Biosite Q1 2007 Earnings Call Transcript

TRANSCRIPT SPONSOR

Biosite, Inc. (BSTE)
Q1 2007 Earnings Call
April 24, 2007 4:30 pm ET

Executives

Nadine Padilla - VP, Corporate and IR
Kim Blickenstaff - Chairman and CEO
Ken Buechler - President and CSO
Bob Anacone - SVP, Worldwide Sales and Marketing
Chris Twomey - SVP, Finance and CFO

Analysts

Ben Passe - GLG Partners

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the 2007, First Quarter Biosite Incorporated Earnings Call. At this time all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of today's presentation. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Ms. Nadine Padilla, Vice President, Corporate and Investor Relations. Please proceed, ma'am.

Nadine Padilla

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

During this call, we will discuss our results for the first quarter of 2007. After prepared remarks we'll conduct a Q&A session. We do have a large audience, so please limit yourself to one question and one backup, you are still free to queue up as often as you would like.

Before we begin first some general information. Today's meeting, which is opened 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 financial results which are 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 April 24, 2007 as well as in Biosite's Form 10-K for the year ended December 31, 2006. We encourage you to review those carefully. Forward-looking statements represent the Company's judgment as of April 24, 2007. The Company disclaims, however, any intents or obligation to update these forward-looking statements.

And with that, I'll turn it over to Kim.

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Kim Blickenstaff

Thanks Nadine. Before we get started on our first quarter financial results I just wanted to give a quick overview of the recent M&A activity. As you all know from our press releases on March 25, 2007 Biosite entered into a definitive merger agreement, under which Beckman Coulter will acquire all of Biosite's common stock and a cash tender offer $85 per share, that offer being a premium of 53.5% of our Biosite's, holding stock price of 55/ 38 on March 23, 2007.

Then on April 5, 2007 Inverness made a proposal to acquire Biosite for $90 a share in the merger transaction. On April 10, our Board deemed the Inverness proposal was reasonably likely to lead to a superior proposal as defined in the merger agreement with Beckman. Actually though we are focusing on maximizing shareholder value for all of our shareholders, we will do our best to keep you updated as events progress.

Please keep in mind as Nadine said this call is an earnings call and during the Q&A portion we will not be taking questions related to Beckman Coulter's pending tender offer or the proposal we received from Inverness.

So, let's turn to the 2007 financial results for the first quarter. I think we are off to a very good start here. The financial results for the quarter came in consistent with the guidance that we gave last conference call for 6% increase for annual revenues and the first quarter showed 6% increase over the same quarter of 2006. As expected, sales growth was driven by non-BNP products as we predicted. Our international efforts and sales to the domestic physician office markets, our non-BNP cardiovascular products are doing well including the Profiler product series. Triage, Cardiac and D-Dimer which collectively grew 43% over the same quarter of last year.

International revenues continue to do well and we were up 33% over the same quarter of last year reflecting growth in new customers and BNP utilization. Overall, our physician office market sales were up 31% on the end-user basis over the same period of last year. And just to give sort of an overview, Bob will give more comments but the BNP franchise remains stable. The sources of growth was shifting as we predicted the U.S. hospitals sales declined moderately as predicted due to the approximately 7% price decline by year-over-year which we had anticipated in our guidance.

Also international sales from Triage BNP test grew 40%, so we are gaining market share in the international market with BNP. Also as we discussed in the last conference call it is our goal in 2007 to make substantial progress on what we call our tier-1 projects to get them towards the regulatory approval. These are the products that we judge have the highest commercial potential and so they have been prioritized based upon their potential market value.

The Priority programs for the Triage Sepsis Panel, the Triage MPO Test and the CardioProfilER. The Triage acute kidney injury test, are based upon working at NGAL, and improvements to our Triage BNP Test when we think we can expand the physician office domestic market if we have those improvements in the product.

So, the clinical studies for the new products are significantly more complex from our previous FDA submissions that we have for BNP at earlier submissions. As you know the last half of our last year we made significant changes to our clinical group we have significantly expanded the size and the expertise the folks in that clinical trial organization that tried to accommodate just the amount of work that we were undertaking with these various tier-1 programs. And as Ken will talk in his part we are very pleased with the progress that we are making on the various clinical studies that are underway for these multiple programs.

And then finally just of our guidance. Chris, will give more of the numbers, but we are reaffirming for 2007 the 6% annual revenue growth that we gave during our prior call. That translates into $326 million in total top line revenues, but again growth coming from extended or expanded POL of international market penetration and the growing contribution that we are seeing from other cardiovascular products other than BNP. So I will turn it over to Ken to talk to you more about the various programs and its developments.

Ken Buechler

Thank you, Kim. The first quarter has brought significant advances in the areas of ACS, Sepsis, acute kidney injury and in the development of the Triage BNP Test fingerstick device. The MIDAS study, which is a prospective sample collection study, has enrolled approximately 400 patients with symptoms associated with ACS.

The study includes adult subjects who presented to one of the participating emergency departments within six hours or less from the time of symptom onset and to experience at least 30 minutes of chest discomfort. These samples along with samples collected under the Triage NGAL study are intended to support U.S. regulatory and international CE marking submissions relating to potential claims for the Triage MPO Test or BNP assay and the MultiMarker Index value algorithm for the Triage CardioProfilER Panel.

CE marking for the Triage CardioProfilER Panel with MPO and the MMX is scheduled to be completed in late Q2 or early Q3 with post market evaluation studies beginning in the European Union shortly thereafter.

Submission to the U.S. FDA is still anticipated in Q3 for the Triage CardioProfiLER with MPO and the Triage MPO Test as a predictor of risk in patients presenting to emergency departments with chest pain.

The markers for the Triage Sepsis Panel were selected from over 150 different proteins, using data from a training study called Sepsis-I, which enrolled approximately 1,000 patients who presented to emergency departments at 10 clinical sites. The three markers chosen for the Triage Sepsis Panel are NGAL, CRP and MIP-3.

We have filed an IP on the Triage Sepsis Panel and obtained an exclusive license for MIP-3. We are very enthusiastic about potential clinical usefulness of the Sepsis Panel. And Dr. Manny Rivers of the Henry Ford Hospital discussed the preliminary data from the Sepsis-I study at the ISICEM Clinical Care Meeting in Belgium in March. Dr. River's presentation and the data can be seen on our website until tomorrow.

A ROC curve analysis comparing our potential product with other commonly used biomarkers of risk, suggested that the Triage Sepsis Panel performed better than biomarkers such as pro-troponin, CRP, lactate, white blood cell count and serum creatinine.

Additionally in the core power analysis of the MMX value is a function of odds ratios. The MMX value was significant in the second, third and fourth quartiles for predicting risk within 72 hours after presentation. Furthermore the MMX value appears to increase in patients prior to clinical signs and symptoms of septic shock or organ dysfunction.

Overall these preliminary data demonstrate that the panel could have clinical utility in the assessment for risk of Sepsis progression within 72 hours of patients presenting to the emergency department and meeting the diagnostic criteria for Sepsis. As planned, we anticipate using the clinical data obtained from the Sepsis-I study to support CE marking in Q3.

Discussions with the FDA regarding the protocol for the validation clinical study for Sepsis, which we termed MINDSET, have been completed and patient enrollment is expected to begin to shortly at approximately 20 sites in the United States. Also in the area of Sepsis, we continue to shift Triage Protein C Test kits to clinical trial sites for use in Lilly's RESPOND trial. This trial will employ a tailored therapy strategy for Lilly severe Sepsis drug, Xigris.

The trial will investigate the dose and duration of treatment of Xigris using serial measurements of Protein C in patients with severe Sepsis and multiple organ dysfunction. We are pleased to be working with Lilly on this project and our business development group continues to search for other opportunities to form similar alliances.

In the area of acute kidney injury, we are starting the training study termed EVOLVE. We have enrolled about 14 patients at six clinical sites, and the result of this study will be used to define the protocol for KINGPIN. The validation study for the Triage NGAL Test. Our KINGPIN protocol will be submitted to FDA for comments and as planned we anticipate filing for CE marking of the Triage NGAL Test in early Q3.

Dr. Devarajan from Cincinnati Children's Hospital will be presenting data today at the World Congress of Nephrology being held in Rio de Janeiro. The NGAL data are from children undergoing coronary bypass surgery with complications of acute kidney injury and death, and the measurements of NGAL were with the Biosite assay.

We continue to make progress in the development of the fingerstick application for the Triage BNP test that can be used more easily in physician offices where blood is typically not drawn. Additionally, we are working with thought leaders to design a clinical study demonstrating the benefits of monitoring BNP in the outpatient setting. We have successfully completed a pilot feasibility study and the validation study as it expected to start later this year.

And finally, although stroke is a second-tier project now, as a result of its market size relative to ACS, renal injury and sepsis, we continue to work with thought leaders to design a protocol in support of a validation study for the Triage stroke panel.

And with that, I would like to turn it over to Bob.

Bob Anacone

Thank you, Ken. We had a number of highlights from the commercial front this past quarter. So I make some general comments and then I'll go into some specific numbers. From the general comment, we had very strong uptake in demand for our novel cardiac product, panel products with both domestic and international sales exceeding the expectations. We are encouraged by the high level of interest in our recently launched TOX plus methadone product. We had a number of -- our number of total U.S. hospital, BNP customers remains very stable. Our focus clinic care marketing and sales efforts are reaping rewards and I'll be specific about that in my future comments.

Sales to POL as Kim mentioned, it grew greater than 30% on a year-over-year on an end-user basis, and international product sales grew at 33%. Our worldwide product sales grew 6% as Kim mentioned, year-over-year in the quarter to $82 million, domestic product sales grew 1% year-over-year in the quarter to $68 million. International product sales continue to grow at a rapid pace, with Q1 sales growing 33% in the quarter to $14.7 million.

On a product basis worldwide total BNP product sales declined 1% year-over-year in the quarter to $51.9 million. We continue to realize impressive growth in some of our other product lines, specifically our Profiler Cardiac Panel product grew 115% year-over-year. Profiler Shortness of Breath product grew 56% and our D-Dimer sales grew up by 51% on the same basis.

We are also seeing strong demand for our TOX product with product sales growing 32% year-over-year in the quarter. Additionally, we are just coming off the launch of our new TOX plus methadone product, and we are encouraged by the very strong rolling interest in the product. In the high-volume automated segment of the BNP market we continue to realize solid growth with worldwide sales on BNP and the Beckman Automated Immunoassay systems growing 23% year-over-year.

In terms of price and volume, net product sales increased approximately $9.5 million as a result of volume growth, partially offset by $4.6 million decline in net product sales due to ASP erosion. I'll switch now to making comments based on geography, so from a domestic point of view in the U.S. our total net product revenues grew to roughly $68 million or 1% year-over-year for the quarter.

As I mentioned earlier the number of our total domestic BNP hospital-based customers remains very stable. We continue to see BNP utilization on the Beckman Automated Systems grew significantly with U.S. kit growth of 28% year-over-year.

BNP Products sales in the Beckman systems grew 18% year-over-year. Total BNP and ASP erosion was approximately 7% year-over-year inline with our expectations and much of that attributed to recent contracts signed with a very large GPO.

According to the latest available IMS and CAP survey results, we remain the market share leader in BNP testing. Just as importantly we remain confident in our ability to market and sale not only product extensions such as TOX plus methadone but totally new product concepts represented by our cardiac panel products. Revenue growth of our novel cardiac panel products namely our Profiler and Profiler Shortness of Breath products continue to gain customer acceptance in the point-of-care segment of the domestic hospital market.

Specifically, we realized 130% and 52% year-over-year revenue growth with our CardioProfilER and Shortness of Breath products, respectively. These growth rates signal market acceptance of the operational benefits offered by using point-of-care MultiMarker Serial Draw protocols and BZEDs. As Profiler and Profiler Shortness of Breath to combine Panels for rapid assessment, but patients presenting with chest pain and shortness of breath to the ED, these products are gaining acceptance at those hospitals searching for solutions to ED throughput challenges.

Finally, in the U.S. we continue to see greater than 50% growth of our Triage D-Dimer product. Switching to the international front, our international business continues to grow in importance contributing approximately 18% of Q1 2007 revenues, international product sales as I mentioned grew 33% to approximately $14.7 million for the quarter.

These rapid growth rates reflect two strategies, one our continued investment and our direct marketing and sale subsidiaries which now contribute approximately 65% of our total international product revenues. Two, our geographic expansion through distributors and select countries where we have no direct presence, yet revenue opportunities exist by selling through established distributors.

Regarding sales of specific products internationally, total BNP product sales grew 40% year-over-year for the quarter. Sales of our Cardiac Panel products continue to be brisk with Cardiac and Profiler Shortness of Breath product sales growing 29% and 68%, respectively.

In addition we realized approximately 25% growth of our D-Dimer product internationally. We continue to see accelerated growth of our Triage TOX product growing approximately 79% year-over-year for the quarter. Given the recent introduction of our enhanced TOX product incorporating the ability to measure levels in methadone, we expect this rate of sales growth to continue throughout the calendar year.

On a segment basis in the U.S. our point-of-care marketing and sales efforts are fueling greater than 36% year-over-year growth in U.S. hospital base, point-of-care accounts. Our point-of-care revenue growth was approximately 26% in the U.S. year-over-year basis.

The clinical utility of our novel MultiMarker Cardiac Panels used as point-of-care continues to gain clinical adoption and acceptance from within the U.S. hospital markets. These Cardiac Panel products, such as ER physicians and rapidly Triaging patients to the ICU, the cath lab or discharge.

And finally, I'll make some comments about the POL, the physician office lab market. As I mentioned in previous calls, we invested substantially in 2006 to build a direct sales organization to tap the unbounded opportunity represented by having the only BNP test to be granted CLIA waived status.

This direct POL sales organization working along with our POL distributors is making significant progress in establishing our Triage BNP test within the POL segment of the marketplace. Specifically, we realized an increase in active BNP accounts of 26% year-over-year. Combined product sales to our POL customers grew by approximately 31% year-over-year on an end user basis.

Additionally, in Q1 we signed a distribution agreement with McKesson, which will serve to significantly augment our selling capabilities to the POL. We are confident that this collaboration with McKesson along with our other established POL distributors will accelerate not only Triage BNP sales to the POL, but also sales of our novel Cardiac Panel product.

And with that I will turn it over to Chris.

Chris Twomey

Thanks Bob. I'll wrap up the discussion with some comments on the results for the quarter. Bob, has provided most of the details on the revenues. I'll provide some of the details behind the margins and the operating expenses. Talk briefly about the balance sheet, cash flows and a quick update on revenue guidance for '07.

And as I mentioned in the last call, now that we have comparable year-over-year metrics, my comments will be based on GAAP numbers. So, they include the impact of FAS 123R and it relates to the stock-based compensation for both 2006 and 2007.

Overall revenues, product sales performance of Q1 was very solid. Just straight line at the current analyst consensus, our product sales were $82 million up 6% over the prior, plus it's up 9% from our fourth quarter. So, this is a seasonal bump and similar to what we have seen in past years.

Specific product revenue highlights for the quarter. BNP sales were $52 million, which showed a modest decline as mentioned earlier and primarily driven by the pricing ASP erosion again predicted in our guidance.

Sales for the Triage BNP for Beckman platform was 36% of our sales in the quarter compared to 29% for the first quarter of last year. But non-BNP cardiovascular products continued to be a leading driver of growth just as Bob indicated. In the first quarter these products, the Cardiac Panel, our two Profiler products the D-Dimer Test and the Stroke Panel, together grew 43% over $5 million year-over-year and 14% growth sequentially.

Other product sales related information of interest, international sales as Bob indicated up 33% and the international direct countries, most primarily Europe were up 43% year-over-year. Sales in international products represent 80% of the total sales in the quarter that's versus 14% of the first quarter of 2006. So, overall international is just a solid driver of growth in the quarter, and the physician's office lab again Bob indicated first quarter growth of 31% on an end-user basis year-over-year to $4 million in the quarter.

Our gross margins, the overall gross margin again solid in Q1 69%. We continue closer to the 70% number, despite declining BNP prices in the U.S. hospital markets. The decline of the BNP assay was offset by sales of higher price products like the cardiovascular products we've mentioned. And all the products in the direct European countries, I think all of those drove the ASP up overall for those products. And we also saw a greater manufacturing efficiencies and again better absorption in the quarter due to higher volumes.

Overall operating expenses on a year-over-year basis, the SG&A and R&D expenses increased little over $2 million to $0.4 million in the quarter, this increase was due to merger related activities, clinical trial activities as Ken mentioned as well as increases in the physician's office lab and international sales related headcount and their support services.

So that's prudential operating expenses on the taxes, the tax rate in the quarter was higher in both the first quarter of last year as well as the fourth quarter of last year, but I think, more indicative of our normal tax rate on an ongoing basis. As we noted in prior calls in the first quarter and fourth quarter of last year, we were able to release amounts from liability reserves for both in IRS Audit and in California State Tax Audit. Upon completion of the audits there was no longer necessary to maintain reserves, which resulted in P&L benefits in the first quarter of about $1 million and almost that was $900,000 in the fourth quarter of 2006.

So, on the balance sheet the cash was up, close to $100 million at the end of first quarter that's up from $64 million in the prior quarter, but down from $131 million in the first quarter of 2006. We should remind everyone that we did use the $100 million in cash, for the stock buyback program in the fourth quarter since March of last year we did utilize the $100 million in additional cash for buybacks, which drove the overall decrease in cash year-over-year.

The cash flow from operations is extremely strong $32 million for the quarter slightly better than the first quarter of last year, and we just continued to generate solid cash flow. CapEx for the quarter was about $4.3 million which is inline with that of Q3.

So, on the guidance again with all the moving pieces we have the relating to the merger including of course the related expenses, the share account, the timing. We're only going to provide an update to our revenue guidance for the full year. As Kim indicated for total revenue we're maintaining our total revenue guidance from a January call of $326 million or 6% growth year-over-year. And while there might be some reshuffling a little bit between BNP and the other cardiovascular products, I think most of guidance comments we gave in January still stand.

So, that's it for the financial and once again thank you for joining us on the call. I'd like remind you that the purpose of today's call is to talk about financial results for the first quarter of 2007 and to provide an update on our going clinical trials.

We will not take any question on the thorough process conducted by our Board, the pending Beckman Tender offer, or the Inverness proposal. So, with that let me now open up the lines for any Q&A regarding the first quarter.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). And your first question will come from the line of [Ben Passe] of GLG Partners.

Ben Passe - GLG Partners

Hi. Good afternoon.

Kim Blickenstaff

Hi.

Ben Passe - GLG Partners

Though I appreciate your remarks regarding the merger, in light of the deadline and the tender due to expire on Friday and in light of the correspondence which as of April 10th and from Inverness on April 5th stating that it would only take two days due diligence is that still true? Has Inverness completed the diligence since the Board deemed that this could potentially be a superior offer?

Nadine Padilla

As Kim said, the Board is still in the process of evaluating so at this end, we're not discussing that today at this conference call.

Ben Passe - GLG Partners

Alright. When does the Board think that it would be appropriate to remark as to whether or not this constitute a superior offer?

Nadine Padilla

We don't have any public timeline available.

Ben Passe - GLG Partners

Okay. Has the company been in contact with the signed merger of given party Beckman Coulter?

Nadine Padilla

Again we are not discussing the merger and at this time operator why don't we move on.

Operator

(Operator Instructions).

Kim Blickenstaff

Any further questions, operator?

Operator

Sir, there are no further questions at this time.

Kim Blickenstaff

Okay. Well then we'll end the conference call by saying that any further activities related to the M&A activity will come through press releases from the Company and we will talk to you may be next time in the second quarter results when we report possibly when will that be? May be in July.

Nadine Padilla

That would be in July.

Kim Blickenstaff

In July. Thanks for being on the call.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. And you may now disconnect. Have a wonderful day.

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