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Biosite Incorporated (BSTE)

Q3 2006 Earnings Conference Call

October 26, 2006 4:30 pm ET

Executives

Nadine Padilla - VP, Corporate and IR

Kim Blickenstaff, - Chairman, CEO

Bob Anacone, - SVP, Worldwide Sales and Marketing

Chris Twomey, - SVP, Finance, CFO

Analysts

Bill Quirk - Piper Jaffray

Bruce Cranna - Leerink Swann

Stan Manny - Manny Family & Investments

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Biosite Incorporated third-quarter 2006 earnings conference call. My name is Maria, and I will be your audio coordinator for today. (Operator Instructions). At this time, I will now turn the presentation over to Ms. Nadine Padilla, Vice President, Corporate and Investor Relations. Please proceed, ma'am.

Nadine Padilla – Vice President, Corporate and IR

Good afternoon and thank you for joining us for this conference call and webcast. Present today are Kim Blickenstaff, Chairman and Chief Executive Officer; Ken Buechler, President and Chief Scientific Officer; Bob Anacone, Senior Vice President, Worldwide Sales and Marketing; and Chris Twomey, Senior Vice President of Finance and Chief Financial Officer.

During today's call, we will discuss our results for the third quarter of 2006 along with top-line guidance for 2006 and 2007 and bottom-line guidance for 2006. After the prepared remarks, we will have a Q&A session. We do have a large audience, so please limit yourself to one question and one backup but feel free to queue up as often as you would like. Just for some general information, today's meeting, which is open to the public and the media, is being simulcast on the Internet via our homepage at www.Biosite.com. During today's call, we expect to discuss GAAP and non-GAAP financial results and projections, which are also included in our press release issued earlier today. A copy of that release is available on our website, and we encourage anyone interested in more detailed information to refer to that at your convenience.

Because today's conference call includes statements regarding Biosite's anticipated financial results as well as other forward-looking statements based on current expectations, we would like to remind everyone that our actual results may differ materially from those anticipated. Information on factors that could cause actual results to differ materially from the forward-looking statements is contained in our press release issued October 26, 2006 as well as in Biosite's Form 10-K for the year ended December 31, 2005 and subsequent Form 10-Qs. We do encourage you to review those carefully. Forward-looking statements represent the Company's judgment as of October 26, 2006. The Company disclaims, however, any intent or obligation to update those forward-looking statements.

With that, I will turn it over to Kim Blickenstaff.

Kim Blickenstaff, - Chairman, CEO

Thanks, Nadine, and thanks to everybody who is joining the call today. We actually have a number of topics and a number of participants. Bob Anacone is going to be talking about our commercial operation results for the quarter. Ken is going to talk more about our areas of research focus for 2007. And then, Chris is going to give you more on the guidance and the stock repurchase program that was announced in today's press release.

I will just start briefly with some of the key financial results at least at the top line. Again, we had a fairly nice growth, 7% increase in total revenues during the third quarter. Revenues totaled $74.6 million versus $69.7 million back in the comparable third-quarter period of 2005.

Our BNP franchise is actually still growing modestly at 4% year-over-year, so that's good news. Other cardiovascular products that we lumped together in that grouping increased 33%. The percent and the revenues for the quarter were about $14 million, making that a pretty substantial business on an annualized basis. Also, the growth that we saw in both international revenues and US physicians' office on market revenues were either 20% or greater during the quarter year-over-year, so good growth in fairly large product categories for us.

Bob Anacone is going to discuss the annual survey that we do of our US BNP hospital customer base. We actually go out and do a complete census annually, trying to assess trends in terms of intent to switch and satisfaction with our product. I can say although the BNP hospital testing market is highly penetrated now in the six years of commercial availability of our test, recent market surveys including our own indicate that we've been able to maintain a strong price franchise with a high degree of customer loyalty. Another detail that comes out in Bob's work is that BNP remains the gold standard versus NT-proBNP, which is very encouraging to us.

Also, I think that our strong market position provides us a tremendous platform for launching new products that are in our pipeline. Obviously, we have meters in nearly 3000 hospitals for BNP and that's a market reach that we did not have back in 2000 at the time we launched Triage BNP into the marketplace.

In terms of 2007 guidance, we're going to give some rough guidance today. Financially for 2007, we're setting a revenue target at $326 million for top line, which is about a 6% overall increase over 2006. In terms of the prospects for 2007, it pretty much mirrors the performance that we saw in the third quarter. We are assuming that non-BNP cardiovascular products are going to show growth. Our US physician office is going to show growth with the addition of resources that we've made during the year and also the same story for our international markets where we've continued to make some key investments to penetrate those markets more deeply.

Also, on a research focus, we continue to believe that in 2007, the key to restoring our past growth rates really lie with new products in our pipeline. And Ken is going to discuss this in far more detail. But we really instilled some discipline here to focus on the clinical trial and regulatory submission resources in 2007 on certain key products that we have judged to be the highest potential to generate commercial impact in the next two to three years.

Those products briefly include the Triage Sepsis Panel, which is intended to aid in the diagnosis of patients presenting to the emergency room with community-acquired sepsis. There are other indications later, but that is the first one that we will actually go for.

The Triage Cardio ProfiLER product is important improvements there for the increase of our revenues in that category. It is designed for the improved assessment of patients suffering acute kidney -- acute coronary syndromes and utilizes MPO, a marker that we licensed within the last two years.

Also, our product for the early diagnosis of acute kidney injury is very exciting and can solve a very significant clinical challenge. This test incorporates NGAL. I think Ken is going to explain what that acronym means in his section, but it is a novel marker that came from our licensing activities within the last 1.5 years.

Finally, we feel that improvements to the Triage BNP test could significantly expand the market for that product and our physician office outpatient setting. And so we're focusing on efforts to get those improvements completed in 2007.

I think many of you are aware that we had an R&D day back on October 3rd. Those of you that attended heard some very important details about the clinical importance of improved diagnostic tools in the areas of both sepsis and acute kidney injury. And based upon our market research into the potential for these two programs, we believe that they represent opportunities that are both parallel in size and importance to BNP for the improved diagnosis for heart failure.

So, we think these are very exciting commercial opportunities. I would also like to say that I'm very pleased at the speed at which these two opportunities were recognized in our business development group and the pace at which they were moved from research into clinical programs designed to get -- to support clinical and regulatory approval.

I'm also very pleased that the Biosite discovery efforts and our licensing programs have yielded very promising new biomarkers, such as MPO and NGAL, for which we have very important intellectual property rights -- very important to our commercialization going forward.

In summary, I would say the number of highly innovative products that are in our research and development pipeline underscore the value of the commitment that we've had to research over the past several years as our revenues have grown. So we're very proud of an increasing pipeline. Probably the big news you saw in the press release is the share repurchase program. You can see from our financial results, our core business remains stable during the quarter, regenerating substantial levels of cash. During the first three quarters of operation for 2006, we generated nearly $67 million in cash, $29 million alone in the third quarter which was about a 39 increase over the third quarter of 2005.

So, in assessing the potential for growth from new products that we have in development, we believe that our Biosite shares are trading at a substantially undervalued price in the marketplace and represent a very attractive investment at current levels. We also believe that returning value created by our successful business models to our shareholders in times of moderate growth makes tremendous sense. So, as you can see from the release, our Board of Directors has approved an increase from the Company's previously-announced $50 million stock repurchase program that have increased it to $100 million over the next 12 months.

Another important step that was authorized by the Board was that this raw stock repurchase program would be conducted on an accelerated basis. So we have entered into a privately-negotiated transaction with Goldman Sachs to repurchase $100 million of our common stock. And based on Biosite's current stock price, we think that the $100 million share repurchase authorization will represent approximately 12% of the Company's total market capitalization when the repurchase is complete.

Just logistically, we will immediately pay Goldman Sachs $100 million and will receive a substantial majority of the shares to be repurchased. And they will be delivered under the agreement within the next four to five weeks. It will then take approximately six to nine months to complete the balance of the accelerated repurchase agreement, and all the repurchased shares will be retired when finally repurchased. Also, I would just like to add as a footnote, the Board of Directors may authorize additional amounts of future stock repurchases during the coming year, depending upon our performance and other market conditions. So we will continue to monitor this situation and maybe additionally repurchasing shares in the coming quarters.

I think finally, we believe the size and structure of our announced share repurchase program is a tangible demonstration of our confidence and our future potential. We're very pleased that it's a strong balance sheet that we've created and it's significant cash flow that has resulted from the success of our business model with BNP -- allows us to make this commitment at this time.

We also believe that 2007 will turn out to be a year in which our focus on the key new programs that Ken will talk about in more detail will position us for accelerating growth for multiple important new diagnostic tools that serve very sizable commercial opportunities and very significant clinical diagnostic challenge. So, we look forward to reporting on the progress of these key programs during the coming quarters of 2007.

So, at this point, I will turn it over to Bob. He will talk in more detail about the survey results on our BNP customer base and also give you some more business segment-by-business segment results of our revenue performance during the quarter.

Bob Anacone, - SVP of Worldwide Sales and Marketing

Thank you, Kim. I will start by highlighting some Q3 accomplishments. I think number one, in the face of stiff competition, our Triage BNP test continues to be the US market share leader by all relevant criteria -- a percent of testing dollars, a percent of test volume, and number of customers. The number that -- total number of domestic BNP customers remains stable at over 3000 accounts.

Our international BNP product sales continue to grow, logging in a 20% year-over-year growth Q3 over Q3. Our other products in the Triage franchise fuel significant worldwide revenue growth. And investments in infrastructure, direct marketing, sales and support position us to sustain continued revenue growth in the coming years. On a worldwide basis, product revenues grew 7% as Kim mentioned. Domestic end-user product sales grew 4%. Worldwide total BNP sales continued to grow with year-over-year sales increasing 4% to $45.5 million with volume growth of 9%.

In addition to continued BNP growth, we realized 10% year-over-year growth in our other product lines with some registering significant year-over-year growth. For example, on a worldwide basis, our Triage TOX product group sales grew by 43%. Worldwide sales of combined cardiovascular products, excluding BNP, grew by 33% year-over-year. In the high-volume lab-based segment of the BNP market, we continued to realize strong growth with BNP sales growing 49% year-over-year on the Beckman Automated Immunoassay Systems. In the US, BNP-driven Beckman instrument placements grew 39% with end-user test volume growing 64% year-over-year.

In the third quarter, total product sales grew $4.2 million or 6.6% year-over-year domestically. In terms of price and volume, net sales increased $6 million as a result of volume growth, which was partially offset by a $1.8 million decline in sales due to ASP erosion.

In the US, our combined domestic BNP business continues to demonstrate resilience. In Q3, US BNP sales totaled $40.9 million, representing a 2% year-over-year growth with strong end-user volume growth of 12%. Compared to Q3 of 2005, ASPs declined approximately 7%, with the majority of this erosion associated with BNP sales on the Beckman Systems, where we have lower price points for high-volume accounts utilizing the automated version of our Triage BNP Test.

Our domestic hospital BNP customer base remains very stable as I mentioned previously, evidenced by a 3% growth in total domestic BNP accounts. In addition, we have recently completed a survey of our entire customer base, which indicates the valuations of alternative natriuretic peptides, seems to be slowing. I will share highlights of the survey with you later in the call.

In the US POL market, which Kim referred to, as I mentioned on last quarter's call, we are experiencing -- we're expecting to see a significant expansion of our base of US POL customers in 2006. In fact on a year-to-date basis, we have experienced 28% growth in our BNP POL customer base. BNP product sales to our POL customers increased 30% year-to-date with total POL product sales growing 28% year-to-date. As you know, last year, we were granted a CLIA waiver late in the year. The BNP CLIA-waived modifier to facilitate billing and reimbursement took place on January 1. We believe Triage BNP and the Meter is well-suited to capitalize on this large opportunity within the POL segment of the market.

At the beginning of 2006, we embarked upon a POL initiative that called for the formation of a dedicated sales, marketing and support organization to focus our efforts on this opportunity. To date, we have hired 14 dedicated POL sales representatives as well as two dedicated sales managers. To ensure this POL sales group is properly supported, we have additionally hired and trained seven full-time field-based clinical consultants/technical consultants. This field-based technical and clinical support group should have the effect of freeing up additional time for our sales reps to focus on closing new accounts.

Additionally, we are in discussions with other distributors who have experienced successful track records in building POL sales. We believe these potential new distributors can augment the efforts of our existing distributors. Given the pace of closing new POL customers and sales to date, we are believe we are on track to achieve sales in our POL business this year of approximately $14 million.

On the international front, our business continues to grow at a pace -- at a faster rate than the US. Total product sales grew 20% year-on-year internationally. BNP sales grew to $4.7 million, a 20% increase year-over-year. Total product sales increased 23% on a year-to-date basis, representing 13% of total worldwide product sales. In addition, we experienced rapid growth with some of our other products as we did in the US. For example, our Triage TOX product grew 74% internationally, while both our D-dimer and Profiler SOB products grew greater than 100%.

From an operations perspective in the international arena, particularly in Europe, we have established a foundation of direct commercial operations throughout Western Europe. Specifically in the first half of 2006, we commenced direct operations in the Netherlands and Switzerland, adding to our existing direct operations in France, Germany, Belgium, UK and Italy.

From an organizational perspective, we've established a new European headquarters in Morges, Switzerland. We're adding infrastructure and personnel to support our growing European commercial operations. We're also planning a further expansion of our direct sales efforts in the countries where we have established direct commercial operations.

In the Asia-Pacific arena, I mentioned in a previous call that we have hired a general manager for that area and opened up our Biosite office in Hong Kong. In the coming year, we will develop the strategies to capitalize on the opportunity in the Asia-Pacific region in the future years.

I will now turn to our recent customer survey; first, some background information will be helpful. The survey was meant to be a census of both our Triage BNP and BNP on the Beckman Systems customers. We had survey responses from over 3000 customers, defined as any account who has ever ordered from us.

The highlights of the survey are as follows. BNP is the gold standard. 94% of respondents prefer it versus NT-proBNP. Evaluations of alternative peptide testing platforms seem to be slowing down as most occurred before 2006. When asked if they planned to switch BNP platforms, 84% of the customers responded no. Of those customers who said they would or might consider switching in the near-term, most indicated they would switch to Triage BNP on the Beckman Systems or to one other alternative competitive immunoassay platform.

And finally, the desire to automate remains the primary driver behind switching. In terms of market share, our customer survey provides directional information that corroborates both IMS and CAP survey data. The combined market, which depicts the combined market share of Biosite and Beckman, is in the mid-60s.

From a competitive point of view, the BNP market as you know has become highly competitive, with new entrants vying to capture their share of the growing market. Generally speaking, these are much larger established multinationals with significantly more resources and marketing and sales and a broader product offering. As the volume of BNP testing continues to grow, there is an increased desire to automate on the part of customers. Triage BNP on the Beckman Systems allows us to be a viable competitor in a higher volume, typically larger bed-sized segment of the market.

In this larger segment, we experienced greater pricing pressure that is reflected in our lower ASPs for BNP on the Beckman Automated System. We expect that pricing pressure will continue in the higher volume segment of the market. In the lower volume market typically associated with smaller bed-sized hospitals, our Triage Meter remains well-suited to meet the testing needs of our large and stable customer base.

Additionally, from a competitive point of view, Abbott/iSTAT has entered the market with a BNP. There are some customer evaluations under way. It's too early to assess or comment on the performance aspects of the test. We certainly expect them to be aggressive in terms of pricing. And to date, there's no impact in terms of lost accounts. We will continue to keep you updated on the competitive environment.

In closing, we believe we have and we will continue to develop further strategies that will allow us to maintain a dominant share of the BNP testing market. On a personal note, I am excited about our potential to further grow our BNP franchise and our Triage product family on a worldwide basis. I'm enthusiastic about the potential opportunities the POL market represents in both the short and the long-term. I'm confident that our continued investment and our expanding international operations will yield the returns that we expect. At this point in time, I will turn it over to Kim.

Kim Blickenstaff, - Chairman, CEO

Thank you, Bob. We want to thank everyone who attended or listened into our R&D day, which we held in Boston on October 3. We had considerable positive feedback about the program and about our pipeline of novel products currently under development. Our unique Biosite discovery program is providing us with an unmatched ability to access novel biomarkers and define panels of markers that we believe will be more accurate in diagnosing complicated acute disease conditions. We're currently building a strong capability in the area of clinical trial, design and execution. We are particularly pleased with our progress in these areas over the last year.

In order to make the most of the new products we are pursuing, we believe it will be advantageous in 2007 to focus on a limited number of what we believe are the most important opportunities. These include the Triage Sepsis Panel, a diagnostic for kidney injuries, and a next generation of the Triage Cardio ProfilER. Additionally, we plan to continue development in the areas of stroke, abdominal pain, respiratory and cancer. But these projects are in early or mid-stage protocol development and are not yet fully resourced. We will move these product trials to full throttle once our highest priority programs are well under way. This way, we can optimize our resources and maintain an ongoing flow of potential products.

For 2007, we have identified five key opportunities or top priority R&D programs. The top priority status indicates product opportunities that we expect will provide growth opportunities within the next two to three years and beyond. We have allocated resources for these projects and have a higher level of certainty around launch dates for these programs. I will now talk a bit about each of these.

We're very enthusiastic about the progress we have made on our Triage Sepsis Panel, which is intended to aid in the diagnosis of sepsis. As we discussed at our R&D day, sepsis represents a potentially large opportunity with few competing products.

Our market research estimates that every year, over 5 million patients' presence to the emergency department with signs and symptoms of sepsis. Preliminary R&D results are promising, and we feel this category may present more than one product opportunity, including patients in the ICU. Yearly, there are about 5 million patients in the ICU who could benefit from a prognostic evaluation of sepsis or worsening sepsis. Our market research among 750 emergency and critical-care physicians indicates there is a significant need for a product to diagnose sepsis from non-sepsis conditions.

The sepsis trial, MINDSET, which stands for multi-marker index for the diagnosis of sepsis in the emergency department is expected to commence this quarter or early next quarter and is intended to validate a panel of biomarkers as an aid in the diagnosis of sepsis and support a PMA submission to the FDA.

The MINDSET trial will focus primarily on patients presenting with symptoms associated with suspected sepsis. The trial is intended to substantiate that our product can aid in the detection of sepsis in a population consisting of disease, mimic and normal patients. The level of the trial will depend on enrollment rates, and we expect to enroll approximately 1300 patients. Current activities include finalization of the trial protocol, recruitment of sites in the United States and abroad and communication with the FDA regarding the protocol for the trial.

We continue to make excellent progress on the next-generation Triage Cardio ProfilER. Our goal is to expand the indications for our Triage Cardio ProfilER, a panel currently used to aid in the evaluation of patients with acute coronary syndrome. The enhancements to our Triage CardioProfilER are expected to include the addition of new markers and the addition of the MMX feature.

The current plan for new markers is to add myeloperoxidase to the existing panel of markers on the Triage CardioProfilER. We believe these improvements will provide incremental value to the product. The market for cardiac tests is currently several $100 million. While Troponin is currently viewed as the gold standard, our market research among more than 100 cardiologists and customers suggests there will be considerable interest in good ancillary cardiac markers and in a panel approach to improving the diagnosis and prognosis of acute coronary syndrome.

We're currently finalizing the protocol for the acute coronary syndrome trial termed MIDAS, which stands for myeloperoxidase and multi-markers in the diagnosis of acute coronary syndrome. The MIDAS trial is intended to yield several FDA submissions in the field of ACS, including additional filings for MPO, BNP and a PMA filing for the Triage CardioProfilER with the MMX value.

For competitive reasons, we're not going to discuss the exact nature of (technical difficulty) extended period of time to allow us to fully capitalize upon the opportunity. Protocols for the early phases of MIDAS are complete. The trial is targeted to commence either late this year or early 2007. We will continue to update you as enrollment ramps up.

We're also particularly excited about our potential product for acute kidney injury, intended to aid in the diagnosis of acute kidney injury. And we believe it is a compelling opportunity. Renal injury is related to high mortality across a variety of conditions and existing tests are insufficient, making early diagnosis very difficult. Our market research among several hundred physicians indicates that what is needed is a test that is diagnostic within a few hours after injury and includes a direct marker of injury.

Currently, there are about 3 to 5 million cardiac procedures a year that can cause injury to the kidney, typically caused by contract agents. The acute kidney trial called KINGPIN, which stands for kidney injury assessment using NGAL in the cardiopulmonary bypass patients, is intended to validate a product that will aid in the detection of acute kidney injury and support a regulatory submission to the FDA.

This product will feature NGAL, which was discussed in detail at our R&D day. Currently, an evaluation study is underway and the protocol for the validation study is in development. For this trial, we expect to use about 15 US sites. We have already lined up the majority of the sites for the study, and we expect the pilot study to begin in late Q4 of this year. We expect to begin the study in Q2 of '07. The diagnosis of stroke continues to be an important focus for us. But because we believe the areas of acute coronary syndrome, sepsis and kidney injury represent potentially greater market opportunities, we anticipate we will start the stroke clinical trial in mid-2007 after the start of MIDAS, MINDSET and KINGPIN trials.

And finally, in addition to the areas of sepsis, ACS and acute kidney injury, we have also designated top priority to be in peak improvements, including an enhanced finger-stick application and obtaining a monitoring claim and to the development of the next-generation meter technology, which can further differentiate us from competitors and provide additional benefits for customers.

As part of this process, we're also investigating the potential for alternative versions of our meters for use in emerging markets. We are seeking to expand connectivity technology to provide better information capabilities to our customers. In closing, we believe Biosite can establish a preeminent position in applying proteomics to the commercial discovery and development of medical diagnostics. We're making a conscious decision to center your attention on our top priority programs as we believe they will provide the best opportunity for returning value to our shareholders.

We're making considerable investments in these programs with the exception that if successfully commercialized, these products considerably improve our growth rate. We look forward to keeping you appraised of progress throughout the next 12 months. We will discuss other programs as meaningful milestones are reached.

Now, I would like to turn it over to Chris.

Chris Twomey, - SVP, Finance, CFO

Thank you, Kim. I will wrap up our discussion with some comments on the financial results for the quarter, providing details in revenues, margins and operating expenses. I'll also touch briefly on our balance sheet and cash flows with some of the major changes there. And I will give some background on our guidance for Q4 and the revenue guidance for '07. Finally, I will also provide some details on the timing and the impacts of our stock repurchase program, which came Kim outlined.

My comments will be limited to non-GAAP results. So they exclude the impact of FAS 123R that relates to stock-based compensation because that is how we look at our business internally. So, starting with revenues, our overall product sales performance in the quarter followed our historical pattern where the third quarter of each year is the lowest product sales quarter within the year. This results from lower shortness of breath hospital -- this results primarily from the lower shortness of breath hospital presentations during the summer months.

Our product sales were up 6% year-over-year but down 2% from the second quarter. BNP sales were $45.5 million in the quarter, which delivered growth of 4% year-over-year and down 10% sequentially. Again, this sequential trend is consistent with the trend we saw in the summer of 2005.

Looking at some of the BNP end-user stats in the US for the quarter, I think Bob may have mentioned some of these. But our end-user kit volumes were up 12% year-over-year, again down 6% sequentially. While this was lower than our expectations when we set our guidance back in July, it is still a strong year-over-year growth. End-user price erosion in '06 has been running in the 6 to 7% range, and Q3 was consistent with that trend. Lastly, sales of our Triage BNP for use in the Beckman platform accounted for 32% of our total BNP sales.

Now highlights of our other cardiovascular product sales for these products continued to show favorable growth, and they were the leading driver of overall sales growth in Q3 and for 2006 thus far. In the quarter, our other cardiovascular products which include the Triage Cardiac Panel, our Profiler product, D-dimer test and our Stroke Panel grew 33% year-over-year and up 8% sequentially. Overall for the year, these products were up 42%.

One note, as these new products gain momentum, Fisher, our distributor in the US, begins to carry a safety stock in these products. And the initial stocking of our Profiler products in the quarter amounted to about $800,000.

Some other product sales information that you might find of interest -- I think the international sales were outlined by Bob and in the press release. Specifically to our European direct sales subsidiary, our quarter -- for the third quarter on a year-over-year basis, our sales in those subsidiaries were up 32%. They're up 26% for the year. The international BNP business was $4.7 million, up 20% year-over-year. I think Bob indicated some of the details on the physician's office lab products. We also have $10 million year-to-date in revenues in that area.

The gross margin line, overall gross margins in the quarter were 69%, continuing a trend of stable margins around 70% for each of the quarters dating back to the beginning of 2005. The primary drivers to maintaining stable margins in the face of declining prices for BNP in the hospital market is our continued success in growing international direct sales and growth of our premium-priced Profiler products. The slight decline in the margin during the quarter was driven by scrap of about 700,000 during the quarter as well as some inefficiencies created as the result of moving our manufacturing operations over the summer. The majority of the scrap during the quarter was the result of the Triage TOX product that did not meet release specifications as a result of the equipment issues in the new manufacturing building. Those issues were identified, resolved and are now behind us.

On operating expenses, I just wanted to point out one thing. Included in SG&A are our relocation expenses for our move to the new campus, which is now complete. These costs include moving charges, duplicate facility costs and decommissioning expenses of the old facility. For the quarter, we had over $1 million in those costs and year-to-date was $2.7. Again, these will be non-recurring into next year.

On to the balance sheet, our cash was at $159 million, up $20 million for the quarter. Cash flow from operations was $29 million for the quarter. That's an increase of over $22 million for the second quarter. The reasons for this is a decrease in our receivables for the quarter as opposed to an increase in receivables in the second quarter of about $4 to $5 million. We also have smaller tax payments during the quarter as well.

You'll notice the current liabilities are up. Accounts payable increased at September 30 by about $10 million. This is primarily results of the $8.5 million payment we made to Roche for the settlement of that litigation. We also completed the purchase of our new plastic molding facility in San Clemente for about $6.4 million in the month of September. That was the majority of our $10 million in CapEx during the quarter.

So, on to the stock buyback program. Over the last several months, there have been certain circumstances of the Company that prevented us from executing any repurchases of our previously-announced stock buyback program. Those issues are now behind us. We're executing the stock buyback authorized by the Board immediately, as we believe the stock is significantly undervalued at this time.

As you read in the release and as Kim commented, we've entered into a transaction with Goldman Sachs to repurchase $100 million of the stock. We'll pay with for the stock with our available cash, paying $100 million upfront. In the next few days, we will be receiving or retiring almost over 1.3 million shares, and we expect the remainder of the shares to be received and retired in two tranches during the next nine months. At today's price, we would be repurchasing about 2.1 million shares or about 12% of the outstanding shares. The ultimate number of shares of course to repurchase and retire when based on the price over the term of the program is subject to certain collar provisions that establish minimum and maximum numbers of shares to be repurchased from Goldman.

Assuming the stock price remains at current levels over the program period, we expect the accretive effects on earnings for the fourth quarter alone to be about $0.03 or 4%, 7% for 2007 on a non-GAAP basis. Of course, these fluctuations will depend on the final share impact. Including our earlier repurchase of $30 million of stocks in the first quarter for a total of 130 million, the expected accretive effect of our repurchase program is 10% for 2007. We believe using our cash for stock buybacks to be a good investment for increasing shareholder value in light of our current stock price and our history of being able to productively generate cash from operations.

If we continue to generate cash flows at high levels and our operating cash needs continue at manageable rates and our stock price remains at levels we believe to be undervalued, we will seriously consider continuing to repurchase additional shares once the current $100 million program is complete.

So, I will finish up with guidance for the fourth quarter specifically. We are expecting sequential increases as we move out of the seasonally-slowest quarter of the year. Total revenues will be up 6%, $76.5 million. BNP sales will be up 2% year-over-year. And specifically, our end-user kit volumes for BNP in the US will be up 8% over the third quarter of last year -- I mean over the third quarter of this year, up 10% over the fourth quarter of last year. Of course, this is driven by the seasonal utilization increases as we move into the winter months.

The end-user price erosion we expect to be -- continue to be consistent in that 6 to 7% range. Our other cardiovascular products, estimated to go up 27% in the fourth quarter, and our Fisher inventory position should remain stable as opposed to the approximate $1 million increase we saw in the third quarter.

Our margins will remain steady at 70%. And again, outstanding operating margins of 30% estimated for the fourth quarter. EPS of 83% -- $0.83 is a 14% increase over the fourth quarter of last year. Again, this is after considering the impact of the buyback. Cash flows, we are expecting another $15 million of cash flow from operations, even after payments to Roche of $8.5 million we made earlier this month.

For 2007, the revenue guidance, the total revenues of $327 million represent a 6% year-over-year increase, down slightly from the 7% growth we've seen in 2006. As indicated earlier, the international POL markets are two areas where we are seeing significant growth this year. And we had some initial success with some early investments. We will continue those investments as we see that continued progress.

In January, we will provide greater guidance details as we're still assessing the impact of the repurchase program; the extent and timing of our clinical trials; and the extent of investment we will make in our sales, marketing and other internal departments. As Ken discussed, we intend to initiate multiple trials in late 2006 and in 2007.

I would say that given the number of opportunities for investment this year and the modest increase in sales, it may be difficult to see much growth in operating income for 2007. But we do believe that 2007 will be a year in which our focus on a few key programs will position us for accelerating growth in 2008 and beyond.

So, with that, I will open it up to questions at this time.

Question-and-Answer Session

Operator

[Operator Instructions]. Your first question comes from the line of Bill Quirk with Piper Jaffray. Please proceed.

Bill Quirk - Piper Jaffray

Bob, first question for you and then perhaps a follow-up for Chris. Wanted to follow up on the comments concerning your survey. Did the accounts indicate why they are pulling back on BNP utilization?

Bob Anacone

Nowhere in the survey did they indicate that utilization was slowing down.

Bill Quirk - Piper Jaffray

So the survey was more so concerning preferences for products, either yours or competitors and propensity to switch, etc.?

Bob Anacone

That's correct. I think what I mentioned was evaluations of alternatives. Natriuretic peptides seem to be slowing, not overall utilization.

Kim Blickenstaff

Our utilization is actually up year-over-year.

Bill Quirk - Piper Jaffray

Understood. Chris, just thinking about the guidance, how should we think about the utilization trends? I guess the reason I am picking on this is is because there was a comment in the press release where -- I guess it is ascribed to Kim -- where it's basically you are commenting that it looks like utilization trends at hospitals in the US are down year-over-year. So I guess I'm just trying to figure out whether or not I guess that continued trend is dialed into the fourth quarter of '06 as well as 2007 guidance, or if we assume that this was kind of a one-quarter blip due to summer seasonality and we should expect to see this bounce back in the fourth quarter.

Chris Twomey

Well, I don't think the comment in the press release said anything about declining utilization. I would say that our expectations were for higher increases in utilization as we came out of the early part of the summer and we did not achieve that. But, we definitely saw a growth -- we will see growth in the fourth quarter. It is not at the rate that we have previously guided to. But I think we've taken a conservative view of the growth and utilization for '06 and '07. And again, we have offsets for declining prices. But, again, I don't think we're seeing any decline in utilization.

Bill Quirk - Piper Jaffray

Yes, I guess you are correct. It says slowdown; it doesn't say decline. Excuse me.

And then just two quick just housekeeping questions. What was the inventory movement for BNP at Fisher? You commented it was 800,000 for the Profiler.

Chris Twomey

I think it was relatively flat. It might have been up a little bit but not much. Overall, our inventory was up $1 million and $800,000 that was our Profiler product.

Bill Quirk - Piper Jaffray

Understood. And then lastly, I'm sorry I missed your comment on the initial delivery of the shares for the buyback. You said over the next couple of days.

Chris Twomey

Yes, we will get about 1.3 million shares early part of next week.

Operator

Your next question comes from the line of Bruce Cranna with Leerink Swann. Please proceed.

Bruce Cranna - Leerink Swann

Chris, thanks for the early read on the '07 sales. I know it's kind of early to comment on this. But, it sounds like from your commentary or discussion of operating income that maybe it looks kind of flattish for '07 at this point?

Chris Twomey

Well, again, there's a lot of moving parts here. And when you are looking at bottom line, you've got issues relating to tax rates and the buyback and interest income from a bottom-line perspective. But, at this point, I think it will be difficult to see much in the way of growth at the operating income line because there are so many attractive investments overseas in POL and especially in the clinical trials.

Bruce Cranna - Leerink Swann

And then on the guidance for '06 for the year, does the 218 -- I'm sorry if I don't understand this -- but were you including the accretive effect of the buyback in Q4?

Chris Twomey

Yes, yes we are.

Bruce Cranna - Leerink Swann

So that's inclusive of that. Last question from me -- someone, I can't remember if it was Bob or not, mentioned a 3000 account number in the US. Does that include hospitals and POL?

Kim Blickenstaff

That's hospital-based customers.

Bruce Cranna - Leerink Swann

That's just hospital, not including the POL base?

Kim Blickenstaff

That's correct.

Operator

Your next question comes from the line of Stan Manny, with [Manny Family & Investments]. Please proceed.

Stan Manny - Manny Family & Investments

Congratulations on the buyback. Could you give us a little more detail on the buyback on how it was set? I don't think it's totally clear in the release -- the tranches and the overall pricing format.

Kim Blickenstaff

You want to try to explain how this works?

Stan Manny - Manny Family & Investments

If you could.

Chris Twomey

Well the point is that these accelerated programs are quite common these days. We deposit the cash upfront and then you settle based on the trading price over the next nine months. So we can't give you the actual number until the price has been determined over the next nine months. What they do allow is $1.3 million upfront and then a second tranche in about five weeks. That's a minimum number that we will get. And depending on the price over the next then eight months, we will hopefully be able to get additional shares. We do put a collar around it so that we don't chase the market if the market gets away from us. And on the other side, we don't get it going down. But all of that takes place over the next month where we've determined the price under which we will set that collar.

Stan Manny - Manny Family & Investments

So the price of the initial $1.2 million you said or $1.3 --

Chris Twomey

1.3.

Stan Manny - Manny Family & Investments

The price is not the price that opens tomorrow. It's an average over the month. I'm trying to understand this.

Chris Twomey

Well that's actually quite a complicated process to explain over the phone here, but the --

Stan Manny - Manny Family & Investments

The $1.2 million, just explain that one.

Chris Twomey

The $1.3 we get today based on the negotiated transaction that we have that's delivered and retired. We will get additional shares --

Stan Manny - Manny Family & Investments

But at what price? That's the point.

Chris Twomey

At the price determined over the next month.

Stan Manny - Manny Family & Investments

Okay, so it's not the closing price of today?

Chris Twomey

No.

Kim Blickenstaff

No.

Stan Manny - Manny Family & Investments

Okay, so it is an average over the next month whatever happens.

Chris Twomey

Right, right with some percentages applied to that average price and then a final settlement nine months from today.

Stan Manny - Manny Family & Investments

Nine months, final settlement of--?

Chris Twomey

If the price doesn't change, right? If the price stays at $47 and change, whatever it is today, the total number of shares would be $100 million divided by $47 or over 2 million shares. So, there's no magic to it other than just the price is what determines the number of shares.

Stan Manny - Manny Family & Investments

Could I ask the question why the deposit of $100 million when you are not getting $100 million in stock? And how do you get credited for that? I mean, you're not able --

Chris Twomey

The purpose of doing this is to get the EPS benefit immediately. For over the next four weeks, we will get a large majority of the shares that we will get over the life of it. So we're able to deposit the money, get a minimum number of shares which could be close to 1.8 million, 1.9 million, 100,000 shares depending on the price. If you get that benefit today versus if we were to go in the open market, you would get that benefit over a nine-month period. So we are really able to show our commitment to this. This is not something we can back out of like a 10b5-1 or an open market purchase. We're able to get this going and put it to bed.

Kim Blickenstaff

Yes, the open market purchase would be a trickle rate. I mean it would take quite a while to accomplish. We really wanted to show the commitment that we were trying to get this done and get it retired and get the benefit on an EPS basis.

Stan Manny - Manny Family & Investments

And the Board has approved or you have to go back to -- you said you could -- if cash flow continues, which it probably would, that you could increase the quantity you're going to buy beyond the 130 million this year.

Kim Blickenstaff

There could be additional share buyback programs authorized; that's correct.

Stan Manny - Manny Family & Investments

It has to be authorized by the Board in order to do it though?

Kim Blickenstaff

That's correct.

Chris Twomey

And I would point out that there are share limitations on how many shares we can repurchase by the FTC, those limitations set by the FTC on how many shares you can repurchase in a day. So the reality is any additional repurchases would have to take place at the end of this current program. So looking for further buyback would actually -- you wouldn't be able to implement any of those until early next summer.

Stan Manny - Manny Family & Investments

I have just one more question. Kim, could somebody kind of give us again the approximate market expectations on these new products that are coming out in '07? We didn't talk to that at all.

Kim Blickenstaff

Right, I think at the R&D day, we tried not to give a specific forecast. But what we tried to do was get the incidents rates of the various disease states, the sort of indications for use that we're going after first. So you can begin to extrapolate based upon the BNP model that we have and come up with numbers that you felt were numbers that you thought were relatively based in fact. We didn't actually put a number out. But again, I think as we look at the incidents rates for something like community-acquired sepsis, that's what 5 million people presenting every year? That was basically the BNP number we started when we sized that marketplace. So, that data is available. I think is that on the webcast? Do you have it handy?

Nadine Padilla

Sure. I can send you that.

Stan Manny - Manny Family & Investments

Could you e-mail it? I would like to kind of frame the market sizes. Sepsis has the approximate price range similar to BNP?

Kim Blickenstaff

More. Yes, we think in it's in that ballpark or approximately more.

Stan Manny - Manny Family & Investments

Which is?

Kim Blickenstaff

$20 some plus.

Stan Manny - Manny Family & Investments

So $30 of that. And you will e-mail that?

Nadine Padilla

I will.

Kim Blickenstaff

We can walk through it for you, give you more details. Did you attend R&D day by the way?

Stan Manny - Manny Family & Investments

No, I wasn't able to. I was out of the country. I missed it.

Nadine Padilla

We have a CG, and I can send that to you as well.

Stan Manny - Manny Family & Investments

Good job.

Operator

[Operator Instructions]. At this time, there are no further questions. I will now turn the call over to Mr. Kim Blickenstaff, Chairman and Chief Executive Officer.

Kim Blickenstaff - Chairman, CEO

Okay, there are just a few upcoming events that are going to happen here in the fourth quarter. We actually have a marketing schedule that is lined up with UBS for the first week in November. We will be out in Boston, Philly and Chicago. I don't believe there is a healthcare conference, but we will be meeting with investors during those three days in the middle of that week.

Also, there is a JPMorgan Small-Cap conference that is in Boston in the middle of November that we will be attending. Also, we will be doing a non-conference-related marketing trip with Piper Jaffray. And I think that's going to be concentrated out here on the West Coast during the early December time frame.

And finally, from sort of a medical society standpoint, there is the American Society of Nephrology, and that meeting here is in San Diego in mid-November for those that want to dive down to the acute kidney injury opportunity that we presented at R&D day and get a little bit more clinical background.

Then finally, I think the fourth-quarter conference call is in late January I believe -- January 25th or so would be that conference call date. So, we will look forward to updating you with year-end numbers during that conference call and give you a more complete guidance about what we see for both top and bottom line for 2007. So, thanks for attending the call today and we will talk to you then.

Operator

Thank you for your participation in today's conference, ladies and gentlemen. All parties may now disconnect. Enjoy your day.

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