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CR Bard Inc. (NYSE:BCR)

Q4 2009 Earnings Call

January 28, 2009 5:00 pm ET

Executives

Timothy Ray - Chairman & CEO

John Weiland - President & COO

Todd Schermerhorn - SVP & CFO

John DeFord - SVP, Science, Technology & Clinical Affairs

Eric Shick - VP, IR

Analyst

Miroslava Minkova - Leerink Swann

Michael Matson - Wells Fargo Securities

Seth Damergy - Deutsche Bank

Tom Gunderson - Piper Jaffray

Matthew O'Brien - William Blair & Company, LLC

Matthew Dodds - Citi

Joanne Wuensch - BMO Capital Markets

Kristen Stewart - Credit Suisse

Operator

Ladies and Gentlemen, thank you for standing by. Welcome to the C. R. Bard, Inc. fourth quarter 2009 earnings results conference call. At this time, all participants are in a listen-only mode, later we will conduct a question-and-answer-session, instructions will be given at that time. (Operator Instructions). As a reminder, this conference call is being recorded and will be available for future on-demand replay through the Bard website.

Today's presentation will be hosted by Timothy M. Ray, Chairman and Chief Executive officer along with John H. Weiland, President & Chief Operating Officer; and Todd C. Schermerhorn, Senior Vice President & Chief Financial Officer. Also in attendance today are John A. DeFord, Senior Vice President of Science, Technology & Clinical Affairs and Eric J. Shick, Vice President - Investor Relations.

Today Bard's management will discuss some forward-looking statements, the accuracy of which are necessarily subject to risks and uncertainties. Please refer to the cautionary statement regarding forward-looking information in Bard's September 30, 2009 10-Q in the information under the caption risk factors in the company's 2008 10-K including disclosure of the factors that would cause actually results to differ materially from those expressed or implied. During the call references will be made to certain non-GAAP measures which management believe to provide an additional and meaningful assessment of the core operating performance of the company and its individual product franchises. Reconciliation's of non-GAAP measures to the most comparable GAAP measures are provided in Bard's earnings release and on the company's website at www.crbard.com.

All information that is not historical is given only as of October 28th, 2010 and the company undertakes no responsibility to update any information, unless otherwise noted all comparisons are to the prior year period.

At this time, I will now turn the call over to Mr. Timothy Ray. Please go ahead.

Timothy Ray

Thank you. I'd like to welcome everybody to Bard's fourth quarter 2009 earnings conference call and thank all of you for taking the time to join us today as well. I would expect that presentation portion of the call to last about 30 minutes. The agenda today will go as follows. I'll begin with an overview of the results for Q4 and for the full year 2009. John Weiland, our President and COO will review fourth quarter product line revenue. Todd Schermerhorn, our Senior VP and CFO will review the fourth quarter income statement and balance sheet as well as our expectations for Q1 of this year.

Since we just covered our pipeline development pipeline in-depth at our December 17th, Analyst Meeting, we'll wait until our first quarter earnings call to give you detailed update on that pipeline and then we'll finally close with Q&A.

Fourth quarter 2009 net sales totaled $676.9 million that's up 7% over Q4 of last year on an as reported basis and 4% on a constant currency basis. The currency impact for the quarter was unfavorable by 230 basis points. As we've discussed our Q3 call, we've moved our normal Q4 U.S. distributor price increase into 2010, so that going forward the impact of the stocking and de-stocking results from those price increases will all occur in the same calendar year. In fact we're moving the majority of it to the middle of Q2 so that some of the impact will downside within the quarter itself.

We estimate the impact of the distributor stocking issues to be about 2% this quarter. So if you back that out, Q4 '09 growth would have been in line with the 6% constant currency growth we experienced into the first three quarters of 2009. Net sales for the full were [$2.53409] or 3% on an as reported basis and 6% on a constant currency basis. Net income for the fourth quarter was $105.9 million; diluted EPS were $1.8, excluding items that affected the comparability results between periods, which Todd will cover later.

Fourth quarter 2009 net income and diluted earnings per share were $136.8 million and $1.39 up 13% and 18% respectively. Full year 2009 net income was $460.1 million and diluted earnings per share were $4.60. Excluding items that affect comparability between periods, full year '09 net income was $509.5 million and diluted EPS were $5.09, up 12% and 15% respectively over 2008 results.

Looking at revenue growth, geographically compared to Q4 of 2008 on a constant currency basis fourth net sales in U.S. increased 6%, Europe was down 2%, Japan increased 3% and our other international business grew 13%.

Turning to the business development front, we had a very productive Q4 where we closed five deals. In our Vascular business as we discussed in December, we acquired a company called Wymed that markets the (inaudible) PTA Dilatation Catheter, which is a very innovative device that embodies the system of external wires running along the length of a balloon to deliver focused force to open calcified lesion.

These versatile catheter have diverse peripheral vascular applications and their deliverability along the loan length and use as a potential alternative (inaudible) and below the knee applications, appears to be resonating with our customers as we integrate those products in our PTA line.

In our oncology business, we closed three transactions. In the first we acquired the Spire dialysis business, which includes some strong IP portfolio actually of IP and right through a number of chronic dialysis catheters with a small existing base of products sales.

More importantly, when we have a combination with our own technologies and IP, will give us a stronger split-tip catheters position with additional competitive protection. The second transaction, we acquired technology that we expect to bring to the market later in 2010 to help prevent infections that start at the connector hub on vascular access devices including PICCs. While its revenue contribution won't move the needle significantly, it will play an important role in our approach to helping our customers address hospital-acquired infections. And lastly on oncology, we acquired rights to coding IP and technology that we will use in the development of future PICCs ports and other catheters.

Then finally in our Surgical business, we acquired some very innovative technology that we expect to integrate throughout our ventral hernia repair product line to help clinicians address one of the most challenging aspects of doing those procedures laparoscopically. I won't get into any more details on that right now, but we think this technology will be a differentiator for us in the hernia market place.

As I've said before, business development results tend to ebb and flow, this was a relatively good quarter for us and looking forward we've further deals in the work some of which may in fact close in Q1. In addition, Todd will strip out the special in a moment, what you'll know is that this was a very strong quarter for us in terms of R&D investment. We're currently actively planning further deployment of resources into our R&D process. As we told you in December we're are very serious about continuing to raise our level of investment, as we currently see no shortage of good ideas to peruse.

With that, let me turn you over to John Weiland for a review of our product line revenues. John?

John Weiland

Good afternoon, everyone. Before I start, let me note that I'll be giving all percentage group data in comparison with the prior year period on a constant currency basis unless I note otherwise. Let's start with vascular. Net sales for the fourth quarter in this category were $181.4 million, up 4% over last year, 8% on an as reported basis.

Our U.S. business, which represented 53% of global vascular revenue, was up 8% for the quarter, internationally we were flat. Our Electrophysiology sales grew 1% in the quarter. EP Lab System sales were up 9%. We've seen signs of improvement in this market. We know that EP Systems are good investments providing good returns for hospitals. So arguably they could be an early indicator of an improvement in capital equipment environment in the EP market, but we remain cautious.

We're also beginning to see some results from our alliance with Philips, although it is still very early in our collaboration. Growth in our disposable EP product lines declined 1% this quarter, while our steerable diagnostic catheters were up 8%. Our conventional and (inaudible) catheters were down. All three of these product categories faced very strong Q4 2008 comps.

Surgical graft product sales were flat in Q4, which is the typical range for this product line. Our endovascular business, which represented 67% of the vascular category grew 6% in the fourth quarter. Within endovascular our Biopsy products were up 9%. Our breast biopsy market line was up 19% for the quarter reflecting the launch of a new visit clip marker in October.

Whereas our next generation Vacuum Assisted Breast Biopsy System launched late in Q4. While only modestly impacted sales, clinicians appear very pleased with the ease of use and speed of the procedure with this new compact untethered single insertion multiple sample device.

Sales at our peripheral PTA line increased 18%. In the third quarter we launched our new rival family of high performance workhorse balloons and are off to a nice start. This new low profile system features our checkering balloon technology for enhanced tractability and comes in balloon lengths up to 150 millimeters.

The late November acquisition of the VascuTrak catheter line together with the near-term scheduled released our Ultraverse catheters for the SFA and below the knee should add substantially to the trajectory of this already fast growing product line so stay tune.

Sales in our vena cava filter line were down 13% in the fourth quarter versus the prior year period. As we discussed in our third quarter call, the filter markets slowed significantly in 2009 although it's difficult to discern market data in real time. We believe that we're seeing signs that it slowed further in the fourth quarter. While we haven't launched the new product into this markets since the middle of 2008, we just received approval for our new Eclipse filter, which offers multiple retrieval options, dual level filtration and that electro polished surface finish.

Beyond this we anticipate on possibly two more filter launches late in the year, which we'll talk about more when we are ready to enter the market. So we think we're moving in the right direction as 2010 progresses.

Our stent business grew 5% in Q4, which breaks down into 18% growth in the United States offset by a decline of 8% outside of the United States, which is primarily Europe. Here we up against a tough comp with the launch of our Flair AV access stent graft in early Q4 last year.

As the first peripheral vascular stent graft that proved for the United States market Flair generated significant unusual stocking orders. In And bare metal stents (inaudible) grew better than 90% in the United States this quarter. Outside the United States our performances weak primarily due to softer demand in Europe for the quarter and the timing of shipments to our joint venture partner in Japan.

Looking ahead we anticipate publication of the Flair clinical trial data and a major period journal later in the first quarter. This will be an important tool to help further expand the penetration of Flair into the market for treating AV access occlusions. Then in Q2 comps will get tougher in our stent business since we saw a significant uptick in sales following the SFA approval for life stent in the United States in '09.

Let's go to Urology. Total net sales were $185.3 million down 3% versus fourth quarter of last year down 2% on an as-reported basis. The United States business was down 7%, while internationally we grew 6%. Excluding the distributor stocking issues that Tim discussed, we estimate urology demand grew 2% globally this quarter.

Our basic trainees business, which represented 57% of the urology category was flat in Q4. Our IC Foleys was flat globally and down 3% in the United States. Organically, excluded in the impact of the distributor stoking issues we estimate global basic drainage and IC Foley demand grew 3% and 2% respectively this quarter.

Based on our markets surveillance we see our Foley business continuing would it be impacted by the slowdown and procedure growth in the United States market. We also continue to see a reduce rate of convergence from standard to infection control Foleys within our customer base.

Our continents business was up 1% in Q4 within continents since its launch a little over year ago, our DigniCare fecal incontinence line has grown to the point that it's making a meaningful contribution. Continuing this strength in Q4, we had over 30% sequential growth over the third quarter in this line. This strong performance resulted by another double-digit decline in our surgical Incontinence products this quarter.

Looking forward, with the U.S. approval of our (inaudible) in late Q4, we expect the trend in our surgical Incontinence business to improve. However, we'll still be handicap versus the competition in the pelvic floor repair portion of this business until we get our Light Mesh and more importantly our (inaudible) devices on the market. As we discussed in December, we anticipate launching these in the first and second half of 2010 respectively.

Sales in the urological specialties were down 13% versus the prior year quarter. Standalone sales of our StatLock catheters stabilization line decreased 8% in Q4 impacted by the delay in the United States distributor price increase. Outside the U.S. we continue to see good momentum as a result of the investments we have made in 2008 and 2009. Our international StatLock business is up 38% for Q4. Excluding distributor stocking, the estimate demand for StatLock was up 11% globally and up 8% in the United States this quarter.

Oncology. Total net sales in this category were $178.9 million, an increase of 7% over the fourth quarter last year or 9% on an as reported basis. Geographically, net sales in the United States, which represented 75% of our global oncology revenue were up 7% outside the United States, sales were also up 10%.

Our port business was up 9% versus Q4 last year, while this uptick in growth rate is encouraging it's too early to assume it reflects a change in trend, among the new port product launches we have schedule for 2010. In the first half for the year, we planned to launch a new CT Power injectable port family. Bu the segment of the market does not value the full complement of our PowerPort features.

As we noted in our analyst meeting in the current economic environment we have to loss in some share to lower price competitive products with fewer features. Then in the second half of the year, we anticipate introducing our first antimicrobial PowerPort. Well, ports have a relatively low infection rate when infections occur they typically result and explanation of the device, which can be a significant event for what is often an immune compromised patient. Tip revenue increased to 11% in the fourth quarter, up from 8% growth in the prior two quarters. Again this is the nice improvement what we're ready to call it a trend.

Looking ahead adding an indication for Tip Location conformation using our new 3CG technology to our well-established state right Sherlock TLS system should be a catalyst for accelerated growth in our PICC business. We continue to anticipate the integration of this indication in the second half of the year.

Our vascular access ultrasound product line was down 8% this quarter, so no sign of increased capital spending here in Q4. Our dialysis business was up 9% this quarter, 8% sequentially. We've increased our investment here in the product flow is coming together and beginning to have some impact. We expect this business to continue to strengthen in 2010.

And finally, our Enteral Feeding line was down 11% this quarter related to the discontinuation of a number of products that we discussed on the last call. This negatively impact the growth in our oncology business by about a point in the fourth quarter.

Now let's finish up with surgical specialties. Global net sales increased 11% in the fourth quarter to $108.7 million, up 14% on an as reported basis. United States sales increased 19%, while international sales declined 7%. Our soft tissue repair business continued gain momentum with a significant up tick to 21% growth this quarter. In the United States sales increased 34%, while outside of the United States they were down 5%.

Within soft tissue, our natural tissue products were up over 110%. Our AlloMax human tissue line had another very strong quarter as we added to already strong momentum in this product with the addition of the breast reconstruction call point in Q3. The clinical performance of AlloMax is meeting with strong physician acceptance as we see plastic surgeons migrating to allograft implants as replacement for target tissue for breast reconstruction procedures following that (inaudible).

Also with the addition of the XenMatrix pose a tissue pads to our bag last quarter. Our xenograft line nearly tripled over the prior year quarter. XenMatrix has been shown in published clinical studies to maintain excellent strength characteristics, while encouraging affected in growth and tissue incorporation through which unique open cell structure accomplish to a proprietary process and technique. XenMatrix's strong results today highlight the need for better clinically performing natural tissue products for complex cell repairs.

The recent expansion of our biologic product offering has position Bard as a full line supplier in a vast growing market for tissue we regenerative products. Our sales force has made quick and router due to synergistic call points with general surgeons and breast reconstructions specialist. We are also explaining a potential to further expand our call points to include other markets such as trauma and plastic surgery. It's an understatement to say that we're pleased with the performance of our natural tissue products and our ability to quickly drive changes in market share.

Moving to our synthetic hernia products, sales were flat versus a strong Q4 '08. Going forward, we do expect to gain further momentum in this category in 2010. In the inguinal space, we launched our new Light Mesh 3DMax late in Q4 and its meeting with positive initial clinical feedback especially around its easy of laparoscopic deployment. Building further on our synthetic line, we will be bringing our new light weight perfect split to market in the first quarter and expect to launch addition to our Ventral family or Ventral Hernia Repair products, including the version of a resorbable seprafilm barrier coating in the second half of 2010. So, stay tune.

Our fixation line was up over 200% again this quarter as our new Sorbafix resorbable anchor device continues to enjoy great success in the market. I'm excited to that we have received 5 to 10K concurrent for our PerFix device and are preparing for launch later this quarter. We look forward to rounding out our fixation line with the addition of this permanent anchor version of the Sorbafix.

Overall, in our soft tissue business, we are very pleased with results we are seeing from our entry into the breast reconstruction market and with the continued momentum in the biologics coating and fixation spaces. We also look forward to launching more new products to help get our synthetic hernia line growing again. Closing out the surgical category, as I noted our performance irrigation business declined 19% and as we discussed last quarter this is primarily attributable to return to market of one of our irrigation competitors and a tough comp in the fourth quarter of '08. And finally our hemostasis business was up a 5% this quarter.

This concludes our product line revenue discussion. I'll now turn it over to Todd Schermerhorn.

Todd Schermerhorn

Thank you, John. Let me start by covering the items that affect the comparability of our results between periods. In total we've reduced earnings and EPS by $30.9 million and $0.32 respectively. The deals we closed in Q4 resulted in acquisition related adjustments under the old FAS 141R of $18.5 million, the majority of which was purchased R&D but also included dealer termination cost and the usual legal and valuation transactions cost.

We had two insurance related items that hit other income and expense for a net charges of 7 million. The first was a $25 million charge relating to insurance covered, John (inaudible) claims that we previously disclosed in 8-K filing. The second was income from an insurance recovery of $18 million related to a legal settlement that we made in prior periods.

Additionally, we had two other minor items the first was $2.7 million charge to other income expense for small asset impairment and the second was the $2.1 million charge to income taxes for an adjustment resulting from a state tax order to prior periods. Design is always detailed in the notes of the financial statements and in company reconciliation in Q4 of our earnings press release.

So now let's go to the statement of income for the quarter. Gross profit was 62.3% of sales of the Q4 up 60 basis points from the prior year quarter. No amortization of intangibles relating to transactions close in the last 12 months crosses about 20 basis year-over-year, these results generally consistent with our recent experience.

As I noted at the December Analyst Meeting, we'll see gross profit step down significantly in Q1 as inefficiency associated with the inventory reductions in the fourth quarter flows through our P&L.

I warned you that we could go as over 60.5%, it now looks like we'll see results around 61% as our cost performance in Q4 was a little better than we had expected. And then after Q1, we'd expect to reengage the improvement curve as we move through 2010.

S&G expenses were $184 million for the quarter, on an adjusted basis they were $182.4 million or 26.9% of sales reflecting 140 basis point improvement over the prior year period, despite moving our equity grants into the fourth quarter. Additionally, we initiated the surgery sales force expansion to Q4, although it didn't materially affect thee metrics. We ended the year with 210 basis point improvement in adjusted SG&A for the full year.

R&D expenditures totaled $58.9 million for the fourth, on an adjusted basis they were $45.1 million or 6.7% of sales, another record for us on an organic basis and an increase of 13% over the prior year. As Tim indicated at December, we're expanding and today again we're expanding R&D capacity and currently in the process of recruiting engineering and quality professionals to that end.

Interest expense was $2.8 million for the fourth quarter, right in the range of our historical results. Other income expense was $13 million of expense for the fourth quarter, on adjusted basis it was 100K of expense. The effective tax rate for the quarter was 35.3%, on an adjusted basis it was 28.7% getting us to a full year rate of 29.4%. We repurchased above 900,000 shares of our stock this past quarter getting up to $4.5 million shares year-to-date and we will continue to be buyers of our stock as cash balances in market conditions permit.

Balance sheet at December 31 reflects cash in short-term investments of $674.4 million versus $632.1 at September 30. For the quarter accounts receivable days were flat and inventory days were down 7.4 days.

Capital expenditures totaled $10.6 million for the quarter, $48.1 million for the full year just under our annual guidance. And on the liability side, total debt was $149.8 million at December 31 with no change from September 30. Debt-to-total cap at the end of the fourth quarter about 6% and total shareholder investment was $2.2 billion at December 31.

Moving to financial guidance for Q1. We're expecting constant currency sales growth of 6 to 8% right on our full year guidance and from year EPS stand point excluding items effected to our ability, we see the first quarter in the range of 121 to 125.

So that's it for the financials. I'll now turn it back to Tim.

Timothy Ray

That concludes the formal part of the presentation. Let me now turn the call back to the moderator to facilitate the Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from Miroslava Minkova with Leerink Swann.

Miroslava Minkova - Leerink Swann

Hi. Let me start over with surgical, very impressive results over there. Can you help us understand how much was perhaps driven by new products that you've added, perhaps the breast indication for AlloMax or Zen Matrix and what their expectations going forward considering that you are also launching (inaudible) which is going to be another incremental products. Is this a sustainable run rate for surgical as you see it?

John Weiland

This is John Weiland answering. The whole of the growth and essences is been from new products, some of that in the United State even in our synthetic side via our separate technology in our Ventrio technology. We're started to see good up tick of that in the quarter and then obviously of the products we talked about in fixation and in the biological space. All of those are providing significant growth than we think we have a awful lot share ahead of this.

Todd Schermerhorn

We guided 9 to 12 for the year, we're not changing that at this point, but obviously the trajectory is pretty good right now.

Miroslava Minkova - Leerink Swann

Okay, that's helpful thank you. In fact it sounds like it could be better if I'm looking at your results today.

Todd Schermerhorn

Let's hope so.

Miroslava Minkova - Leerink Swann

Okay. Vascular, outside the US, was a little bit disappointing, that's the first time I see vascular decline at least OUS for a while and maybe if you can talk about a little bit what's happening in Europe, it's sounds like sales are weak there again, maybe you can say that for me would be helpful?

John Weiland

We ended overall weak quarter in Europe and I think there a couple of issues on it. We talked about our stent sales or stent sales were weak in Europe for the quarter. But we saw an overall softening in the European business particularly in Southern Europe literally Spain, Portugal and also to a degree in Germany. As you know, we've been rebuilding our sales force in Europe and we're still in process of getting that finalize. As I mentioned in other quarter, we expected to finish the year at about 5% to 6% of territories up and we finished exactly there. So we'll be working hard in the first quarter for some of those territories and that is to be really the catalyst that we're hoping to really provide improved growth in the second half of the year.

Miroslava Minkova - Leerink Swann

Okay. And I suppose that's related to the vascular performance as well?

John Weiland

Yes. If I mention our stent sales were weak and I think that's indicative of the number of open territories we have in that space.

Miroslava Minkova - Leerink Swann

Okay. And maybe a broad picture question for Tim. You shared some concerns about the environment at the analyst meeting, as you stand here today maybe a month later and now that perhaps healthcare reform does not look as much of an overhang of the ESU. Has anything changed with regards to how you look at the world today? The FDA, the ability to restart the growth advice, hospital admissions et cetera?

Timothy Ray

We continue to wake up a little bit afraid every day. So that's not changed at all. I think the only thing if we can change is the one you highlighted and that was the healthcare reform issue, which certainly from a device company point of view looks better than a they were months ago, but it's still very much up in the year in terms of what the outcome will be there. Other than that, we don't see any real change in the dynamics somehow we described in December.

Operator

We have a question from Michael Matson with Wells Fargo Securities.

Michael Matson - Wells Fargo Securities

Hi. I guess I just wanted to ask what you're seeing with regard to elective procedure volumes. One of your competitors reported this morning and they were indicating that they are seeing an improvement particularly in urological procedure area. So are you seeing any improvements there and how is that kind of dive with the worsening growth that we saw in your urological business?

Timothy Ray

We've not seeing any trends that made us to believe that admissions are increasing. As you know in our urology business were heavily driven by admissions and not same base of reason that space. So December, the unemployment rate is still increased by about 84,000 individuals in the United States. We haven't seen that turn the other way and we think that's the primary indicator or one of the primary indicators for improving admissions.

Michael Matson - Wells Fargo Securities

Okay. And then another one of your competitors I guess (inaudible) have launched antimicrobial pick and I think there is another one coming soon this year and just wondering what the timing is on your antimicrobial pick if you are working on one and what impact if any of these competitor products have had there?

John DeFord

Yeah, John DeFord here. We talked at the December Analyst Meeting about our pick sort of a general sense, we didn't give details on sort of our new configurations, but I guess it didn't take a rocket scientist to figure out that we're working in a number of those areas. So we haven't really provided information on when we are launching that and for competitive reasons we're holding that back, but rest of sure we're working on that pretty diligently.

Timothy Ray

But I can say we have not seen any loss of share to any of those competitive technologies.

John DeFord

Yeah. There is really only one on the market right now and that's (inaudible) and we haven't see much impact from our products at this time.

Michael Matson - Wells Fargo Securities

Okay. And then with regard to the adjust swing in your urology business, when do you think that all really certainly have an impact and is there surgeon training or something there that will sort of constrained growth initially and you'll have to ramp up overtime?

Timothy Ray

The conversions on adjust or all one new surgeon at a time, it's really a matter of getting those surgeons to training, completing the training and thing and then go out and perform a number of cases in the (inaudible) facility. So as in many other products within that space it's a slow study ramp.

Michael Matson - Wells Fargo Securities

Okay, that's all I've got thank you.

Operator

We have a question from Seth Damergy from Deutsche Bank, please go ahead.

Seth Damergy - Deutsche Bank

Yeah. Hi guys, thanks for taking my question. First, Todd I wanted to touch on guidance, so two thinks the EPS, your earnings were about $0.06 above the 133 range you mentioned at the analyst meeting. So are you still sticking to the 10% growth rate in 2010 and second can you give us a year-over range where I guess comfortable like you gave last year. In the past you said that there has been leverage in the P&L where you could make up for currency fluctuations, but it sound like 2010 is going to be a tighter.

Todd Schermerhorn

Okay. Well the first question is we guided the 9%, so we're already trying to move as such.

Seth Damergy - Deutsche Bank

With the R&D credit, I'm sorry.

Todd Schermerhorn

Are you counting on the credit, then? So no I mean the 133 doesn't change that, obviously we have to grow from a higher base now at 509, but 9% still the number. As it relates the euro, we have noticed the dollar strengthening in the last couple of days. I haven't done the calculation to tell you exactly what our flexibility is (inaudible). I think we could take another 10 points here based on where we planned, I think 139 today. I think we could take another 10 points, so after that we will start get rocking. That's pretty much I think what we're saying year ago.

Seth Damergy - Deutsche Bank

Great, and thanks. On the PTA side, are you guys and I don't know if this is something you've talked about, I haven't heard it, but you working on a Drug Eluting Balloons or is that not in the direction you had it.

Todd Schermerhorn

We haven't announced anything in the Drug Eluting Balloons side of things.

Seth Damergy - Deutsche Bank

Okay, fair enough. And then last on the synthetic mesh side your competitors are kind of said that you might be growing in the double digit range and I know you guys are lagging, you've got a bunch of new products you talked about, you think by the end of 2010 you will move closer to market rates, is that the plan or the divisions going to pulled up by the biologic and fixation?

Timothy Ray

We think it's important to book the growing all three of those segments. We saw nice sequential growth in the fourth quarter in the United States in the synthetic area. We are launching a number of new products in that space. Our weakest area has been over the last few quarters in synthetics it's Europe and that's where I think people may be saying that they are taking share, I think that's probably fair, but we've just launched really the products that we've been waiting for with that space 3D Max, light PerFix Plug being two lead products. We think that's real important on mattering over there to be very competitive.

Seth Damergy - Deutsche Bank

Great, thank you.

John Weiland

Set upside, the growth rates in those businesses are market rates are only 3 or 4% anyway and we are flat for the quarter, so we are not that far off.

Seth Damergy - Deutsche Bank

Okay. I was under the assumption they were just the higher so?

John Weiland

We don't think so.

Operator

We have a question from Taylor Harris from JPMorgan, please go ahead

Unidentified Analyst

Hi everybody it's [Kidman] here for Taylor. Maybe we start on the tech business, you had really nice performance there in the quarter. I'm wondering if you can add little more color on the market dynamics. And do you think that were seeing any other competitive trialing that you touched on early on year start to mitigate. And how should we think about that business probably in 2010?

Timothy Ray

No, I think as we said from our earlier comments, one quarter doesn't make a trend although we like the results that we had in the quarter. We think the key issued for us in terms of continue into ramp our group rates will be a 3CG technology that's certainly top on our mind in terms of importance to us as we move down stream.

Unidentified Analyst

Okay great.

Timothy Ray

In up we had some very important launches in the third and second and third and fourth quarter is that we are just starting to see some realization front, so we haven't talk lot about this we mentioned there was in calls and but don't want to provide growth tools as we moved into 2010.

Unidentified Analyst

Great, on the gross margin side wondering why the inventory slows down only effective the gross margin for one quarter is there is risk and will see any spill over into the second quarter.

Timothy Ray

Yeah, this is a little bit, I think were we model that there was a few million dollars the majority of it was going to hit, it happened pretty fast I guess would be the, we entered the first question we move the inventory down pretty much all of this quarter. And so there is a little spill over into Q2, a lot smaller than the impact in Q1, but I'm not waiting and - wait and see before I give you any guidance on that.

Unidentified Analyst

Okay, thanks one quick one once terminal drop and did you say at the beginning of the call you would like to price increases through in the second quarter?

Timothy Ray

Yeah.

Operator

We have a question from Tom Gunderson from Piper Jaffray, please go ahead.

Tom Gunderson - Piper Jaffray

Hi, on those price increases I just want little clarification of the 2% that it overall on a comparable basis for Q4 was all over the majority of that and drainage and stat lock.

Todd Schermerhorn

Yeah probably 80% was in the royalty area.

Tom Gunderson - Piper Jaffray

Okay, I was asked before but I'm sure answered, can you break out what breast recon was within soft tissue.

Todd Schermerhorn

Not at this time Tom, it's a very competitive space and we do just don't want to give a road map to our competitors yet.

Tom Gunderson - Piper Jaffray

Okay and then you have the only approved stent for SFA, so can't be competitive can you give me the worldwide OUS, U.S. sales for growth.

Todd Schermerhorn

Let me see, (inaudible) do for you that I'm not sure there is no competition for us there Tom by the way. I wish that was the case. And hold on a second - get my glasses to read this numbers. So I think we talked about U.S. rate for that product, than we say it

Tom Gunderson - Piper Jaffray

Yeah I think you said 90.

Todd Schermerhorn

Yes 90% , though was the 100%, outside the U.S. not very impressive growth at all for this quarters as a result of Europe softness.

Tom Gunderson - Piper Jaffray

Okay and last question you touched that some but I just want to get a sense I think you are adding 30 to 35 sales people whose arrived into surgical is that completed now and we get the cause on Q1 are you still hiring?

Timothy Ray

Yeah, we really completed the management side of that its about a 35% increase store sales force in the United States, we really completed the management side of that piece, the district managers and regional managers is that we need and we are in the hiring process now we had handful - but all of that I will really completed in the first half of this year.

Tom Gunderson - Piper Jaffray

Okay. That's it from me, thanks guys.

Operator

We have question from Ben Andrew from William Blair, please go ahead.

Matthew O'Brien - William Blair & Company, LLC

Actually maiden for Ben, just wanted to talk a little bit about newer products in the surgical specialty side of things, as far the reorder rate go and I'm sure there is some trialing go on breast recon and using XenMatrix expert. What kind of reorder rates are you seeing from those accounts kind early days?

Unidentified Company Representative

That we are seeing in very nice build sequentially among to month.

Matthew O'Brien - William Blair & Company, LLC

Okay, any sense of over 50% or anything else along those lines in terms of how often they continue to come back this year?

Unidentified Company Representative

We are not seen a higher reject rate, once we build a get establish with the customer.

Matthew O'Brien - William Blair & Company, LLC

Okay, and then the LifeStent side of thing, I know that one of the main objectives that you guys is to get in with the interventional radiologist? Where are you are at this point?

Unidentified Company Representative

Our real objective because we had a pretty good footprint ready in the radiology segment our real move was the interventional radiologist side of things. Where we have not add historical base and I think we talked about in the third quarter that we were starting to really call on those good relationships and detail of the product that we continued to do that. I think we are seeing very nice recession as evidence by, I think the start of growth that we getting there.

Matthew O'Brien - William Blair & Company, LLC

And then one final, in terms of acquisitions in their impact on 2010 topline performance, can you quantify that was?

Unidentified Company Representative

We have not rather than to say 68% in total, Matt.

Matthew O'Brien - William Blair & Company, LLC

Yeah, I mean why I am guessing, too much of contributor?

Unidentified Company Representative

We think (inaudible) the Ultraverse product will actually help PTA of fair amount so was that I think I said with analyst meeting those on numbers you are going to notice, (inaudible) and of course, the other acquisitions in deals with it this year, where the heavy biologic deals and the further review with - those you're seeing right now. But, Matt, it's a product by product guidance here.

Matthew O'Brien - William Blair & Company, LLC

Okay, great thank you.

Operator

We have question from Matthew Dodds from Citi. Please go ahead.

Matthew Dodds - Citi

Hi, couple of questions, first Todd I guess for potential for reprocessing other than the EP diagnostic catheters or there any businesses other been as you have there is a risk there, or may be growing person of the business that seeing reprocessing?

Todd Schermerhorn

We don't see anything set for the diagnostic catheters of EP space Matt.

Matthew Dodds - Citi

Okay, then as information right before I thought you set synthetic was down internationally, but when you said that was basically flat. Can you give some color on may be what require U.S. sort of how you did you less then?

Todd Schermerhorn

We grow in the single digits in the United States.

Matthew Dodds - Citi

Okay, perfect. And I had one last thing for you on the gross margin, I don't want to make it sound like you can do better but if you look at the mix of this quarter, Urology which I am pretty sure as margins well below the corporate average is now declining and you are doing very well in the surgery space which has really good margins. Why are you seeing more mix, what's offsetting kind of my mass on mix there?

Todd Schermerhorn

Now, we are see mix for this quarter, we are seeing 20 to 30 basis points and I think I said for the full year next year 20 to 40. So, we are just we are start to see kind of that same level Matt. As it relates to other parts of this equation for this period foreign exchange was favorable 10 to 20 basis points new amortization as I said (inaudible) 20 unfavorable price was 20 unfavorable this period, which is may be 10 basis points more that expand and the cost is favorable 50 to 70. So, I don't think your assumption on mixes in this serve want but you might want check some of those other components.

Operator

We have a question from Joanne Wuensch with BMO Capital Markets. Please go ahead.

Joanne Wuensch - BMO Capital Markets

I just want to clarify couple of things please. The 2% that was in hitting on this quarter because of the price increases, we should think about that 2% hitting in the second quarter of next year?

Timothy Ray

I think you will see some in the first quarter and some in the second quarter Joanne. But there is no additional for the year coming and then go out.

Joanne Wuensch - BMO Capital Markets

Okay, tax rate for next year, what do we thinking given that the tax rate in the fourth quarter was just slower than I would expected?

Todd Schermerhorn

Yeah, so got it 30 to 31, we approved our result by about 30 basis points. So, it's really not enough the move our guidance Joanne.

Joanne Wuensch - BMO Capital Markets

Okay, the other top process I had was, some of the share count issues, remind you were you are, in terms of share repurchases please?

Todd Schermerhorn

Well, we bought back $4.5 million shares this year, if we stand alone I think I said in December that would improved our shares counts we did not been else from here by $1.5 to $2 million shares for next year. Our primary use for our capital is strategic, but if we don't have deals will probably be in the market volume.

Joanne Wuensch - BMO Capital Markets

Okay and is there a way to quantify what the M&A contribution loss in the fourth quarter?

Todd Schermerhorn

Well as I said mainly it's in the main area those was the two big revenue producing deals this year, but I would give you an exact dollar rate.

Timothy Ray

But even in that it's taking a product lines that had very little sales and very existence bringing them into ward that exploit and with our sales force to gain shares it's not relating with the large space ship sales that would affect our organic sales growth rate.

Operator

We have a question from Kristen Stewart with Credit Suisse.

Kristen Stewart - Credit Suisse

I was just wondering you said in your comments about some of the deals that you have made and you had something about under the old FAS and I think, which 142 and looks like you did exclude out on in process R&D. Is that my understanding that the accounting rules had changed to your new longer be able to adjusted out completely is that what you're doing or is that what we should expect to see on a go forward basis?

Timothy Ray

That's a good question Kristen. What I refer to the old FAS 141R we don't calling FAS anymore there's qualification project and they now refer to ASCs and its got the different number and I think it if went there would confuse everybody, but that deal of across the IT R&D it's not a business under 141R which is a criteria would take to have capitalized purchased R&D so if it's not a business to essentially an asset deal as a consequence the majority of that deal was written off as purchased R&D which is your appropriate accounting.

Kristen Stewart - Credit Suisse

Is it your inclination going forward to continue look for smaller assets like deals to that?

Timothy Ray

We don't look for any particular deal that fits the accounting and be kind of it is what it is have that been a business in terminology of 141R would have been capitalized, I guarantee and then what have to been amortized at the point one when the products were released.

Todd Schermerhorn

I think we're accounting in different we do the just one product that people going to say lot above.

Kristen Stewart - Credit Suisse

And did you give a gross figure for amount of paper with I think you set back acquisitions during the quarter?

Todd Schermerhorn

We didn't not but it's in the range of, I can give it to you it's in the range of about $60, $70 million.

Kristen Stewart - Credit Suisse

As it fair to say offset that these deals any associated revenues with them or already embedded within your guidance as well as the deal that sounds like you are anticipating closing in the first quarter as well?

Operator

(Operator Instructions). We have a question from Douglas Shaw with Barclays Capital. Please go ahead.

Matthew O'Brien - William Blair & Company, LLC

Hi this is Matt, doing for Doug I just had a question, you comment on capital expenditures possibly seeing an improvement going early indicator of improvement with EP med system, I just wanted to note if you give us little bit more detail there in terms of conversations with customers or what you are seeing at the hospitals level, if you get that improvement.

Timothy Ray

I wouldn't think this would be a general trend across all markets within the hospital environment. But we saw an uptick in the fourth quarter in terms of our EP systems and there is been a little bit pen up demand I think these give very high paybacks to hospitals and returns that we think there we just stay some kind of demand is founding getting med.

Todd Schermerhorn

Actually the Q3 was a good number too, Q4 '09 had a tough call, so keep the normal to better in that respect.

Matthew O'Brien - William Blair & Company, LLC

Okay, and then on the price increases I'm just curious why make the decision to move from to the second quarter and how in this environment or customers receiving, want that making in the first quarter?

Todd Schermerhorn

Well this is not - you can't look at this is generally being increases in customers prices, these are increases to our dear customers. And that's what drives them for buying one period or some few months earlier than the price increase in order to - acquire those products at a lower cost and they would have later in the year. If you give your price increase (inaudible) in Q2 some of those dealers are going to buy in Q1 and some of them are going to wait until Q2 to buy and try to keep the price increase. But this is not representative of past price increases to end user hospitals.

Matthew O'Brien - William Blair & Company, LLC

Some of that is just the choice that - have further sort of smooth results, I mean you talked about during these stocking in the same year - can do it in the same quarter or?

Todd Schermerhorn

We didn't think that it was proven to have it all kit in one quarter and it was reasonable for us to do it in the second quarter for the most part and half gives those dealers the opportunity to buy in Q1 and Q2.

Operator

We have a question from (Larry Chris) with Morgan Keegan.

Unidentified Analyst

Okay, sorry about that. Just a couple of quick questions. Maybe if you step back and think about the increase spending in R&D, I guess one of the questions that investors keep asking is, how long it that peak to translate into products and how should we calibrate our thinking around that is that sort of, really 2011, 2012, some of that start to pay dividend this year

Todd Schermerhorn

No, is obviously various type business, but on average (inaudible) of hard work to develop a project is over here for about 40 months are so

Timothy Ray

So those people have to come in and get a doctorate first, so you go through this process when 69 months for them to be in full productivity, so you probably are looking for a couple years of.

Unidentified Analyst

Okay perfect. And then just two quick product questions. You guys sort at the December analyst meeting indicated that you would start, restart the trial sometime in early 2010, so just resulting for a status update there and then the second question is with 3CG or you having FDA approval, I just can't understand the risks to the timing for the second half of 2010.

Timothy Ray

Okay. So on (inaudible) we actually said late 2010 to restart that study and if recall from the analyst meeting, we are making improvements to the catheter itself as well as some of the energy delivery technology. So those have got a percolate through, as we said, when introduced those into Europe in the second half of the year, really towards the end of the year and we'll be certainly doing a lot of the start up of the study work in the second half the year. But I wouldn't expect us to begin enrolling patients this year. I think that's what we said at the Analyst Meeting.

Unidentified Analyst

Okay, then 3CG?

Timothy Ray

Around 3CG, as you understand we do have 510(k) concurrence. However, we really want to take that product out to the market with a good training program and the kind of claims that we talked about at Analyst Meeting around X-ray. And so we are collecting some clinical information, we have got little work to do there and we could enter the market with it, but we really feel like we are going to best served and our customers are best served, well that's coming to the market with a good training program and a lot of data that they can take to their hospitals and to the state boards and so on.

Operator

This concludes our Q&A session. I would now like to turn the call back over to Bard's management for closing or additional comments.

Timothy Ray

Thanks. First of all let me take this opportunity to thank Bard's employees around the world, for all their hard work and dedication throughout 2009. Obviously we expect the same for this year and I'd like to thank everybody for taking the time to attend today's call. We'll talk to you again at the end of the year first quarter.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.

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Source: CR Bard Inc. Q4 2009 Earnings Call Transcript
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