Becton, Dickinson and Company - Analyst/Investor Day

Nov. 9.11 | About: Becton, Dickinson (BDX)

Becton, Dickinson and Company (NYSE:BDX)

November 09, 2011 7:45 am ET


William A. Kozy - Executive Vice President

Monique Dolecki -

William E. Rhodes -

Vincent A. Forlenza - Chief Executive Officer, President and Director

Gary M. Cohen - Executive Vice President

Tom Polen - President

Monique Dolecki

Good morning. Thank you for coming. I'm Monique Dolecki, Director of Investor Relations. We are delighted to have you here for BD's 2011 Analyst Day. We have an exciting agenda for you this morning, starting with an overview of our company's strategy, followed by updates from our business leaders and demonstrations of our key products. We will conclude the day with a Q&A session.

During today's discussion, we will make forward-looking statements and it is possible that actual results could differ from our expectations. Factors that could cause such differences appear on our fourth fiscal quarter press release and in the MD&A sections of our recent SEC filings. We may also discuss some non-GAAP financial measures with respect to our performance. A reconciliation to GAAP measures can be found in our fourth quarter earnings release and the related investor slides are in the presentations we are making today. Copies of these materials are posted on the website.

With that said, just a few minor housekeeping items. For those of you with camera phones, we ask that you refrain from taking pictures of the products during the breakout sessions. Additionally, during the breakout sessions, we ask that you hold any financial-related question until our Q&A session at the end of the day.

It is now my pleasure to turn the floor over to Vince Forlenza, Chief Executive Officer and President.

Vincent A. Forlenza

Well, thanks, Monique, and good morning to everyone. Welcome to BD's 2011 Analyst Day. We're really pleased you were able to join us this morning and the theme of today's meeting is investing and innovating for growth.

I'll walk you through our strategy and the ways in which we'll drive revenue growth through geographic expansion and new product innovation. Our business leaders will walk you through the strategic focus and growth drivers for each segment. We'll then demonstrate some of our new and exciting products, followed by a Q&A session. After this event, my hope is that you will have an increased understanding of BD and our capabilities, our strategy, the drivers of our growth and how we will succeed.

Last week, we announced solid earnings growth for the fourth quarter and for the full fiscal year 2011. As we have stated on our earnings call, we are operating in an ongoing challenging business environment. Our outlook for fiscal year 2012 is lower than we had originally anticipated in August. Despite the headwinds facing the company and the industry, we are continuing to invest in high-growth areas. We believe we have the appropriate strategy in place to be able to compete and prosper in this increasingly competitive and challenging environment.

It is imperative that we complete the programs we have started. In fact, we have already made progress delivering against our strategy. In 2009, 6.3% of our total revenues was derived from new product platforms, increasing to 8.5% in 2011. Emerging markets contributed 27% to revenue growth in 2009, increasing to 67% in 2011. And as we move through our presentation today, you'll see the key products that we expect will, standing alone, deliver approximately 250 basis points of growth by the end of fiscal year 2014.

Now turning to Slide 4. The company's long-term strategy remains in place. Our strategy is to apply technology and clinical knowledge to make healthcare more effective, efficient and safe. Our 5 areas of focus are: Parenteral drug delivery system is the first; second, accurate and faster diagnostics; third, tools and technologies that facilitate the basic understanding of the cell, cellular diagnostics and cell therapy; fourth, enhancing disease management in diabetes, Women's Health and Cancer, and infection control; and fifth, improving clinical, laboratory and research practices in emerging markets.

We're confident that these 5 areas of focus are rich with opportunities for BD and value to healthcare worldwide and will enable us to grow the company. We plan to deliver against and succeed with this strategy by investing in first, growth and innovation, building new customer-focused capabilities, driving operational excellence and by effectively deploying our capital.

Today, we will center our conversation around the ways in which we are focused on growth and innovation. Starting with growth, we plan to drive revenue growth in a number of different ways. First, we are well positioned in emerging markets and believe there is a significant opportunity for us to align our capabilities around the key health needs in those markets. We're continuing to invest in sales people, sales training and customer education needed to manage the growth in these developing areas. Over time, we will increase local manufacturing and R&D to complement our increased sales and marketing presence. Based on these continued investments in emerging markets, we believe we can continue to deliver double-digit emerging market growth, again, in 2012 and beyond.

Second, we will be expanding the categories in which we currently compete. We're doing this across our entire portfolio and we see key opportunities in diabetes care, self-administration injection systems, the expanding concept of Healthcare Workers' Safety, Women's Health and Cancer and new flow cytometry applications and markets. You'll hear more about these opportunities from our segment and unit leaders throughout the day and during the product demonstrations.

Third, we're continuing to expand our product portfolio through new product launches across our 3 segments. And finally, we continue to look for strategic acquisition opportunities that align with our capabilities and create shareholder value. Our goal is to complement organic growth through bolt-on acquisitions.

Now moving on to innovation. We're doing a number of things in this area. We have hired a Chief Marketing Officer to strengthen our marketing area and to create a more customer-focused and strategic function. Additionally, we are bolstering our Health Economics and Public Policy teams, and their capabilities, so that we can work with our customers to identify and create the solutions they need to enable better care at lower total cost. Second, we will institutionalize the management of innovation from creation and planning through development and commercialization to enhance our capability to create and commercialize novel products.

Third, we are focusing on globalizing R&D to ensure that we are creating products around the world that meet the needs of local customers and that also leverage local cost and capabilities. Asia is our first area of focus. Lastly, we are continuing to increase our R&D spend in new product development and technology development. Since 2009, we have increased our spend in new product development by almost 60%, and plan to increase our investment in this category or portion of R&D in the future.

Since today's focus is on growth and innovation, I will not go into the detail of our efficiency programs. Rest assured that increasing efficiency across our P&L and achieving about 50 basis points of operating margin improvement remains a key priority. We intend to do this through ReLoCo, ReLoCo II, EVEREST and G&A initiatives. As we do this, we will continue to reallocate investments from the low-growth opportunities to higher growth opportunities.

So now I'd like to review our priorities for capital and how we choose to use our cash. First and foremost, we focused on funding R&D, and at the same time, ensure that we are optimizing our R&D spend by allocating those dollars appropriately. Additionally, we are re-prioritizing SSG&A dollars. And in doing so, we are investing more in emerging markets. Our focus on SSG&A is to drive down cost in G&A and to increase the investment in our sales and marketing functions. Additionally, we'll use our capital when appropriate for strategic acquisition opportunities. And we will continue to return cash to shareholders through stable dividend growth and our share repurchase program.

As I mentioned earlier, we're continuing to increase our R&D spend in new product and technology development. We plan to increase -- continue to increase our investment in this category while limiting spending on line extensions. On Slide 9, you will see that we've increased new product revenue from about 6% of total sales to about 8% in the past year. We anticipate new product revenue growing to about 18% of total sales by fiscal year 2014. This includes replacement products that protect our base, as well as new incremental and totally new opportunities for us.

As I've previously mentioned, we believe the key growth areas highlighted during our product demonstrations are going to deliver about 250 basis points of growth by 2014, and increase our addressable opportunities by $3.5 billion. The Medical segment will be driving growth by improving Diabetes Care, driving self-administration injection systems and by expanding Healthcare Worker Safety.

In our Diagnostic segment, we will be providing automated solutions for cervical cancer and driving simplicity in molecular testing. In our Bioscience segment, we'll be driving growth with new flow cytometry applications and a next generation of cost-effective instruments. In emerging markets, our focus is to invest in new countries and reach underserved populations across all 3 of our segments. You'll be hearing more about these opportunities in just a few moments.

For each of our segments, we will walk through a business and environmental overview, the business strategy, growth drivers, key strategic initiatives and then some final thoughts. So with that, I'd like to now turn the floor over to our Executive Vice President, Bill Kozy, to review BD Medical. Bill?

William A. Kozy

Thank you, Vince, and good morning. As Vince mentioned, I'm going to turn our attention now to BD Medical. In the next few minutes, we'll give you a quick look at the segment, some of the key trends, the growth strategies and just as Vince mentioned, I'll do some final thoughts. BD Medical, I think most of you probably remember, is about $4 billion in revenues in 2011 or about 50% of the company's sales.

There are 3 units as depicted in this pie chart, which I know you know well, but Med/Surg, clearly being the largest, and then Pharm Systems and Diabetes Care are also comprising sizable segments on pieces of the segment. Under the broader umbrella of the company's strategy earlier described, this segment is focused on enabling of safer, simpler and more effective parenteral drug delivery. There are many products here that I believe this audience knows well, such as needles and syringes, IV catheters, pen needles and insulin syringes. And those product categories do form the basis of the offering in this particular portion of the company.

There's a strong historic growth in this segment based on safety engineered products and peripheral devices. Excluding the pandemic, this segment has a 3-year compound annual growth rate of about 4.5%, with Diabetes Care and Pharm Systems providing the higher component of that top line growth contribution.

Despite a challenging macro environment, we continue to invest in targeted platforms that contribute growth in both emerging and the developed markets. Our traditional customer bases, as well as emerging adjacent market spaces, are core to this effort and we're well positioned to meet critical emerging needs in 3 specific areas we'll discuss today in greater detail in the breakouts that all of you will attend.

All of you are quite familiar with the global diabetes health challenge. Our current array of insulin delivery devices and our commitment to category leadership and insulin delivery, which is a category growing at about 6%. Pen needles and insulin infusion grow well above that overall rate, but are balanced by the flat growth from insulin syringes.

We will build on our recent success to accelerate first-to-market innovation in this particular category, bringing continuous differentiation to the pen needle platform, as well as entering the insulin infusion category, bringing new ideas and improvements to that specific application. Given our historical presence in this diabetes space, we're also actively sensing for additional growth opportunity and a larger footprint in the Diabetes Care industry as we go forward.

Secondarily, we have monitored the global expansion of cancer therapies for the last few years. As these drug therapies have grown rapidly in developed markets, the issue of safe handling of these same drugs has emerged as a Healthcare Worker Safety concern. Given the requisite toxic nature of many of these drugs, the capability to safely handle and transfer these substances is highly important. I know you're well aware of the company's historic commitment to Healthcare Worker Safety for the last 2 decades, which has been instrumental in leading to our global leadership position in needlestick safety.

This opportunity is highly aligned, and was certainly one critical factor behind our decision to acquire Carmel Pharma. Our prior experiences and policy, advocacy, as well as market development related to safety will assist us in capturing growth in this very attractive new category, growing slightly above 13% at this time.

And in your third breakout today, we'll share some detail with you for the first time on our self-administration initiative. About 2 years ago, we assembled a dedicated business team in the Franklin Lakes office to pursue a new growth opportunity in this emerging space, very tightly aligned with our existing Pharmaceutical Systems business. Platform development on auto-injectors, customized pens and innovative MicroInfusors are new delivery technologies for BD that we are going to share with you today.

Both category, size and growth rates are positives here for us as we focus on highly efficient self-administration, which is very much believed to be a rapidly advancing trend. Note, these growth rates I described do exclude the vertically integrated drug manufacturer activity that exists in this space today.

Now these 3 initiatives, collectively, configure very well with our broader strategic focus on transforming parenteral drug delivery. Those of you who are familiar with BD Medical, will recall 5 key imperatives essential to our ongoing growth and profitability. As I mentioned earlier, and as you know, we're fully committed to innovative care for diabetes patients around the world. The globalization of Healthcare Worker Safety will continue to be a core growth driver and our entry to adjacent space, like closed-system transfer devices, is very much a natural next step. We'll continue to provide unique peripheral devices to the pharmaceutical industry and self-administration is very much a high-value growth platform that has upside for us.

Each of these first 3 imperatives will be highlighted in the breakout sessions that you will attend today. Now we will not review today our cost quality imperatives in any detail, but we believe that you fully understand that these operational imperatives are basically the DNA behind all of our product platforms in Medical. Both ReLoCo and ReLoCo II were mentioned in the call last week, so that will not be a focus of today's discussions.

And finally, Gary Cohen's remarks later will provide much more color on geographic expansion and our focus in that area. This is a simple reminder that BD Medical efforts in Asia, Latin America, China, and other emerging markets, are key contributors to BD's overall medical growth.

Allow me now to add just a little bit more detail on the 3 initiatives that you will get to see today. Given the maturity of the historical BD Medical product portfolio, our focus on these 3 categories is very basic. All 3 expand the addressable opportunities that we currently serve, insulin infusion, self-administration and closed system transfer devices, in particular, are clearly early-stage lifecycle categories. Each as attractive in terms of both size and growth rate. Each category also prevents an opportunistic path forward to leadership, either building on a strong early position, like Carmel, or leveraging existing customer relationships with major pharma customers, which we hope we will do with self-administration.

The combination of insulin infusion and continuous first-to-market innovation on pen needles will continue to strengthen our role in assisting diabetics around the world. Now collectively, these efforts provide positive incremental growth that will ensure solid, sustainable basis point impact over several years, as the chart on the bottom depicts. Standing alone, and just looking at these categories on a segment-only basis, we would expect to generate about 200 to 300 basis points of new growth in the next couple of years.

FY '12 does include the almost full year impact of the Carmel acquisition. But nonetheless, we're pretty enthused about each of these efforts and we think you'll find our presentation teams here today to be equally engaged on these opportunities as we go forward.

We had indicated a few years ago that we were making committed efforts to refresh the growth strategies for BD Medical. We had indicated that our R&D investment would very gradually increase and that we had a major commitment to upscale our new product revenues as a percent of sales, very much in line with Vince's comments. We've signaled that we believe that much of this was organically possible. So we certainly acknowledge that the economic environment has had impact on our short-term growth. This slide will provide you with some perspective on our organic, as well as our M&A efforts. The initiatives we reviewed today, coupled with other key products like Insyte Autoguard with Blood Control and Nexiva Diffusics and Emerald Safety products, encourage us to stay online with our investment path and certainly to remain highly engaged on the broader strategy of transforming parenteral drug delivery. As you can see, we've got a steady new product launch focus coming for the next 2 years. We hope to provide further new product updates to you in the months and the quarters that are ahead.

Our innovation portfolio investment remains highly targeted and appropriately efficient in its overall purpose. The blend of high organic focus and selective M&A increments, will be core to our future direction. Our entry into new categories will create 2014 opportunity space of approximately $1.5 billion, obviously, well beyond the current served markets where we are participating today. We're increasingly comfortable with this set of strategies as we build on core areas of BD Medical know-how. We continue to see quality advantage but always tightly connected to economic benefit for our customers. Our growing capabilities in marketing, healthcare economics and sustainability can effectively be leveraged in these spaces.

We'll continue to build on our policy and advocacy strengths, whether we're fully engaged with the JDRF on micro-delivery or working with the Multiple Sclerosis Society on personal drug delivery, or collaborating with pharmacy organizations on safe drug transfer. Those are tasks of familiarity, where our experience will help to strengthen our overall efforts.

We've got confidence in our geographic expansion opportunities. We're fully aware of the economic challenges in both Europe and the U.S., in particular. We believe our current global infrastructure, our selling reach and most importantly, our operations network are very well configured to support the new product efforts that we've described here today.

And BD Medical is about ongoing cost innovation. This confidence in this environment is very much essential to our growth, as well as our profitability going forward. Our integration of the Carmel manufacturing operations into existing BD facilities will clearly result in cost savings very comparable to what has taken place with ReLoCo over the past couple of years.

So we're very much committed in this healthcare environment to an aggressive combination of affordability, innovation and unrivaled global reach. These are the enablers of our strategy and will support the transformation overall of parenteral drug delivery as we go forward.

Now thanks for your attention today. Please allow me now to introduce our next speaker, the President of Diagnostic Systems, Mr. Tom Polen.

Tom Polen

Good morning. I'm very pleased to be providing an overview of BD Diagnostic Systems today. In FY '11 we reached sales of $2.5 billion, making us the fifth largest IVD company globally. As you can see, we focus our expertise in 2 strategic roles: The first is enabling earlier and more effective therapeutic intervention for infectious disease and cancer, and the second is on improving the overall efficiency and cost-effectiveness of clinical laboratories.

We execute this strategy across 2 major business units, Preanalytical Systems and Diagnostic Systems, which sales are split relatively evenly across the 2. We're known for products like our Vacutainer Collection and Transport Systems, as well as a leader in infectious disease and cancer diagnostics. These products are for identifying sepsis and determining the appropriate antibiotic therapy, as well as for screening for conditions such as healthcare-associated infections, sexually-transmitted diseases and cervical cancer.

As you can see, our compounded annual growth rate for the last 3 years was 4.8%. And in FY '11, sales grew 3.9% with PAS growing 3.7%, driven by Healthcare Worker Safety in emerging markets, while feeling the impact of lower overall testing volumes in the U.S. and EU. Diagnostics Systems accelerated growth in FY '11 to 4.2% or 5.2%, excluding the impact of flu, driven by growth in emerging markets and new products. As you think about the overall environment, and certainly the in vitro diagnostic industry is in a transformational period, which brings the challenges of a new healthcare environment, along with the potential of revolutionary new technology.

As you think about the opportunities for our business, I'd like to reinforce 3 specific factors that I think you're all familiar with. The first is that infectious disease continues to be the leading cause of death globally. More than 90% of those deaths occur in the emerging markets. Antibiotic resistance is continuing to grow and the lack of new antibiotics in pharma's pipeline, give little hope that this situation is going to improve in the foreseeable future. We see hospitals increasingly implementing surveillance programs for drug-resistant organisms such as MRSA, but we still see also the fact that microbiology tests still take 2 to 3 days to get a result. And so most often physicians treat first and get the diagnosis later. The course is only fueling this issue of antibiotic resistance. But we in Diagnostics, are applying our expertise to convert testing to more rapid methods, which will enable earlier and more effective therapy.

The second major factor to point out here that we're all very familiar with, is the realities that high unemployment, reduced physician volumes and cost pressures are here, and we see them as here to stay for the foreseeable future, particularly in the U.S. and EU. Today there's also 65% fewer medical technologies graduating from college every year than there were just 15 years ago, which is creating growing labor shortages in the laboratory. And when you consider the fact that microbiology and psychology are still among the, probably, the 2 most manual parts of a hospital laboratory, there's a strong opportunity for automation, lab efficiency and obviously growth for us through helping our customers with that.

Finally, expanding healthcare access in emerging markets is enabling millions of new patients to enter the healthcare system. Growing sample volumes drive a transition to more automated testing as payers seek the most cost-effective ways of deploying their healthcare dollars, you see the use of preventative care also increasing and that includes the use of cancer screening.

As you'll see, our 4 strategic imperatives in BD Diagnostics are well aligned to the needs that I just described. We're investing in earlier and more effective therapeutic intervention through our new molecular cervical cancer and rapid microbiology platform. We're highly focused on menu expansion, and we're going to be talking about that in quite some detail in the breakout sessions later on this morning.

To improve operational efficiency via laboratory, we're launching a new series of instruments for molecular Women's Health and Microbiology Automation. And we're supporting those with implementation services to make sure that our customers realize the efficiencies that we commit to them.

As Gary Cohen is going to discuss later on this morning, to accelerate geographic expansion, we're investing to expand our sales channels in fast-growing emerging markets. We're launching our first x U.S. diagnostics R&D center later this year in China, and we're continuing to advance our partnerships to improve medical practice. Two recent examples of that are programs that we established in FY '11, one with the National Cancer Coalition, another one with the George Bush Foundation, and we're working to expand access for cervical cancer screening to the more than 90% of the world's women who lack access to a basic Pap test today.

Fourth, while we're not going to have time to review in detail our cost initiatives today, we are accelerating our commitment to cost and quality advantage and we have begun a program under ReLoCo II, with a heavy focus on architecture and process.

In today's breakout sessions, we're going to be discussing 2 of our most significant areas of innovation in growth moving forward, specifically Molecular Diagnostics and Women's Health. Both of these enable earlier and more effective therapeutic intervention, while significantly improving lab efficiencies and I think are well aligned with the strategy that we just described.

Secondly, each category has very attractive underlying market growth and through new products, we're poised to expand our position in currently served markets, while also entering -- expanding our addressable markets that we serve. So 2 examples of that are BD MAX, who's going to enter us into many new assay markets. Our new Viper LT platform is going to enter us into the HPV market, an asymptomatic screening market for Trichomonas. And with the launch of our SurePath Plus test, we'll be establishing an entirely new market for molecular Pap tests. Collectively, as you could see, we forecasted these 2 growth drivers to provide 210 basis points of improvement over our base growth over the next 3 years, and we're receiving very positive customer feedback on these platforms. And in fact, some of you are going to have the opportunity to try these for yourself later on this morning in the breakout session.

As Vince described earlier, we have among the most richest platform, certainly in Diagnostics' history, and very excited to be able to share some of those with you today. For the sake of time, you can see I've highlighted here some of the innovations in our Microbiology Automation business. But we're not going to focus on those today, we're going to spend the time really focusing on some of the products that we're going to talk about in our breakout sessions, as well as the products that I've specifically saved to announce to you here, today, for the first time.

BD has been in the Molecular Diagnostics business for more than 10 years, and we've built a leading position in sexually transmitted diseases and healthcare-associated infections. Our intentions are much, much bigger than that now. And we're very excited about BD MAX. And I think the easiest way to think about BD MAX, is to think of it as an iPad of Molecular Diagnostics. The customer gets a great interface and value, they get walk-away automation for up to 24 different tests at a time, and at a very competitive cost. We're also working to deliver the broadest set of assays, or apps, on this platform.

One thing that is important to note is that MAX is an open system, which means that our customers or our partners can develop their own assays, or apps, on BD MAX, and make those available to others. You saw us earlier this summer launch the open system MAX and we were beginning to target the approximately 1,000 medical, academic and research centers around the world, as well as large reference labs, to automate the novel assays that they had developed

We'd also begun using this open system capability to expand our menu. And in the last 6 months, you saw us announce 3 partnerships to introduce a dozen assays on MAX. We're also accelerating menu development internally with a specific focus on areas where we have poor expertise, such as sexually transmitted diseases, healthcare associated infections and areas where we're looking to convert traditional microbiology to molecular methods. Over the last 6 months, we have gone from having 3 assays in the pipeline for MAX to more than 15 today. And we're looking to make another similar stepwise increase in our menu this year.

The first assay that will be launched on MAX are in the areas of Women's Health and healthcare-associated infections, where you're going to quickly see us launching in the new spaces with assays for immunocompromised patients, critical care, respiratory and enteric pathogens starting in the EU later this year.

If we switch to our high-volume solutions, we're creating a unique and fully-automated integrated solution for screening across psychology and molecular technologies. In FY '13, we're going to launch the BD Women's Health automation platform, which you'll see in the breakout. This is going to fully automate the upfront sample preparation for both molecular and psychology testing from the SurePath file. We'll be launching a new middleware and module to integrate sample management across all 3 of these platforms.

Our bench-top BD Viper LT, also launches in FY '13, along with GC/CT globally and our new HPV genotyping assay launches in FY '13 in the EU, and we're starting clinical trials in the U.S. later this year. This assay is expected to be the first automated genotyping assay to detect more than 90% of HPV genotypes. At the end of this year, we'll also be launching Trichomonas on our Viper XTR platform starting in the EU in Q4, followed by a launch in the U.S. in early FY '13.

Our new SurePath Plus molecular path also recently completed clinical trial and remains on track for a launch in FY '13, beginning in the EU. SurePath Plus starts with a traditional BD SurePath slide and then add proprietary biomarkers that are highly specific to cervical cancer cells. So they light them up very brightly on the slide, making it very easy to identify them. And of course, the goal of that is we're obviously aiming for a significant boost in sensitivity. And again, you're going to hear more about that in the breakout this morning.

Finally, a product that I'd like to talk about and share with you for the first time here today is our BD Veritor platform. And I'm very excited to be sharing this with you this morning. You can see it there on the screen and I'll hold one up here in my hand just so you can see the other heads go up and just see the relative size of this platform. This has combined the patented Nano particle technology from BD with this small handheld reader that significantly improves sensitivity versus other point-of-care tests. This Veritor reader is going to sell less than $300, and the test on these strips will be similarly priced to other lateral flow test.

To run the test, you just place your patient sample in this small well, wait a few moments, you press the only button that's on the reader, the on-off button, you place your strip inside the reader, you'll see a countdown, 10, 9, 8, 7, 6, 5, 4, 3, 2, 1, and suddenly the result is displayed on the screen. It's a definitive answer in less than 10 minutes with very high-performance. Our first assay flu A+B was actually 510(k) approved last week. And our CLIA waiver submission is now under review.

One thing that I think is worth noting, is that because of the very high sensitivity of this platform, Veritor is the first and the only point-of-care flu test whose performance claims are being made versus PCR. All of the other rapid CLIA-waived point-of-care tests are compared to the less sensitive cell culture method. We have a full pipeline of assays under development for entering in the clinical trials including Strep A, RSV, adenovirus and sexually transmitted diseases.

Just to wrap up here with final thoughts. In summary, while we see continuing cost headwinds and uncertain testing volumes in the U.S. and EU, we also see strong macro trends that are accelerating demand for new solutions in infectious disease and cancer diagnostics. We view the net effect of these as positive over the next several years and we're investing in a series of first-to-market innovation, which will enable earlier and more effective therapeutic intervention and transform laboratory efficiency.

As I mentioned, many of these innovations will expand our serve-to-market by over $1.8 billion over the next 3 years. We're also strengthening our commercial capabilities in fast-growing emerging markets. And as I mentioned, we're opening our first new R&D center outside of the U.S. in China later this year. Internally, we're reinvigorating our focus on cost advantage and have established a multiphase efficiency program that's part of ReLoCo II.

I'd like to thank you for your attention today and the opportunity to share the strategy for BD Diagnostics. And I look forward to seeing you in the breakout sessions later on this morning. With that, I'd like to introduce our next speaker, Bill Rhodes, Senior Vice President of Corporate Strategy and Development. Thank you.

William E. Rhodes

Thank you, Tom. Good morning, and welcome to BD's Analyst Day. I'm Bill Rhodes, and I will be talking with you today about the BD Biosciences segment and its 3 business units. The BD Biosciences segment provides researchers and clinicians the tools they need to better understand cells, their characteristics, behavior and related factors.

In FY '11, the segment achieved $1.34 billion in worldwide revenues. If we adjust for U.S. stimulus and Japan's supplemental spending, BDB's Worldwide revenue growth was 6.6% in FY '11. Cell Analysis, our business unit that makes flow cytometry analyzers, sorters and monoclonal antibodies used with these instruments had 8.8% growth. In Discovery Labware, which includes our Advanced Bioprocessing unit, growth was flat mainly due to shifts in large distributors' buying patterns and, to some extent, moderating research spending, especially in the U.S. In FY '11, the advanced bioprocessing unit completed validation runs in our new animal-free, antibiotic-free Miami manufacturing plant, and introduced a new chemically-defined medium and chemically-defined supplement product.

Moving to the next slide. I would like to highlight some dynamics in the market environment and put them in context for you, together with our focus on growth and innovation. Two major themes underlie all that we do at BD Biosciences: Innovation and market creation. Both, alone, may appear to be simple ideas, yet when brought together, they become extraordinarily powerful drivers of growth. Foremost, we focused our energy and our associates' time on innovation, not simply at the R&D level, but innovation more broadly, how we do business, how we identify new opportunities and most importantly, how we serve our customers. You will see in all that we've discussed today, innovation is a key to our success.

The second theme is more tactical, but of equally critical importance, and is something we are extremely well positioned for, opening, and in some cases, creating entirely new markets and applications for flow cytometry. Essentially, we bring the unique power of flow as a recent clinical tool to scientists and laboratories around the world that have not known to or been able to use it before. To do this, it requires innovation and product design, standardization, ease-of-use, serviceability, cost, flexibility, et cetera. The list goes on, but the ultimate goal is to allow customers in new markets to pursue their work in ways they couldn't before, using flow cytometry as the enabling tool.

Now as we turn our attention to the chart, our first factor is related to leukemia and lymphoma. Leukemia and lymphoma are blood cancers, most prevalent to older individuals. As the world population ages, their incidence and prevalence increases. No consistent test standard exists and there are worldwide ongoing efforts to establish standard diagnostic and monitoring test panels. We are working with the EuroFlow consortium in Europe and the Bethesda Consensus in the U.S. to develop these new reagent panels. We estimate that this market is growing at a little above 7%.

Antiretroviral drug therapy, which prolongs the lives of HIV-infected individuals worldwide, requires CD4 monitoring to be most effective. As people are living longer with the disease, there is a corresponding increase in the number of tests performed. In this area, we are applying our extensive knowledge of CD4 monitoring in the developing world to design new analyzers that simplify training and workflow, as well as portable solutions for remote and resource-limited settings.

In the developed world, the market is growing at about 4%. In the developing world, the growth is greater, estimated at just over 10%. The pace of collaborative research is steadily increasing around the world, especially in emerging economies such as China and India, which continue to be strong investors in basic life sciences research and cell biology. We anticipate strong growth of flow cytometry in not just medically-oriented studies, but also for basic cell biology, research in areas like marine and plant biology.

We now have the tools needed to ensure that instruments and applications are set up consistently from laboratory to laboratory and that these are affordable, yet powerful. This is another result of the way we are applying our many years of experience to revolutionize the way that teams can collaborate across departments, institutions and even countries. We estimate this market is growing at 7%.

Finally, as genomic and proteomic research techniques, such as next-gen sequencing, become increasingly affordable and available, the need for separating single cells as a front end becomes important. This opens an entirely new market for flow cytometry, and to address this opportunity, we have developed a desktop sorter, the FACSJazz, which is capable of sorting single cells at very high speeds and purity. This market area, flow sorting in traditionally non-flow spaces is estimated to be growing at 15%.

Moving to our next slide. We see that BD Biosciences strategies for growth are focused on simplifying workflow for our clinical customers by developing next-generation clinical analyzers to simplify testing, speed-test throughput, make testing available in all markets and settings and collaborating with standard-setting organizations, meeting the accelerating pace of research by delivering next-generation research analyzers to support workflows across teams and continents, expanding the relevance of flow cytometry to new applications in emerging markets by making personal flow cytometry a reality through the development of affordable, yet powerful flow cytometer analyzers and desktop sorter solutions. An asterisk on the slide signifies that we will be discussing or demonstrating these products in our breakout sessions.

While many new products will be contributing to our growth, in our breakout session, we are going to focus on 3 key products that are significant growth drivers. This includes the BD FACSVerse, which is in the research flow category; the BD Accuri C6 personal flow cytometer from the Accuri Cytometer acquisition; and the BD FACSJazz, which is a personal desktop sorter. Over this 3-year period, these 3 product lines will add almost 3% or 290 basis points of revenue growth.

As you see from this slide, we are delivering on our key strategic initiatives. In 2012, we will launch a next-generation CD4 analyzer, the BD FACSClearCount. This instrument is an example of how we are innovating in multiple dimensions. This instrument is an example of -- I'm sorry, in this case, using new design and technology elements to enhance ease-of-use and user interface for lab workers in remote settings. For example, it can be run from a simple menu-driven touch screen which greatly simplifies operator training, while still enabling higher throughput CD4 testing.

Taking this concept a step further, in 2013, we will launch a portable point-of-care CD4 analyzer. Small and compact, it's about the size of a food processor. It can be strapped to the back of a scooter and brought into very remote resource-limited settings in desperate need of quality CD4 testing.

Our next-generation clinical analyzer, also introduced in 2013, will be built to leverage the many innovations in the BD FACSVerse platform and will support the leukemia and lymphoma reagent panels we discussed earlier. In 2013, we will expand the Accuri personal flow cytometry product line and continue our goal of expanding the use of flow into new areas of life sciences research, reducing the barriers to the adoption of flow cytometry that may exist today.

Finally, and in keeping with our commitment to open new markets for flow cytometry, in 2012, we will launch the first commercially available personal cell sorter, the BD FACSJazz, to support genomics and proteomics research, and particularly next-gen sequencing. This is a significant opportunity to expand into these large and dramatically growing areas of research.

As I've stated previously, we have 2 simple themes guiding our activities at BD Biosciences that, when joined together, create a powerful force driving growth, innovation and market creation. We are in the era of accelerating scientific discovery, particularly in cell biology and cell-based research. BD Biosciences continues to be a leader, identifying, developing and providing novel tools for researchers and clinicians to support cell-based research and improve patient care worldwide.

We are bringing our innovations to customers in the form of multiple new products, advanced research and clinical analyzers, new clinical reagents, personal flow cytometers and desktop sorters. These products allow us to focus on an opportunity space that will be over $110 million in the next 3 years. We stay committed to bringing innovation into all that we do, from research and development activities, leveraging our infrastructure and know-how, to designing instruments and systems that meet the evolving needs of our customers, wherever in the world they may be.

Thank you very much. And now I am pleased to introduce Gary Cohen, Executive Vice President, who will discuss emerging markets.

Gary M. Cohen

Thank you, Bill, and good morning. Complementing the presentations that our business leaders just made, I'm going to cover BD's geographic strategies and growth drivers, starting with a description of our geographic presence. BD is a truly global company with approximately 57% of our employee population and 57% of our revenue base being outside of the United States in fiscal year 2011. We're organized into 7 geographic regions and most were established quite some time ago dating back to the early 1950s in Europe, Latin American and Canada, and the early 1970s in Japan and Asia Pacific. We have offices in approximately 55 countries and 51 manufacturing facilities in 15 countries. And you'll note in this slide that I've distinguish between industrialized and emerging markets because that's how we segment the global healthcare market at a country level.

As we discussed in our quarterly earnings release calls, emerging markets are a significant growth opportunity for the company. In 2009, emerging countries represented 85% of the global population, but only 19% of the global healthcare spend. BD's ability to reach large underserved populations is central to our geographic strategy, and is also consistent with our company purpose of helping all people live healthy lives. While health-related spending is under increasingly tight constraint in industrialized countries, emerging countries are actively investing to expand health services access for their populations. Our strategies are positioned accordingly.

In industrialized countries, we're pursuing efficiency and cost control both for BD and our customers, while in emerging markets we're helping government achieve their health system goals and health providers improve their clinical and research practices. To accomplish this, we're redeploying SG&A spending to enable substantial investment in emerging markets, while containing overall spending growth at the company level.

Our emerging market strategy involves both geographic expansion, investing in new countries, and demographic expansion, reaching large populations that presently have limited access to quality health services. We're geographically expanding in China, India, Indonesia and several other large countries, and simultaneously pursuing demographic expansion beyond major health care centers in urban areas, into lower tier district and rural settings. We're also investing, as has been mentioned by several of our business leaders, in focused R&D efforts to develop technologies specifically for unmet health needs in these lower-tier segments.

In fiscal year 2011, BD's overall emerging market revenues grew by 11.1% currency neutral, excluding flu and stimulus impacts. We achieved low double-digit sales growth in Latin America and the Asia-Pacific regions, including 26% growth in China. Our growth rate in the EMEA region, Eastern Europe, Middle East and Africa, was in the mid-single digits, negatively impacted in the fourth quarter by delays of purchasing from international agencies for childhood immunization and HIV programs. This is inherently a more lumpy part of our EMEA business. The Middle East component of our EMEA region grew at low-double digits.

Safety products were a key highlight in our emerging market growth, increasing 24% over prior year. Total international safety product revenues represented 40% of overall company growth in 2011, increasing to $755 million, while total global safety revenues grew to $1.87 billion.

This slide provides specific data on BD's industrialized and emerging market performance comparing fiscal years 2009 and 2011. Total sales revenues in emerging markets grew from $1.2 billion in fiscal year '09 to $1.7 billion in '11, moving from 17% to 21% of total company revenues. More significantly, emerging markets represented 67% of total currency-neutral company growth in 2011 compared with 27% in 2009, reflecting substantially increased impact of these markets and the economic slowdown in industrialized countries.

Correspondingly, BD is investing substantially more in emerging markets with 16% SSG&A growth in both fiscal year '09 and fiscal year '11 compared with 4% and 3% spending growth in industrialized markets, respectively. This trend is also reflected in our workforce, with 1,780 new positions being added in emerging markets from the beginning of 2009 through the end of 2011, while BD's employment in industrialized markets decreased by 750 positions over the same period, excluding acquisition impacts.

Next, I'll highlight BD's geographic priorities in emerging and industrialized markets. We're rapidly scaling up in the Asia-Pacific region with ongoing investments in China and India and new investments in Indonesia and Vietnam. In China, the government plans to expand healthcare access to 90% of the country's population by 2015. Our ability to support the government's health goals extends beyond supplying products. We also deploy our expertise to help improve clinical, laboratory and research practices. For example, over the past decade, BD's team in China trained over 500,000 nurses on improve clinical procedures.

More recently, we've entered into an MOU with the central government to help improve infection control practices in China's hospitals. In tandem, we've been making significant investments in organizational expansion with 625 new associates hired into nonmanufacturing workforce positions over the past 2 years. We're also expanding our manufacturing infrastructure in China with a third large plant planned. We anticipate China becoming BD's second largest country in both sales revenues and employment by 2014.

In India, we recently completed transfer of IV catheter manufacturing from Sweden to our plant in Bawal and started production of the new BD Emerald syringes as part of our ReLoco and ReKindle programs. We're working collaboratively with prestigious organizations such as the National Accreditation Board of Hospitals, and with state governments and research institutions in areas such as patient safety, infection control, public health and cell-based research. We're also establishing plans for demographic expansion into Tier 2 markets in India beginning in 2013.

Elsewhere in the Asia Pacific region, we're expanding into countries where a combination of economic growth, government commitment to healthcare access and unmet health needs aligned well with BD's institutional capabilities in areas such as diabetes, TB, HIV/AIDS and cervical cancer. Among these countries is Indonesia, the fourth most populous country in the world with 238 million people. The government of Indonesia is pursuing universal health insurance coverage, standardized systems for hospital accreditation and patient referral and strength in primary healthcare services. We're also expanding in Vietnam, which has a population of 90 million people and sustained strong economic growth and a government highly committed to improving the quality and access to healthcare. And I can comment personally on this having visited both countries over the past year. And there's a strong commitment to improving health services, quality and access.

Latin America is also a key emerging growth market for BD, even considering that the company's presence in this region dates back over 60 years. Growth in fiscal year 2011 was very strong in Argentina and Brazil with particular success in safety-engineered device sales and in diagnostics. Brazil has a national safety law, and BD is presently producing safety injection devices in one of our Brazilian manufacturing plants. Our diagnostics growth is occurring throughout the Latin America region and we're engaged in collaborative initiatives, such as the programs focused specifically on cervical cancer in Peru.

In response to the more constrained economic environment in Western Europe, in 2011, BD consolidated our country operations in Northern and Central Europe into country hubs with single management teams for multiple countries. We also integrated the EU member countries in Eastern Europe into the Central European hub. These changes not only reduced SG&A cost, they also enabled us to upgrade the skill level of our country business leaders.

Areas of specific focus in Western Europe include Healthcare Worker Safety, cervical cancer and healthcare-associated infections. We anticipate good growth for the new BD MAX platform and our new flow cytometry instruments. Overall, growth for the company in Western Europe is expected to be higher in 2012 compared with 2011.

Finally, we're making new investments, as have been mentioned, in R&D in emerging regions with specific plans to expand operations from our current R&D base in Singapore to new R&D centers in China and India. And we'll do this through a combination of external resources and internal resources, including collaborative activities. BD has several new products in the pipeline that respond to the unique requirements of emerging countries, and we anticipate expanding product development for underserved populations in the future.

In summary, we believe BD's direct geographic presence in over 50 countries positions the company well, with particular strength in faster growing emerging markets. While some companies are just starting to focus now on emerging markets, BD's involvement dates back to the mid-1990s and went deeper over the past decade, particularly with respect to cross-sector programs to address global health priorities. Our collaborative capabilities and institutional knowledge make us uniquely well suited to have positive impact, and are complemented by stable and experienced workforces in emerging countries. We're also implementing initiatives to reinforce our strong positions in industrialized countries, including new product introductions responsive to cost constraints and efficiency initiative that lower our cost of doing business.

Finally, BD has a long-standing record of ethical business practices and a deeply held commitment to advancing social purpose in the countries we operate in. These characteristics are increasingly being recognized as best practices. For shareholders, they're an indicators of the company's ability to prosper in a rapidly changing economic and global environment.

So thank you. I'm now pleased to turn the session back over to Monique Dolecki, who will provide information on the rest of today's program.

Monique Dolecki

Thanks, Gary. So we will now take a 20-minute refreshment break before heading into the product demonstrations. The name badges you received this morning indicate a group number. So please refer to the agenda, and you will see which sessions you should be attending. Okay. Thank you.

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