buying this unit. You can see the strong momentum that this has created.
The next slide, just from yesterday, March 11, we assembled close to I think 75 attendees in our Cambridge Massachusetts symposium. You can see the agenda here, but all these companies participated, and they're all saying some amazing things about what this GX and GW, the new GW can do. One quote says that LabChip GX is enabling us to do experiments in an afternoon, that requires a month using the CE, and in that case it was the Beckman CE. So we have a very formidable technology now that we are rolling out and it is 30% aftermarket and ongoing annuities that come from this technology. That is why we are very excited about it.
So then the next slide, slide 14, just illustrates the longer-term things that we are working on that we think are going to further enhance the value of this company. In the research markets, the number one thing we are trying to evolve to is a plastic chip. We did secure the patents in 2008 for the plastic chip from the older ACLARA which is owned by Monogram, so we now have a license, exclusive license, to produce these plastic chips. It is new economics that can change the game and so all these GXs that we are placing will ultimately have much better economics and so we are working towards that and we think our partners based on the discussions I’ve had with them this week might also have interest in this area.
The next area is we're working on a project for next gen sequencing to sample prep which we think could be another major surge of opportunity for microfluidic instruments. And longer-term, we believe that we can acquire some content for molecular diagnostics. We have a major molecular diagnostic application rolling out, a protein immunoassay from Wako, one of our collaborators. It is being rolled out in April in Japan and this particular product will be made on a plastic chip. So we are really excited about the evolution of this content and it has given very good sensitivities. I think it is 0.1 picomolar sensitivities, it has got four-log dynamic range, so we think it is got a lot of potential and we feel that there is a lot of content out there now that we could incorporate onto this type of technology.
The next category, imaging, we're just continuing to expand looking at new modalities is and trying to leverage our leadership position because we have done so well with our patents in this area and our growth. We have grown over 20% since we bought this company two years ago, Xenogen, so we are very excited about that continuing to roll out. And then in services, we're continuing to work on our gross margin and capitalize on the outsourcing trend. And we're going to keep looking for channel partners that might be able to take some of these technologies that we are evolving to the market even more productively than we can, so that’s another key area that we are focused on in 2009.
So in summary, I would like to say that I believe Caliper is now streamlined and focused on these three strategic business units. It is taken us a lot of effort to get to where we are. We have got these exciting next generation product portfolio, 65% of it is patent protected and focused on robust markets with our key molecular applications. We have got strong top line outlook driven by imaging in these molecular applications, in our research, as well as EPA coming on in the third quarter. And we anticipate positive EBITDA in the second half of 2009 and full year 2010, enhanced balance sheet with $35 million available cash now in January 2009. So that has given us a great start to this year with additional smaller opportunities to further shed and further fund additional organic growth and/or acquisition growth. Our metrics for 2009, for revenue, we're saying 125 to 129 which represents 4% to 7% organic growth. And for Q1, 25 to 28, which has a midpoint of 3% organic growth.
So that is our summary. We are very excited about the progress and what we’d like to do now is to turn over to Peter to provide some additional background on the financials, to give you another level of detail. Peter?
Thanks, Kevin. To begin, we announced today that we recently completed the renewal of our credit facilities through November 2010. We are pleased to have a stable and highly regarded lending partner in our continuing relationship with Silicon Valley Bank in this regard. At 12/31/08, our ending cash and credit line availability totaled approximately 35 million as Kevin previously indicated, and this compared to approximately 15 million at the end of the third quarter and approximately 23 million a year ago.
Based on our current operating plan, we believe that our improved liquidity and continued accessibility to capital under the credit line will satisfy our ongoing needs through at least the term of the facility. 2008 was a year of vigorous cost reductions and we will continue to target positive cash flows and a reduction in our EBITDA breakeven threshold through intensive focus on gross margin improvement and expense reduction while enriching our revenue mix toward higher margin and more nonrecurring revenues such as reagents and services.
One example of high margin improvement we achieved was with our LabChip GX instrument that we introduced in 2008. This has a factory gross margin that is at least 15 percentage points greater than its predecessor instrument the LabChip 90 instrument. Like many companies, during this period of unprecedented financial turmoil, we recorded a goodwill impairment charge in the fourth quarter. I will describe this in more detail later but would like to emphasize that we do not believe this charge is indicative of the opportunities we have in front of us, and we remain optimistic based upon the current state of a business, our strategy and our more secure financial position.
Moving on to our financials. Our GAAP revenues during the three months ended the December 31 2008 were 36.7 million compared to 40.3 million for the three months ended 12/31/07. On a GAAP basis, this was a decline of 8.8%. As Kevin indicated, excluding currency translation, which was 2.4 percentage points and the effect of divestitures which was 4.4 percentage points, our net quarter on quarter organic revenue change was really minus 2%. On a geographic basis, non-US sales were about 30% of revenues in Q4 2008 and this compared to 32% in Q4 2007.
In the non-GAAP reconciliation tables, which accompanied our press release this morning, we summarized the non-GAAP revenue comparisons for both the fourth quarter and full year of 2008. There are three principal adjustments in these comparisons. Number one is the elimination of the PDQ and AutoTrace revenues. Number two is the elimination of nonrecurring license and contract revenues, mainly in 2007. And number three is the add back of purchased accounting effects on revenue in 2007. And I want to note that the non-GAAP tables in our release do not adjust for foreign exchange, so they do not correlate to the same organic growth percentages that Kevin had used for this illustration in his slide presentation.
In my comments, in the comments that follow, that pertains to the full-year recap as well as quarter revenue changes, I'm going to speak to the changes that are set forth in those non-GAAP tables, as we believe that this comparison will provide the clearest picture of our current operating studies headed into 2009. Starting with research, which is comprised of our automation and microfluidics businesses, for the full year, research revenue grew 6%. Full-year performance was driven by strong automation sales where we enhanced our selling focus through our ACES Group, which stands for Automation, Consulting, Engineering And Services and from our Zephyr Liquid Handler which was introduced in early 2008, including from both products and services which grew at the same 6% rate.
For microfluidics, it was a transitional year having to overcome unfavorable comparisons to 2007 due to approximately 11 million of non-recurring license and contract revenues, and as we transitioned our product offerings to the new LabChip GX and EZ Reader with our focus on genomic and proteomic applications. Research r revenues were 15.5 million in Q4 of 08 compared to 16.3 million in 2007. Note that approximately two thirds of our FX exposure on revenue is related to research and as such on a constant currency basis our Q4 revenue would have been closer to 15.1 million and only a slight decline from our fourth quarter revenue 2007.
Microfluidic revenue was approximately 6.4 million in the quarter, up 15% compared to 2007, led by strong product sales of GX and EZ Reader which grew on a combined basis 47% versus last year. In total we placed 36 LabChip instruments in the fourth quarter which represented 112% unit growth over the previous year. This performance was offset by revenue declines in automation, which were largely attributable to non-core products, especially environmental products that we have, namely the TurboVap and Rapidtrace technologies, as well as OEM channel performance in service revenues.
Moving on to imaging, on a full-year basis, our imaging business grew by 14% on a product and services growth of 13% and license growth of 20%. Imaging revenues were 14.4 million in Q4 2008 compared to 14.7 million in Q4 2007. A total of 50 units were placed in Q4 2008 which was down one unit from Q4 2007 and also reflected a mix of lower average selling price Lumina instruments. We experienced a handful of instances of customer budget constraints in Q4. However, based upon our current assessment of the pipeline, it seems to have improved thus far during the first quarter of 2009.
The mix shift in the quarter drove an 8% overall net decline in imaging product revenues during the fourth quarter, which was partially offset by a 19% increase in service and license revenue. With imaging product revenues, in Q4, reagent sales were up approximately 21%. Related to CDAS, first on a full-year basis, CDAS revenue declined by 6% and for the quarter it declined 8%. As we mentioned previously, full-year results were impacted by unfavorable revenue comparisons, principally related to 2 large contracts, EPA and Pfizer. In Q4 2008, CDAS revenues was 4.7 million compared to 5.1 million in 2007. This quarter on quarter change results principally from having reduced EPA revenues in the fourth quarter.
We expect that services under the EPA ToxCast program will get back on track revenue lines in the second half of 2009. Of note, the EPA is planning to present its preliminary analysis of the first phases of ToxCast screening program next week at the Annual Society of Toxicology in Baltimore and later on in May, the EPA has scheduled a special ToxCast conference at which more complete analysis will be presented and the initial ToxCast data sets will be made public.
In the remainder of my discussion of financial results, I will focus on the key GAAP changes pertaining to the fourth quarter. First on Q4 gross margins, our overall gross margin declined 4.7 points in Q4 2008 compared to Q4 2007, including 1.5 percentage points as a result of foreign exchange. Product gross margin, which is where most of FX impact falls was 38% in Q4, down 5.5 points from a year ago. Beyond FX, approximately 2 points was mix driven as a result of a larger percentage of revenue from integrated Staccato systems, including higher installation costs, and the remaining 2 points was volume driven with the elimination of a partial quarter from PDQ and AutoTrace, the b businesses that we divested in the fourth quarter.
Service gross margin was 37% in Q4 2008 compared to 40% in Q4 2007. The three point decrease was probably due to the absence of EPA revenues in the fourth quarter as well is additional facility costs within CDAS. Related to operating expenses, our operating expenses declined by approximately 4.9 million or 23% compared to the fourth quarter of 2007. As stated in our press release, this reduction included a $2.1 million reduction in legal costs due to the settlement of outstanding litigations earlier in 2008, including a favorable settlement with AntiCancer Inc.
The remaining 2.8 million decrease resulted principally from the consolidation of Caliper’s West Coast Research And Development operations in the first quarter of 2008, and Caliper’s strategic alignment of sales and marketing into the three core strategic business units Kevin described earlier. This was completed late in the third quarter of 2008. In Q1, we expect total administrative selling and research expenses to be approximately at the same levels as the fourth quarter of 2008.
Related to earnings, our operating loss was 48.4 million in the fourth quarter of 2008 and included impairment and restructuring charges of 45.3 million. Excluding such charges, our operating loss was 3.1 million compared to 5.6 million in the same period, which primarily results from the AS&R cost reductions and lower intangibles assets amortization offset by the margin effects that I described earlier.
Also mentioned in our press release today, we performed an analysis of goodwill and other intangible assets in Q4 in light of current economic conditions and our market capitalization. As a result of this analysis, we recorded in on cash goodwill impairment charge of 43.4 million. This impairment charge along with a reduction of 4.3 million of goodwill was attributed to the sales of the PDQ and AutoTrace businesses divested in the quarter, resulting in ending goodwill at 12/31/08 of $23 million.
In addition, related to the Mountain View, California, facility, where we have unused new space available for sub-let, we took an incremental non-cash restructuring charge of 1.9 million, which was added to the $2.8 million charge already taken during the third quarter of 2008. Our GAAP net loss for the quarter was 46.3 million or $0.95 per share. This included $0.93 per share of non-cash goodwill impairment and other restructuring charges and it compares to a net loss of 5.7 million or $0.12 per share in the same quarter of 2007. On a non-GAAP basis, net loss per share in the quarter was $0.02 showing a $0.03 improvement compared to net loss per share of $0.05 in the fourth quarter of 2007.
Moving on to the balance sheet, as I stated earlier, we significantly improved our year-end cash position ending the year with just under $27 million of cash as well as approximately 35 million of availability under our credit lines at the start of 2009. This exceeded our earlier expectations by approximately 2 million that was due to better than expected revenue and collection performance in the quarter.
Related to Q1 outlook, in our press release earlier today, we reported that our revenue outlook for the first quarter of 2009 is 25 million to 28 million, which is 3% organic growth before anticipated and unfavorable currency effects. This is on top of non-GAAP revenue non-GAAP revenue of 26.4 million in Q1 2008. We are also currently estimating full-year organic revenue growth of between 4% to 7% over 2008 non-GAAP revenue of 122.8 million, again this is before anticipated unfavorable currency effects of minus 2%.
As previously communicated, growth was excited to be greater in the second half of 2009 and as expected results primarily from our proprietary imaging and microfluidic technologies for molecular applications.
That is it from me. Kevin, back to you.
Thanks a lot, Peter. I appreciate that. I think what we would like to do at this moment is, if there is any questions, we would like to open the lines up.
(Operator instructions). And your first question comes from the line of the Dory Eve [ph] from Leerink Swann. You may proceed.
Dory Eve – Leerink Swann
Hi, good morning, guys. Thanks for taking our questions. Can you hear me okay?
Yes, we can. Go ahead, Dory.
Dory Eve – Leerink Swann
Okay. So first of all, I want to confirm your guidance, so you're actually guiding to 2% to 5% on a reported basis versus your prior guidance of 4% to 7%, is that correct?
2% to 5% is the guidance on a reported basis, that is correct.
Dory Eve – Leerink Swann
And 4% to 7% would be the organic. We expect about two percentage points of negative headwinds on currency.
Dory Eve – Leerink Swann
Right. So just to clarify your prior guidance, the 4% to 7%, was that on organic growth as well?
We haven’t had – this is the first time we have guided. We did comments at JPMorgan that we were hoping to achieve 4% to 7% growth in 2009, and I think that the way we presented it there, it could look like that was reported 4% to 7%, but we said we were going to guide. This is really our first actual guidance, and the markets have continued to be a little bit shaky. So what we have guided here is 4% to 7% organic, which would be 2% to 5% reported.
Dory Eve – Leerink Swann
Okay. Got you. So secondly, you said there is 2% FX headwinds that you would expect for on the top line, so how much of that would fall into the bottom line do you think?
We think it is actually probably going to be minimal, primarily because we have got a lot of cost base as well. So we are somewhat hedged. So I think that right now, it doesn't look like it is going to be significant.
Dory Eve – Leerink Swann
Okay. Sounds good. So it is now very deep into the first quarter now, so what have you seen in the demand trend for the first quarter ?
There are a couple of factors that are at play here. It is probably one of the most leading moments in my career because you have got so many different factors that we are trying to assess. The great news for us is that we are so connected to customers like yesterday we had 75 of them assembled, we were able to get a lot of different perspectives, and I think at this point.
We would sum up that we expected biotechs, small biotechs to have trouble, particularly in the first half of 2009 just because of their capital structures, and I think that that is probably going to play out. We do see some buying from them but it is not as aggressive as we have seen in the past. so I would say that the biotech, small biotechs, we do think will be impaired somewhat in the first half. Now our good news here is it is only about 5% to 10% of our revenue goes into that category. So we don't feel overly exposed there.
The area that – it seems like it has got a lot of different factors occurring would be academia, where there does appear to be a lot of endowment impairment and that is creating some negative headwinds. But on the positive side, the stimulus package has started. We see a lot of grants being written, a lot of the academics that we deal with are actually trying to get to NIH funding, and they're speaking very optimistically about what they think is coming down the horizon on that.
So we have actually created a huge pipeline of quotes that have occurred in the last I would say four weeks based on the activities occurring with the stimulus. So right now, I would say we think academics is probably more of a neutral play. We don't see it being a headwind like maybe we would have seen going into the year, based on the endowment impairment, but so right now I’d say that feels pretty good and that is a good 20% to 25% of our revenue base. So we are more exposed there.
And then you know government institutions seem to be well funded as well going into 2009. So that category feels like it is actually going to be a positive for us. We do sell a lot of our IVIS and now it’s a lot of the new genomic and molecular applications platforms that we have launched. We think that that's going to be an important category.
And finally, pharma and big biotechs which has been our mainstay, couple of factors there that are interesting, obviously the consolidation can – a lot of people are reporting that is going to hurt. We are not convinced that it is going to hurt as yet because we are not that penetrated that we are going to see a lot of lab closures where it is going to cause us to sell less. We actually are seeing some positives because we are uniquely entrenched in the securities biologicals of these new technologies that we have got, particularly the GX.
And as companies like Schering and Wyeth and like for instance MedImmune being acquired by AstraZeneca in the past, that actually stimulated more interest in adoption of those technologies as it gets cross pollinated. So that acquisitional thing is not something right now that we see as a negative. We would price it at worst neutral but could actually be a positive based on some of the specific transaction s that we are watching right now and the impact we know we're having in biologicals.
So in general, I think the larger ticket stuff in big pharma, we're, if you look at our numbers, you will see that we, our average selling price has come down significantly, because we have launched a lot of tabletop type products in the last 18 months. We used to sell these million-dollar type automation systems. We are now, we are selling a lot of less than $100,000 – like the GX goes for, I think, there is two versions, one of them goes for like –
The average is 65.
The average of 65. On of them goes for maybe close to 100, and the other one goes for something less than that, 40. The Genomic Workstation that we just launched, I think it goes for like 50 or 60, it is another, less than $100,000 price point. So I think we are better equipped to be effective, even where there is other companies saying that these particular markets are impaired, we feel that we are in a better position. So we think that if we can create the organic growth that we are projecting and we feel we’ve projected it with good conservatism, that we will differentiate ourselves this year from some of the other companies in our landscape who are all talking – a lot of them are talking negative organic growth.
Dory Eve – Leerink Swann
Okay, thanks very much. And just lastly, speaking of NIH funding, how much growth assumptions do you have in your guidance, like how much help you think it will help for your top line growth for the year?
I would say that right now we're not putting a lot of emphasis on it just because what we are saying particularly where the bigger ticket items required grants, the folks that we are speaking to say that the absolute earliest they are going to get the money for the types of grants that they are applying for is going to be September and it is likely the earliest is going to be December. So we all think it is going to have a major material effect this year on our imaging business. But in general I think that at worst, it is mutual. So we don't – I wouldn't say that we have got a lot of downside but there probably could be a little upside here if things start to materialize a little bit sooner in the year.
Dory Eve – Leerink Swann
Okay. Great, thanks.
(Operator instructions). And we have no further questions in queue, I would now like to turn it over to Mr. Kevin Hrusovsky for closing remarks.
Thank you. I appreciate that. Just a closing remark, we are very committed to the customer base and I think the next major event we are going to have is on April 18 out in Colorado, Denver. It is the American Association of Cancer Researchers, AACR, it is a major tradeshow. We will be doing a user group meeting there. I think it is on Saturday before that AACR actually opens up on Sunday and we would welcome anyone that wants to participate to meet a lot of our customers firsthand to see just how impactful these technologies are, but we use this as a great opportunity to reference sell.
So we have our users assembled at this show and they will present similar to the meeting we had yesterday in Cambridge and that we will invite a lot of new customers to this as well. So if anybody wants to attend that, let us know, and we will arrange to make sure you can get an invite. So other than that, we want to thank you for taking the time to listen in this morning, and I want to close by saying we are bullish about our potential in 2009. Thanks a lot. Bye bye.
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