Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Vincent Forlenza - Chairman, Chief Executive Officer and President

Analysts

Bill Quirk - Piper Jaffray

Becton, Dickinson and Company (BDX) 25th Annual Piper Jaffray Healthcare Conference December 3, 2013 12:00 PM ET

Bill Quirk - Piper Jaffray

Good afternoon, everybody. I'm Bill Quirk, the Diagnostics and Tools Analyst at Piper Jaffray, part of the med tech team. And it's my great pleasure to introduce the Chairman, President and CEO of Becton, Dickinson, Vince Forlenza, who is sitting to my right. And I believe Vince has a few opening remarks, and then we'll move right into Q&A. And of course, as a reminder, this is an open session, so please bow me and feel free to shout out a question here to Vince.

Vincent Forlenza

Thanks, Bill. Thanks for the invite, to be here, it's great to be here again. So let me just start by reflecting a little bit on last year and it was a bit of a transition year for BD. If you had gone back to the previous two years, we hadn't grown our operating income. We really had seen the need for a period of investment and we supported that investment strategy on the financial side with some significant share buybacks.

But as we've entered 2013, we came out and we told the investing community that they should expect higher quality of earnings and stronger revenue growth, really driven by emerging markets by our new products and by our acquisitions. And as we've finished the year, a-month-and-a-half ago or so, we're very proud to see that we had a strong year with a strong finish.

So we're encouraged about the strategy that we are playing out on growth and innovation with this multiple components that I just listed and also operating effect of this has been very strong with our ReLoCo program, and of course we intend to continue those programs. So we think we're in the start of something that is working for the company from a strategic standpoint.

Bill Quirk - Piper Jaffray

So with that, thank you very much for the introduction, Vince. And so if we think about, you touched on the strength into the fiscal fourth quarter and really kind of the reacceleration of the topline. So can you talk to us a little bit about the spread between the top and the bottom-end of revenue guidance? And kind of what goes into both sides of that, just to help us kind of frame that as a discussion point?

Vincent Forlenza

Sure. So when we put together the revenue guidance, number one, we're always starting to -- we're thinking it's a backdrop for the environment. And obviously, if the healthcare environment improves, emerging markets go well or better than expected, then we're moving towards the higher-end and of course the reverse is true on the lower-end. What specifically are we worried about towards the lower-end, of course, would be what does Congress do, once again, as they approach their next budget set of discussions. That would be one thing, we've been looking at.

The other thing on the bottom-end, of course, would be do we see a slowdown in emerging markets. Now, we haven't seen any slowdown. You saw in the fourth quarter, it was very strong in China. It was very strong across all of the emerging markets for us. Then, lastly of course we're looking at the new products and how fast do they ramp up, often that is impacted by FDA approvals and ability to get started. So those are some of the factors we think about.

Bill Quirk - Piper Jaffray

And Vince, how are you thinking about the ACA? And I think a lot has been written about the additional patients that or additional population rather that will come into this through the exchange, but you candidly the experience until now has been actually the exact opposite, where it was actually something, at least the latest numbers I've seen are 10 million to 15 million people that actually lose their coverage, albeit if they probably want the most robust plans to begin with. But nevertheless, how is Becton, Dickinson thinking about this as rather than a potential tailwind, but actually potentially a headwind here for the first half of the calendar year?

Vincent Forlenza

That's a great question. We basically, as we're doing a guidance, put it in as neutral. And it was hard to know, where things would kind of go with the ACA and still hard to know, claiming 90% functionality on the system. But unfortunately it's the backend, but to get the policy is still not working. So there is much more to be done there.

We didn't think it was going to have too much of effect on the upside or the downside. So I do agree with you Bill that, people who are losing these policies tending to have very high deductible policies, a minimum coverage, that sort of things, so I don't think it's going to have a big impact. We'll have to follow this, but I certainly don't see it as a positive going into the year.

Bill Quirk - Piper Jaffray

And maybe you can talk a little bit about emerging markets and candidly it's been, 2013 was a great year, but that's just been one of several that Becton, Dickinson has had. And so perhaps you could talk a little bit about I guess China, in particular. You guys had a great quarter, but candidly others didn't. And so how do you see the dynamics there? What's kind of the current outlook as we look into the next year?

Vincent Forlenza

So as we look at 2013, our team on the ground in China sees pretty much continued spending in the markets that we're in. And they haven't seen any slowdown. So we pretty much plan that as status quo. And there are other dynamics, like the competitive dynamics going up.

So I think over 2012 and 2013, as we built out our organization, we've been able to really broaden our strength across the product line. And so we were primarily a couple of years ago, more of a medical business, now its diagnostics and life sciences are all doing well in there, in China.

I think the big transition is really around moving from the top tier hospitals into the second tier, and that's really a geography play and you're moving into smaller cities. Now, there are still large cities, but it requires a build-out of distribution and sales capability and you're in a more intense situation with a local competition.

What you saw during 2013 is we were very successful against local competition in China and big and the multinationals that we compete with. So I think you have both of those aspects, it's not just a funding dynamics, but it's also how well are you doing in the marketplace.

Bill Quirk - Piper Jaffray

And would you mind elaborating on that a little bit Vince. And certainly one of the, in fact, arguably the key thrust that a lot of the local competitors are going to push back against multinational like Becton, Dickinson is we're going to go in with price. We may not have features, but we're going to go with price. And obviously, you've been doing a nice job taking some share, winning some accounts, that message perhaps isn't resonating as it use to, and I'd love to hear your thoughts there.

Vincent Forlenza

Well, I think, first of all, we're used to competing with people all over the globe, who compete on price in our core franchises. So this is not new to us as an organization. But secondly, especially in China, for we want to stay in China, we compete on multiple basis of competition. It's not just product features and benefits, but we do something much broader. We go into a new country, in China, in particular, and we work with the Ministry of Health in terms of what are the major things that they're working on, where we can really have an impact.

And so let's take infusion therapy for an example. You walk into a Chinese hospital, one of the things you would find is that you had more IVs given per patient than any place in the world, because the way they administer care is different. And so this was a major problem. So what was the problem, that you change the, it wasn't a catheter, a steel needle set every single day. You're in this hospital for 30 days, you've been stuck 30 times. This is not good for you or for the caregiver.

So we actually created a new product, but that was part of a broader solution that we worked out with the Chinese government in terms of infection control. So we do the training of the nurses, IV therapy on infection control, and we've trained thousands and thousands of nurses. They have what they call golden days there, where we bring multiple hospitals together.

The Ministry of Health is behind the program. So then you have a choice as hospital administrator. You get behind this program and maybe your hospital is 10x the U.S. rate in terms of infections and improve your care or you by the lowest price product. So we brought and show up all this clinical knowledge that is helping us tremendously.

Bill Quirk - Piper Jaffray

And then just thinking about some of the drivers, I think started to emerge in 2013. And we're certainly optimistic that this will become more apparent in 2014 and 2015 is, the microbiology franchise is about as solid as I've seen out of Becton, Dickinson and really the product offering is quite broad. And we didn't necessarily start to see, but only KIESTRA in particular had just a phenomenal fourth fiscal quarter. Can you talk a little bit about just kind of the rounding out of the franchise, as how KIESTRA helps drive this in 2014, and then of course with MALDI coming in as well?

Vincent Forlenza

Bill, you know, I have known each of them for a long time and I ran that business twice and certainly had the vision that we want it to build that out going back 10 year ago, and KIESTRA is really a game changer. Very different from going in and saying I have a blunt culture instrument and IDAST instrument.

Now, we can go in and say, we can automate your laboratory and that you're going to get, if you do the whole system, you can get 60% labor productivity and get your results 24 hours faster, because they are now in automated incubator with a camera looking at the plates all the time. So and then filling it out with the IDPs with Bruker. So now we can really go in with a complete solution, where in past years we only had parts and the economics for the account are quite attractive.

So we're seeing a lot of demand, we are also seeing many hospitals talking about how can they put their labs together with other hospitals to take cost out in the anticipation of what's coming under the ACA. So not many of them acted on it yet, but we see an awful lot of discussion. So we think KIESTRA is the right product at the right time, because how you're going to do that, you're going to do that through automation.

Bill Quirk - Piper Jaffray

Interesting. So you're talking about essentially centralizing microbiology within say a larger healthcare network, and then building that out into the [ph] IC.

Vincent Forlenza

It can be not even just network players, Bill. It can be a couple of local hospitals, who just do this as they try to take cost out from back let's say services for the hospital.

Bill Quirk - Piper Jaffray

Questions from the audience. Okay. Shifting gears a little bit to safety choiceness we've seen a very, again I keep using this term, but nice acceleration kind of robust growth coming out of different geographies, historically of course is the U.S. side of the franchises was driving this. But as of late, really Europe has I think emerged over the past year. And can you talk to us a little bit about the duration of the tail-end that we may get within that franchise?

Vincent Forlenza

Well, first off, Europe is a nice success story for us. But the emerging market piece of this is just as big and growing faster. And so I think when we think about this we can immediately go to Europe, it's really both of those pieces that's going on and driving safety now, because we see it in Latin America, we see it in China, in other countries.

So we think that has a very long runway to go, so we're really at the early stages of that story on the emerging market side. Then if you go to Europe, the conversion has really been in Northern Europe, it's been driven by the U.K., it's been driven by Germany and the Nordic countries.

France, somewhat, but really it hasn't taken hold that much yet, in Spain, in Italy, that's because of the economic province and they're focused on other things. So nice step up at the back half of 2012, we never thought it was going to be a step change because you didn't have the enforcement mechanisms that you had in the U.S. with OSHA, but it is moving ahead and I think it will be a good growth driver for the next couple of years.

Bill Quirk - Piper Jaffray

And ultimately, can you just remind us maybe where do you see, and I realize that the topic evolves over time as you continue to move more and more products into the net, as it were under the safety umbrella. Having said that, can you just remind us kind of where you see our penetration in the U.S., where Europe can get too, given some of the challenges you noted and then also some of the emerging market countries as well. And I realize it's unfair to group them all as emerging markets, because there is a lot of different economies going on.

Vincent Forlenza

So the U.S. is basically converted, and the story in the U.S. is it has been moving to second generation safety products. And we're taking a step back and enlarging our concept of both safety and really moving to medication insurance. And you saw that with the whole series of things that we did in the U.S. marketplace around that.

Number one in the list, of course would be the launch of BD Simplist, which is a safety product, right. You're preventing medication errors as you're preparing drugs in the hospital, you don't have to do it anymore. But we also did Cato, which is a software company that has a system for optimizing compounding within the hospital pharmacy. Then we did CRISI, which is a licensing arrangement, which prevents mistakes with syringes.

So the U.S. safety play now in the med surface is a very different play from what it was, and you can add PhaSeal into that, which was another pharmacy safety play, which we're just getting started with. So it's a new version of that. Then you go to Europe, and if you look at the different businesses, their hypodermic is really, it's very early on in this conversion to safety.

The main focus has been the catheter business and to the blood collection business. And you would see very high conversion in the blood collection business in Europe, as more a move towards second generation products have been used in the U.S. for quite a while, that's the play there. Catheter business is somewhere probably in the middle of this story right now and it is hypo, I said, really early on.

Bill Quirk - Piper Jaffray

And then you talked a lot about a lot of the recent successes, couple of the challenges the business, of course remain the TriPath business, it's not necessarily a BD problem, it's just kind of a market shifting to an extended interval. And so can you talk to us little bit, Vince, about just some of the dynamics within that business. At what point did you think we can step back and say, we've kind of gone as far we're going to get to, so there should be a bit more of a stable franchise.

Vincent Forlenza

So you really have two pieces in that business, the U.S., which is the problem and x U.S., which is going very well that you got about 70% of that business is in the United States, so that is the problem. We think we're about 60% of the way through this conversion process from to the longer interval, to the three-year interval, and that seem to accelerate during 2013, that we see impact of that. I think we have at least another year of doctors converting to the longer intervals. This is a guess, at this point in time, so we're figuring that into our guidance at this point for the diagnostics business.

Bill Quirk - Piper Jaffray

And then also Bioscience, it's little less than consistent than some of the other franchises. And so how do you -- I guess, first off, big picture question, just talk to us little bit about how you see some of the spending environments out there and certainly by geography, if at all possible? And then may be we'll jump into the second part of the question.

Vincent Forlenza

Sure. So I don't see at this point a significant difference in the spending environments, last year versus this year for Biosciences. With the exception, we have not forecasted a stimulus for Japan, and that's something that happen some years, it doesn't happen other years and we don't know it at the beginning of the year. So other than that we would be saying stable for the U.S., Europe. Now what's going to happen in the U.S. is anybody's guess at this point in time.

What did we see? We saw the customer base could deal with the budget cuts, if they knew what they were, and they could plan. If you go back to 2012, Bill, our customers didn't know what was going to happen and that froze them. So I'm hopeful that what we're going to see is a continuation of some the rebound that we saw in 2013. The thing we're going to have to watch out for quite frankly is going to be, does that continue or do they start to worry about this next round here, we don't know. We think we're going to see some improvement in the business, that's why we guided it 3 to 4.

Bill Quirk - Piper Jaffray

And so are you speaking specifically to the likely upcoming by the [multiple speakers] January, February?

Vincent Forlenza

Its okay, I mean if they resolve it, and if the accounts know what they're dealing with and then they'll deal with it.

Bill Quirk - Piper Jaffray

And then, just on the other side of that, rather than just be kind of specific geographic spending, just help us think little bit about kind of the longer-term maturity evolution of this franchise? Is this an area where we might see some M&A investments? Some additional internal funding, not unlike the collaboration recently signed with Singulex for single-cell sorting and that sort of thing?

Vincent Forlenza

Sure. So you said emerging markets, right?

Bill Quirk - Piper Jaffray

No, just how should see the --

Vincent Forlenza

The Bioscience business?

Bill Quirk - Piper Jaffray

Yes, the Bioscience business.

Vincent Forlenza

I thought you'd jump to something else. All right. I think to grow this business faster is going to be the kind of science that you just mentioned. So there is a lot of opportunity with flow to taken into other areas. And then the first thing, of course is around single-cells and using that as the front-end of genomics and that's something we've been working on for a while, but it's going to require more optimization, but we see it as a real opportunity to expand the market.

The second one is to drive it into the genomic space. And we've just published within the last year the fact that we can now use flow to look at RNA inside the cells. So assuming that the funding environment stays relatively stable, that's really going to be about driving the science into new areas. And we think the technology is very capable of doing that and it could partnered with folks on the genomic side and folks on next-generation sequencing to drive those applications, in terms of application development.

Bill Quirk - Piper Jaffray

In terms of the overall Biosciences franchise as you look at that kind of as you're looking over the next couple of years. Vince, do you think you have everything internally to go and attack those opportunities, it's a question of developing some additional applications for existing equipment?

Vincent Forlenza

I think it's going to be just like we did this year, where we went out and bought the Sirigen dyes, which is a very exciting product line. I don't think in that marketplace you can ever say, you've got it all internally. There is too much brainpower out there doing things that are innovative to say that. And then we went on to the Accuri. So I think you'll continue to see plug-ins in that business.

Bill Quirk - Piper Jaffray

Questions from the audience. Just hoping you could touch a little bit on the prefillable short side of the franchise. Just kind of what we could potentially look for here in the coming years? Historically, when we've seen new drug launches, we've seen a commensurate improvement in that business and at times little bit ebbing as well depending on gaps and pipelines and what not, but I'd love to hear your current thoughts there?

Vincent Forlenza

I don't know that this is the same sort of situation, right. So I think it's a very different type of launch. Just got the approval of morphine, which really is the first drug that has any potential significant volume. The early drugs were good for us to learn on, get out with the accounts start to get them used to what the system can do for them. So we're still on track. I know we believe in our targets still are 20 to 30 drugs in 2017, we haven't changed on that.

The accounts themselves seem to like the product. Now, we're talking about launching Morphine in January, and so that's for us really the first significant event in terms of ramping this business forward. We build it into the guidance, but we're excited about it. We're excited about what we're hearing. I was at the U.S. sales meeting and sales force is excited, so I'm looking forward to it.

Bill Quirk - Piper Jaffray

And then just jumping around a little bit, you talked about diagnostics earlier, but as you're missing and asking about BD MAX, and so we'd just love an update here, candidly as we look at the landscape over the next couple of years, there is a number of different companies looking to kind of line up into a number of the different markets that the BD MAX currently touches, having said that BD has a pretty active pipeline for the MAX as well.

Vincent Forlenza

And we do.

Bill Quirk - Piper Jaffray

So we'd love to hear about that.

Vincent Forlenza

So I think we're up to 13 assays outside of the U.S. a fewer number inside of the U.S. right now. So we're making good progress, making good progress on the installations. We want to take that menu from about 13 to 25 over the next 18 months. How many will get into the U.S., it will depend on how fast we can get them through the FDA.

The next U.S. launch is StaphSR this year, then you have the enteric bacteria as well this year, followed by Chlamydia, looking like the beginning of '15, we're going to try to work to bring that in. These assays work sometimes, it's incidence-driven in terms of how many sites you've got and what not. And so it's going well, and we're really looking to ramp that up. Clearly, I would agree with you, there is a lot of competition in molecular and tend to be segmenting the market somewhat differently than us, so we're still excited. We're very excited about the product.

Bill Quirk - Piper Jaffray

Questions from the audience. And then in Viper LTE, which has a slightly different menu in many cases than the MAX, but help us think strategically, kind of how we should look out five years at the instrument portfolio? And I assume we're going to continue to support multiple systems, we're not all going to try to convert to one.

Vincent Forlenza

Sure. You think of MAX as random access kind of medium volume to lower volume. And then the Viper LT is more of a batch system for lower priced assays and we think the HPV market, Chlamydia markets can be very price sensitive with all the competition there. And then ultimately you'll have a larger version of the Viper, which will be your high volume instrument. So it's just a process of launching HPV in Europe right now with some great papers on the product and our throughput start there.

Bill Quirk - Piper Jaffray

And there is last question from me is if we have our Viper on the high-end, MAX in the middle, do you ever need to go to a mini MAX or anything like that?

Vincent Forlenza

That's a possibility, the question is going to be, if you take the MAX and just make it smaller, which would obviously the easiest thing to do, but depending on how far you want to go into point of care do you do that or do you use another technology.

Bill Quirk - Piper Jaffray

Very good. Last couple of seconds, questions from the audience, otherwise, Vince, thank you very much.

Vincent Forlenza

Pleasure, good to see you again.

Bill Quirk - Piper Jaffray

Thank you.

Question-and-Answer Session

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Becton, Dickinson's CEO Presents at 25th Annual Piper Jaffray Healthcare Conference (Transcript)
This Transcript
All Transcripts