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Life Technologies (NASDAQ:LIFE)

Q1 2012 Earnings Call

April 24, 2012 4:30 pm ET

Executives

Carol A. Cox - Vice President of Investor Relations

Gregory T. Lucier - Chairman and Chief Executive Officer

David F. Hoffmeister - Chief Financial Officer and Senior Vice President

Mark P. Stevenson - President and Chief Operating Officer

Analysts

Jonathan P. Groberg - Macquarie Research

Amit Bhalla - Citigroup Inc, Research Division

Quintin J. Lai - Robert W. Baird & Co. Incorporated, Research Division

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

Paul R. Knight - Credit Agricole Securities (NYSE:USA) Inc., Research Division

Joshua Riegelhaupt - Oppenheimer & Co. Inc., Research Division

Jon Davis Wood - Jefferies & Company, Inc., Research Division

Derik De Bruin - BofA Merrill Lynch, Research Division

Doug Schenkel - Cowen and Company, LLC, Research Division

Vamil Divan - Crédit Suisse AG, Research Division

Isaac Ro - Goldman Sachs Group Inc., Research Division

Daniel L. Leonard - Leerink Swann LLC, Research Division

Bill Bonello - RBC Capital Markets, LLC, Research Division

Bryan Brokmeier - Maxim Group LLC, Research Division

Daniel Arias - UBS Investment Bank, Research Division

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Life Technologies Corporation First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce our host for today, Ms. Carol Cox, Vice President of Investor Relations. Ma'am, please go ahead.

Carol A. Cox

Thank you, Karen, and good afternoon, everyone. Welcome to Life Technologies First Quarter 2012 Earnings Conference Call. We issued a press release today at 1 p.m. Pacific Time or 4 p.m. Eastern, posted on our website at lifetechnologies.com and filed on Form 8-K with the Securities and Exchange Commission. We also posted a deck of slides to accompany the webcast today, which may be found on the Events and Presentations section of the Life Technologies Investor Relations website with our other earnings materials.

Joining me on today's call are Greg Lucier, our Chairman and CEO; and David Hoffmeister, our Chief Financial Officer. Mark Stevenson, our Chief Operating Officer, will also be available during the Q&A portion of the call. If you have not received a copy of today's press release, you may obtain one from our website at lifetechnologies.com. I would like to remind our listeners today that our discussion will include forward-looking statements, including, but not limited to, statements about future expectations, plans and prospects for the company.

We believe these statements are based on reasonable assumptions, but actual results may differ materially from those indicated. Important factors which could cause actual results to differ materially from those in the forward-looking statements are detailed in our filings with the Securities and Exchange Commission. It is our intent that these forward-looking statements be protected under the Safe Harbor created by the Private Securities Litigation Reform Act of 1995.

Additionally, we will be discussing GAAP and non-GAAP measures. A full reconciliation of the non-GAAP measures to GAAP can be found in today's press release or on our website. And with that, I will turn the call over to Greg Lucier.

Gregory T. Lucier

Thanks, Carol, and thank you, everyone, for joining us on today's call. We are very pleased to open the year with stronger-than-expected first quarter results. Solid performance across all our businesses, especially in Genetic Analysis, which [ph] have revenues of $939 million, a 5% increase over last year. Excluding currency, we are able to grow revenue 2%, which is in-line with our annual guidance range of 2% to 4% organic growth and slightly ahead of where we were expected to be in the first quarter.

We increased gross margins to 66.6% and reduced operating expenses as a percentage of revenue to drive operating margin expansion of over 200 basis points, all of which we leveraged to grow non-GAAP earnings per share 17% to $0.99.

Our end markets remained in-line with our expectations, with strength in emerging markets and in Asia, and stability in the U.S. and Europe. We saw particular strength across all our businesses in Japan as the government fiscal year ended and researchers spent their remaining budget funds. We expect to see the normal sequential decline in Q2 as the Japanese government finalizes its budget for 2012 in May and researchers evaluate their spending.

Emerging markets continue to offer incredible growth opportunities. We had high-teens growth in Greater China during the quarter and saw double-digit growth in our Latin American business, as well as strong growth in Eastern Europe and Russia, where we are expanding our sales network. We are primarily a direct seller of our goods, although in new markets, we have often entered with the help of local distributors.

As these markets have grown, we have begun acquiring some of these distributors and that strategy is really starting to pay off.

In early March, I had the opportunity to spend a week in India, visiting employees at our training facility in Delhi and our customer service organization in Bangalore. During my trip, we hosted 2 events with customers where we highlighted Proton and the applications of next-generation sequencing. So far, 2 well-known genomic laboratories in India have placed orders for the Ion Proton, citing the simplicity and higher throughputs of the technology as well as Life Technologies' strong presence in the country.

Our meetings included a range of government officials, academic opinion leaders, diagnostic customers in public and private hospitals and biotech startups. We are excited about our opportunities in India and are continuing to invest in our infrastructure, partner locally and expand our employee base there to drive fundamental demand for our instrumentation and consumables. These investments are helping drive double-digit revenue growth in 2012.

During the quarter, we made solid progress in our Applied Sciences business. We completed 2 tuck-in acquisitions and both of which were on our Animal Health and Food Safety business, where we acquired assets to help differentiate us in the market and further accelerate our double-digit expansion. Matrix MicroScience is a U.K.-based manufacturer of large, sample-volume, automated prep systems and consumables for food-borne pathogen detection. With the addition of these products, Life now offers the fastest and most cost-effective workflow to our customers.

LSI is a leader in veterinary realtime PCR animal testing, and combined now with Life, we offer a full suite of solutions for both ELISA and PCR-based animal health tests. On our last earnings call, I mentioned that Ronnie Andrews had joined Life as our President of Medical Sciences. Ronnie has hit the ground running and he and his team are developing a comprehensive strategy to expand our presence in the molecular diagnostics space and to capitalize on our existing platforms and tools for use in clinical settings.

Over the next several years, we will be working to take advantage of the broad portfolio of technologies Life has in its arsenal to translate research discoveries into valuable genetic information. Today, we arguably have one of the top instrument reagent portfolios in the world, with over 7,500 placements of instrument platforms in clinical settings that enable hospitals and labs to develop and use assays. These placements span our CE, qPCR, SOLiD and PGM technologies. Combining these with newly introduced technologies and fluorescent microscopy and flow cytometry allows us a unique opportunity to be more than a single-discipline product supplier to the clinical market and enables us to become a solutions provider to clinicians, who are solving some of medicine's most complex problems.

Simplifying the vast amount of information resulting from the diagnostic process around complex diseases will require new innovative informatics solutions. We are participating in this area, which we believe will ensure our relevance in the physician-patient interaction. We are focusing on our existing 7,500 placements that are running content in the clinic today and determining how we can extract value from this installed base. We're working with pharmaceutical companies to develop companion diagnostic panels to aid in decision making around these exciting new treatments. With over 500 new targeted therapeutics in the oncology space alone, we know there are complex decisions to be made and that molecular diagnostics solutions, covering both the proteome and the genome, will need to be involved. Our technology breadth positions us well to support assay development and information synthesis in 5 key areas where we believe we can create value: oncology, inherited disease, transplant diagnostics, infectious diseases and neurological disorders. Each opportunity has a unique go-to-market strategy and timing of entry, but you should expect us to be active in all of them over time and we look forward to updating you as the strategy unfolds.

In addition to finding ways to expand our market opportunities, we're also finding better ways to improve our customer experience, increase productivity and lower our costs. Our efforts in this area include continuing to improve our processes around manufacturing, IT and other operational areas. This disciplined staged approach to running the business enables us to continue to expand our operating margins to some of the highest in the business, if not the entire S&P 500.

On the commercial side, we continue to capitalize in making our customers' purchasing experience much easier. In the first quarter, we continued to grow sales origining from our website and substantially increased the number of global supply centers coming online. We have found that customers who order through our website and also have a supply center at their lab grow faster than our average customer, and so we are increasing our focus on encouraging more and more customers to adopt this profile.

On the operational side, we continue to prove our ability to manufacture and deliver biologically active products all over the world in 3 to 5 days. Our teams have developed standardized processes that enable our facilities to successfully meet the demand of thousands of orders daily at an impressive fill rate of over 98%. The ability to be a trusted source to get biologically active products anywhere in the world quickly and reliably is part of the equation to further our market share growth.

We are currently kicking off plans to expand our global manufacturing network for Gibco Media, which is part of our BioProduction business. This year is the 50th anniversary of our Gibco brand serving the biopharmaceutical industry and we are excited to, again, be increasing our presence in this market.

We're making a significant investment in our U.K. operation with support from the Scottish Government to build a state-of-the-art facility for our market-leading proprietary Advanced Granulated Technology or AGT media. This new facility will support our expanding cell culture media markets in Europe and Asia, and provide our pharmaceutical customers and CMO partners with multiple sourcing options for media delivery.

During the quarter, we expanded our leader offerings across our PCR and qPCR businesses. We began taking orders for our QuantStudio digital PCR product and immediately saw higher customer demand than expected. QuantStudio is a versatile instrument used for high throughput, realtime and digital PCR. It is ideal for customers who require speed, flexibility and scalability as they conduct high-quality qPCR analysis, run high volumes of samples for pharmacogenetic studies or AgBio applications like crop testing.

Our TaqMan product has over 10,000 scientific citations to date, more than virtually any other brand in our industry. During the quarter, we expanded our TaqMan Mutation Detection Assays with the introduction of new assays that will be relevant for cancer researchers. These highly sensitive and novel molecular analysis research tools are designed to detect an additional 241 of the most common mutations in 21 cancer genes and to provide researchers with tools to accurately and quickly interrogate their samples for a broader range of key cancer mutations. This technology serves as an ideal complement to accurately confirm results of next-generation sequencing experiments.

Turning to Ion Torrent. We continued to make compelling progress across this game-changing platform during the quarter. In early January, we announced the 2012 roadmap for the Proton I Chip and Proton II Chip, presented human exome data and some preliminary human genome data for a mother, father and child at the AGBT Conference in February and launched our AmpliSeq Custom Panels in March. We continued to see strong demand for the PGM instrument and our associated consumables, driving results for the quarter that were in-line with our expectations. We saw significant year-over-year growth in the PGM platform as we continue to enjoy strong competitive positioning. We are winning the majority of bids where we compete, and just as importantly, we are expanding the existing PGM market by reaching customers who are new to next-generation sequencing. During the quarter, we expanded our leadership in the benchtop instrument category and continue to have the largest installed base for next-generation sequencers on the market. In fact, we add over 100 new members to our Ion community each and every week.

We continue to be on track for midyear delivery of the Proton I Chip and 6 months later, for the Proton II Chip. We have seen a great deal of interest from new and existing customers and have been taking orders for the product, including a number of orders for multiple Proton units. We recently installed early access units to Baylor and they were already generating raw data needed for full exome in just a few hours. We expect they will continue to create data and we will be publishing data sets. Between now and the full commercial launch by the end of Q3, we also expect to publish internal data.

In addition to Proton, we continue to innovate across our next-generation sequencing offerings on the PGM. In March, we expanded our AmpliSeq offerings with the launch of Ion AmpliSeq Custom Panels and the availability of the Ion AmpliSeq Designer. These Custom Panels are one of the most important breakthroughs since qPCR, unlocking archive research samples containing low amounts of DNA. Previously, this type of research was performed less effectively with array technology. AmpliSeq is able to highly multiplex targets rapidly and accurately using incredible amounts -- low amounts of DNA, which makes it an excellent research tool. We fully expect these panels to transform disease research. Researchers are also able to use our Ion AmpliSeq Designer to create their own Custom Panels easily through our website. These panels can be designed in as little as 2.5 hours using Ion Torrent's intuitive data analysis methods. These researchers, then, are able to rapidly scale it from analyzing just a few genes to hundreds of genes all in a single day. Again, we think this will be transformational.

I have a couple of updates related to compensation and capital deployment. In February, our Board of Directors took steps to increase the alignment of management compensation with the interest of our shareholders. Beginning in 2012, management's long-term incentive compensation will be delivered through a combination of 50% RSUs, 25% stock options and 25% in a cash-based performance plan, which is tied to the achievement of specific ROIC and revenue growth targets over a 3-year period. This is the first long-term incentive plan at Life that includes ROIC targets and we think it's an important step in the maturation of the company. We also continued to repurchase shares during the quarter, spending $185 million in the last 3 months. We have another $200 million remaining under our current share repurchase program. As we have met with investors over the last several months, the topic of dividends has come up often. We have shared these conversations with our board and with the broader management team. As we have said in the past, we are committed to returning a balanced portion of cash to our shareholders and we continue to review all options on how best to do so. We've gotten off to a good start -- a strong start with our first quarter results and are encouraged by the market dynamics we are seeing so far. We continue to believe that these markets in which we compete will remain relatively stable through 2012. We believe it's prudent to maintain a cautious but optimistic outlook for the remainder of the year, given that macroeconomic challenges do remain and decisions related to sequestration in the U.S. will likely happen later in the year. We are maintaining our outlook for organic revenue growth of 2% to 4% over 2011, of revenues of $3.7 billion and non-GAAP earnings per share in the range of $3.90 to $4.05. We are monitoring our end markets and developments in Washington on an ongoing basis and should we see any deterioration in the current trend, we're prepared to take action quickly to preserve profitability. But here, in the first quarter, we feel good about the performance of the business. The company is healthy and competitive, and we're excited about the innovations coming out of our labs in the coming quarters. With that, I will turn the call over to David to provide a more detailed overview of our results and our guidance for 2012.

David F. Hoffmeister

Thanks, Greg. Good afternoon, everyone. As Greg noted, we had a solid start to the year, delivering revenue and earnings growth that exceeded our internal expectations. We increased sales across all of our business groups and improved efficiencies, which drove operating margin expansion and EPS growth of 17% for the quarter. At a more detailed level, revenue increased 5% to $393 million and increased 2%, excluding currency. As Greg mentioned earlier, revenue growth by region in the quarter was basically in-line with our expectations, with stable conditions in the U.S. and Europe and higher growth in the emerging markets.

Growth was as follows: The Americas were flat; Europe grew 2%; Asia Pacific grew 8%; and Japan grew 7%.

Beginning this quarter, we're reporting our revenue for our new business groups: Research Consumables, Genetic Analysis and Applied Sciences, which better reflect our internal organization, product mix and end markets. As you recall, our internal organization had previously been structured around our technology platforms under 3 divisions: Molecular Biology Systems, Genetic Systems and Cell Systems. On April 11, we filed a Form-8K with historical financial information for these 3 new business groups for the years 2010 and 2011. The filing and a set of FAQs can be found on the Investor Relations section of our website.

Before we move on to the revenue results for the first quarter, I want to address a couple of housekeeping items about revenue disclosures for today's call and moving forward. We will not be providing additional revenue breakouts below the 3 new business groups, although you can expect that we will provide color on the businesses as necessary. Additionally, we are making modifications to the information we are publicly disclosing for our Ion Torrent platform. 2011 was the first full year that Ion Torrent revenues were included in our results, and so they were reported separately through the third quarter of 2011. For this quarter and moving forward, we will no longer break out Ion Torrent revenues, which are reported under the Genetic Analysis business group.

We are reducing the amount of the information disclosed for competitive reasons. We understand that investors are interested in how the Ion Torrent platform is doing and we intend to continue to provide general commentary on the business results, including trends in our instrument and consumables sales. We may also from time-to-time provide updates on the achievement of certain milestones and other color on the business as part of our overall discussion of the Genetic Analysis group.

Taking a closer look at our business group results for the quarter. Research Consumables revenue increased 4% to $420 million over the same period last year. Excluding the impact from currency, revenue increased 1%. We continue to see growth in our cell culture products, endpoint PCR and molecular and cell biology consumables. Revenue for Genetic Analysis increased 7% to $356 million for the first quarter compared to prior year. Excluding the impact from currency, revenue for Genetic Analysis increased 4%. This increase was primarily due to growth of Ion Torrent and CE products, offset by the decrease in qPCR royalty revenues and lower sales of SOLiD products, both of which were expected and included in our guidance.

Applied Sciences revenue increased 4% to $162 million for the first quarter compared to prior year. Excluding currency, revenue grew 3%. The increase was driven by the BioProduction, Forensics and Animal Health and Food Safety businesses. The BioProduction business grew in the mid-single digits over tough comparables. In the first quarter of last year, it grew 20%.

First quarter gross margin increased 30 basis points to 66.6% compared to prior year, driven by the tailwind from the roll-off of the hedges, higher realized price and the increased productivity. These benefits were partially offset by the impact of higher sales of Ion Torrent instruments and the decline in qPCR royalties.

As expected on a sequential basis, gross margin increased by approximately 220 basis points, primarily due to higher fixed cost absorption related to increases in production volume relative to Q4; product mix, driven by lower sales of SOLiD instruments; and higher realized price, partially offset by the decline in qPCR royalty.

First quarter operating expenses were essentially flat year-over-year at $342 million. As a percent of revenue, operating expenses decreased over 170 basis points. Sequentially, our operating expenses were up as we invested in growth initiatives in Greater China and the Ion Torrent platform, as well as in various sales and marketing activities, including our annual regional sales meetings which take place in the first quarter.

These increased expenses were partially offset by our cost savings initiatives in the second half of 2011. Operating profit for the first quarter totaled $283 million, an increase of 12% over prior year. First quarter operating margin was 30%, representing an increase of 200 basis points. The increase over the prior year was a result of the roll-off of the currency hedges as well as our continued focus on realizing operational efficiencies, while selectively investing in growth opportunities.

In terms of other income line items, we had $1 million of interest income, a loss of $400,000 from other items and foreign exchange gains and the interest expense of $30 million. Our tax rate for the quarter was 28.4%, in-line with expectations. Compared to the same quarter of last year, the rate was up primarily due to the exploration of the R&D tax credit. We do not expect the R&D tax credit to be extended prior to the fourth quarter of 2012.

Our diluted share count for the quarter was 183.1 million shares. In Q1, we have repurchased 4 million shares for $185 million. With this repurchase, we will have approximately 2 million -- $200 million remaining on our authorization. As Greg mentioned, we made 2 tuck-in acquisitions in the areas of Animal Health and Food Safety as we continued to execute against our strategy to grow in Applied Sciences. Neither of these acquisitions is expected to have a material impact on our financial results this year.

Our GAAP diluted earnings per share for the first quarter were $0.72. On a non-GAAP basis, diluted earnings per share were $0.99. Our non-GAAP earnings per share exclude noncash interest expense, business integration and other charges and acquisition-related amortization expense.

Moving on to the balance sheet and cash flow statements. Our ending cash and short-term investments were $262 million. This compares to last quarter's balance of $882 million. The expected decline in our cash position was driven by several onetime cash payments. These included the Ion milestone payment of $193 million, the retirement of our final convertible bond for $450 million, $185 million of share repurchases and our annual employee bonus payment.

Cash from operating activities was $104 million. Capital expenditures were $25 million and free cash flow was $79 million. Operating cash flow and free cash flows were impacted by a portion of the Ion Torrent milestone payment, approximately $30 million of which was considered operating expense and the annual bonus payments.

Return on invested capital was 9%. We remain committed to achieving our goal of 10% ROIC by the end of 2012. Our ending debt as of March 31 was approximately $2.4 billion. This balance is made up of our senior notes of $2.3 billion plus some short-term debt. As Greg has already stated, we are maintaining our full year revenue and EPS guidance for 2012. While currency provided a $0.03 benefit to our first quarter results compared to the December 2011 month-end rates we used for guidance, our fundamental outlook for the year has not changed. Currency will likely to continue to fluctuate throughout the course of the year, but it has no impact on our underlying business.

As we promised in February, we will update our currency assumptions quarterly. Recall that last quarter, our 2012 guidance for currency was at December month-end rates, which net of the hedge roll-off benefit was a headwind of $26 million to revenue and a benefit of $0.02 to EPS.

At March month-end rates, currency net of the hedge roll-off has a nominal impact on revenue and would positively impact our EPS by an incremental $0.09 for the full year. For the first quarter, we realized a $0.03 benefit compared to our guidance, so the incremental benefit for the year should March month-end rates prevail would be approximately $0.06.

Now let me provide some color on our expectations for Q2. We expect our revenue, excluding currency, to be flat compared to second quarter 2011 revenue of $945 million, which had benefited from over $30 million in SOLiD instrument sales. We are expecting our gross margins to be up year-over-year, largely due to the 5500 upgrades that negatively impacted Q2 last year, with this effect partially offset by the drop in royalty revenue. We expect gross margins to be down sequentially due to our product mix, primarily Ion Torrent. Our operating expenses are expected to be up year-over-year and sequentially due to the continuing investments in Greater China and Ion Torrent and the impact of our annual merit increase, which takes effect in the second quarter. Because of these dynamics, we're expecting our EPS to be in the range of $0.96 to $1.

Consistent with our original guidance, our second quarter tax rate will also likely be 28.6%. In February, we guided to a share count of 184 million to 186 million shares. Given the number of shares we repurchased in the first quarter, it is likely that the share count for the full year will be at the lower end of that range. And with that, I'll now hand the call back over to Carol.

Carol A. Cox

Great. Thank you, David. We'll open up the call to questions and answers. I would just remind everyone that we would appreciate if you could limit yourself to one question per person, that way we can get through as many people as possible. Thank you. Karen, if you could open up the line?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Jon Groberg from Macquarie.

Jonathan P. Groberg - Macquarie Research

Quick question for me is just on revenues. Greg, if you think about your guidance for the year, would you mind maybe just describing how you feel about that guidance given that your comps get a little bit harder throughout the year? And maybe how you're thinking about what the most important drivers are for you to see that revenue growth accelerate, and sorry for the voice [indiscernible].

Gregory T. Lucier

No worries. If we look at the first quarter, as I said in my prepared remarks, we're very pleased with our performance relative to our expectations as we started 2012. As we go through the course of the year, there are a couple of important initiatives inside the company that we think will move the needle on the revenue. The first, obviously, is the continued release of new technology out of Ion Torrent, more specifically the Proton device. Mark Stevenson and I just got done a program review. We're very encouraged by the progress, and we think that will have a material impact on our revenue profile through the year. Second, I would point out, our strategy around becoming ever more competitive in terms of market share growth in the core research business. Our strategy around creating a value continuum of different price points of technologies is starting to pay off and we think will also have an impact on our revenue line increasingly through the year. So those are just 2 points I would share with you. There are others that make us feel good and confident that we will achieve the guidance we're sharing with our investors.

Operator

And our next question comes from the line of Amit Bhalla from Citi.

Amit Bhalla - Citigroup Inc, Research Division

Greg, I wanted to just understand your view of the academic government end market and its impact on labs from now to the end of the year. I know if we looked at last year, in the back half of 2011, you saw labs start to slow their purchasing in the back half. Your comps get -- you're expecting organic growth to accelerate in the back half of '12, but there may be this similar dynamic of labs slowing down purchases in the back half of '12. So can you walk us through your view of how the rest of the year plays out with this end market and how you grow through that?

Gregory T. Lucier

Our guidance is based on a view that the purchasing profile that we see in labs will not have a dramatic slowdown in the second half of the year. We've had a number of different conversations with officials from the NIH and other individuals with important decision-making in Washington that really lead us to believe that their own behavior in terms of grants and otherwise is not to have this type of slowdown. They're very focused in obviously what the 2013 budget will be, what the decisions will be around sequestration. But their whole approach right now is business as usual for 2012, granting out important grants, and that's the assumption by which our guidance is based.

Amit Bhalla - Citigroup Inc, Research Division

And if I could just clarify, just the Proton launch in the second half, your view there is clearly growth straight through the back half of the year in addition to PGM?

Gregory T. Lucier

That's correct. In our view, the economics around the Proton technology are incredibly compelling, whether it's in research or in clinical usage. And we think it will have a very strong uptake.

Operator

And our next question comes from the line of Quintin Lai from Robert W. Baird.

Quintin J. Lai - Robert W. Baird & Co. Incorporated, Research Division

Today is a -- we've had a lot of different reports here and you had a nice quarter. I'm interested, if we parse it out, consumables versus instruments, we had an instrument provider earlier today have a miss. We had a consumables-only provider put up a solid number and then your solid number. Maybe talk a little bit about the dynamics that you saw on those 2 sides of the businesses, Greg?

Gregory T. Lucier

On the instrumentation side, you could make a generalization that there will be increased utilization of instrumentation in the world of Life Sciences, and that makes sense as dollars become more precious. But within that generalization, I think it's important to note there are clear exceptions. An example being next-generation sequencing and more broadly, Genetic Analysis is a irreversible, undeniable growth trend and we play very squarely with our products there and certainly our investments there on instrumentation. In the world of consumables -- my comments would be that it's a stable environment, but it's a very competitive environment. And I actually think our position in terms of being very large in this channel, being able to offer economics across different price points, being able to offer larger purchasing packages to our clients, plays extremely well in terms of the current economic situation we find ourselves in. And that's allowing us to feel, again, confident but cautious that we'll achieve the guidance we're sharing with you here for 2012.

Operator

And our next question comes from the line of Tycho Peterson from JPMorgan.

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

Since this is the first call you've done since you kind of realigned the divisions, are you able to maybe guide us in terms of the R&D breakout for the divisions? And I guess the underlying question here is if you're investing a lot in Research Consumables, the funding dynamics are a little bit more challenged. Can you talk about maybe the return for the Research Consumable business, R&D dollars in particular?

Mark P. Stevenson

Yes, Tycho. It's Mark Stevenson here. So let me just break out, I think, maybe the priorities. We've said before for R&D, the #1 remains in next-generation sequencing, so investment that we're doing around Ion Torrent, as we said, takes about 1/3 of our investment. We continue to invest strongly across consumables, but as a percentage of revenue, it is less but we see still good opportunity for workflow improvement, for new assays and innovation in that space. And the third area is really into the applied and the commercial area, so you see new products coming out across BioProduction, Food and Animal Health and increasingly into the Medical Sciences. So those are really our priorities across that. We have sized investment against the greatest growth opportunities, so when you look at the R&D productivity we've taken a very disciplined approach to making sure we get great returns on that investment and monitor and measure that very closely really by product to market area to ensure we get great returns.

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

And then with regards to Ion Torrent, as you've talked about before, there's an upgrade program for SOLiD customers. You've obviously got the installed bases CE systems. Can you just talk about some of the dynamics in terms of swapping out some of your legacy systems and any color you can provide on expectations for PGM? I know you don't want to break a lot of that out going forward, but just wondering in the near term given that you're still early days in the ramp?

Mark P. Stevenson

Well, I would pick up on your last point and I think we really are still early days in the ramp and what's very interesting to continue to see is the strength in both CE and TaqMan business for validation of those studies, and so a lot of what we're seeing at the moment is additional capacity added to either labs that already had next-generation sequencing or to new labs who -- this is their first next-generation sequencing. So really, although we're offering that, it's really a loyalty program, a trade-in. A lot of this is new capacity going into additional labs.

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

Okay. And the last one for Greg, just to clarify, I mean, you talked about kind of the academic markets being relatively stable but you're calling for America's to be kind of flat here against, I guess, a 3% comp for the near term. I mean, are you starting to see -- I guess the labs have been more conservative about their spending in anticipation of going back into the funding debate relative to a year ago. I'm just trying to reconcile that with the guidance.

Gregory T. Lucier

Yes, so in terms of reconciling what David said about Q2 is simply due to the bolus in SOLiD orders that shipped and were recognized in 2011. That is a particular issue per se. But more generally, we're not seeing a change in buying behavior by the labs at this current level. We think it's stepped down from 2011. We're at a stable rate now and we don't see disruption to that pattern for the course of 2012.

Operator

And our next question comes from the line of Paul Knight from CLSA.

Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division

Greg, on this call it seems like there's more discussion around your proteome technologies, like fluorescence microscopy. Is it because of your product line or are you seeing a change in that market growth on the proteomics validation side of the market?

Gregory T. Lucier

What we would say to you is we're realizing that this area of personalized medicine that uses genomic profiling to better target therapies is going to be very exciting, very large, and it will also involve the proteome as well. And as we are building out our strategy with Ronnie Andrews, I think one of the differentiators for us is that we will not just be in the genomics side of things, we'll be in a more broader-based solutions provider that will include genomic, proteomic and other aspects of our technology, obviously, around morphology, and that's going to, I think, really bode well for us as we play out the -- what is, as Ronnie has seen come in, quite an arsenal of technology.

Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division

And then lastly, you've added headcount in China. Is this a situation where you're seeing the demand or do you have to drive the demand in that marketplace?

Gregory T. Lucier

China for us has continued to be a very strong market. Nothing ever just comes to you obviously, so we work for that. But as we have said in previous calls, our strategy in China is to become ever more local and ever more direct. And so we have built probably one of the finest distribution networks across that country in terms of being able to move biologically active products extremely efficiently, and quickly. We are building out a direct sales channel city-by-city so that we can have scientific conversations. Our customer support and technical support is growing in terms of the Chinese language. And we are increasingly moving to an e-commerce strategy that we have deployed extremely successfully in many other countries around the world. And that's, I think, contributing to the continued double-digit growth we're seeing in China.

Operator

And our next question comes from the line of David Ferreiro of Oppenheimer & Co.

Joshua Riegelhaupt - Oppenheimer & Co. Inc., Research Division

This is Josh in for Dave. You guys talked a little bit about BioProduction. I was wondering if you could comment a little bit on Forensics, how that grew into the quarter or what's kind of the drivers and how you're thinking of that moving forward?

Gregory T. Lucier

Our Forensics business had a very good quarter in Q1. We continue to see the playing out of the trends that we've shared with our investors before in terms of internationalization. We had a couple of big orders in our key countries around the world. We have continued to launch new products in terms of particular profiling technologies for key countries that we think will unlock future growth. And we're looking at new instrumentation in that market that should help us in the ensuing quarters around a broader definition of not just using DNA, but human identification, and we're excited about that platform.

Operator

And our next question comes from the line of Jon Wood from Jefferies.

Jon Davis Wood - Jefferies & Company, Inc., Research Division

Just want to understand the dynamic behind the FX outlook changes and then the -- some modest accretion from the capital review of the share repurchase in the quarter. Should we take the comments to mean the company will reinvest kind of the contribution here? Or will you let it flow assuming the dynamic actually materializes on the FX side, all else being equal? I just want to understand how we should view the '12 or so sense of incremental accretion from FX and share repurchases.

David F. Hoffmeister

Well, Jon, this is David. I think we'll have to see as the year advances in terms of what our investment opportunities are, et cetera. But at this point in time, the change in currency, we would expect to flow through. I mean, we saw a pretty significant fluctuation in currency this quarter. We've seen a lot of fluctuation over the last several quarters. I mean, who knows where we're going be by the time the year ends up.

Jon Davis Wood - Jefferies & Company, Inc., Research Division

Yes, right, that was my question. Just if the current outlook actually materializes, how do you treat that? I got it. And then last on the stimulus, I think you kind of talked about a $40 million headwind last quarter, $10 million quarterly run rate. Can you update us, David, on what you actually saw in the first quarter, if it was discernible? Did you actually see that $10 million step-down, that you kind of contemplated, let's say, in your guidance for '12?

David F. Hoffmeister

Yes, we did, I mean as best we could measure and we've talked about this before. It's a tricky thing, given 80% of our business is relatively small dollar per order consumables, but as best we can tell, yes, we saw a step-down of $10 million in the quarter and we expect it will be $40 million for the year.

Operator

And our next question comes from the line of Derik De Bruin of Bank of America.

Derik De Bruin - BofA Merrill Lynch, Research Division

So I just want to ask -- start off with a general BioProduction question. So is there -- what are the trends in the market? I mean, you came off last year in the -- when we had the cell culture systems business, it wasn't as -- BioProduction wasn't as strong last year as it was in the prior year in terms of doing it like that. Are you expecting bolus orders to come through this year, bigger orders this year. What's the pipeline look like for new starts of drugs or increasing demand from the industrial BioProduction side?

Mark P. Stevenson

So Gary, this is Mark. The pipeline and the general trends still look very positive for us. And we continue to track and make sure that our media -- and actually expanded beyond the media, our separation media, the porous material and our analytics are all part of this BioProduction story. I think what you will see are -- the sort of 2-year period and at each quarter is some variation as we have larger drugs come into production or some stocking. Actually, we did have a strong year last year and this Q1, we were comping our growth rate of nearly 20%, and so that's why you might see the growth slightly lower in the second quarter. But over the trend of a couple of years, we expect to see mid-to-high single digits in this market with our BioProduction business.

Derik De Bruin - BofA Merrill Lynch, Research Division

Great. And just, David, can you clarify, was there any -- did you guys have an extra day in the quarter because of the leap year?

David F. Hoffmeister

We did have an extra day in the quarter. It turned out that the extra day was a Friday, so it had relatively minimal impact.

Operator

And our next question comes from the line of Doug Schenkel from Cowen and Company.

Doug Schenkel - Cowen and Company, LLC, Research Division

You issued a press release today on your Proton placement at Baylor. Is the timing of that placement in-line with your expectations? And I guess, just as importantly, when will Proton be more broadly available for shipment? And could you refresh timelines on Proton II availability? I think there's some question about whether it's possible that there could be user data available on Proton II generated in time for ASHG?

Mark P. Stevenson

Well, firstly, with regards to the press release we put out in Baylor, that was exactly as per our timelines that we set out at the beginning of the year. So if you remember, the timeline was to make the Proton with the I Chip broadly commercially available in mid-2012. The early access customers, we started shipping here with Baylor and that went extremely well, and got up and running very quickly. Between now and the end of the third quarter, which will be full commercial release, you'll see more data and you'll see more shipments come out. And so that's what you can expect over the next couple of months. We still remain absolutely on track for commercial release of the Proton II Chip on the Proton instrument 6 months later. And again, as you've seen with other chips and we've really learned a lot from having done this all last year with the 314 chip, 316 and the 318. We learned a lot in the development, we released early access data and then we're shipping to customers. So you'll see the same as we generate data and we start to ship to customers the second chip. So we're very confident everything's going well. As Greg mentioned, we had a program review and we feel very confident things are tracking to our plans we laid out at the beginning of the year.

Doug Schenkel - Cowen and Company, LLC, Research Division

Okay, and I guess one follow-up. In the second quarter last year, Life was negatively affected by some of the changes that you guys had made in Greater China. As we get closer to annualizing the changes you made, can you talk a little bit about some of the benefits you saw associated with those changes and more recent changes in that region that materialized in Q1? And then, I guess, specific to the issues or I should say the changes from last year, how should we think about comparability related to changes in Greater China?

Gregory T. Lucier

Well, the changes that we made over the last -- longer now, 18 months, has been to continue to become more of a direct seller in China. And since that Q2 point of 2011, we posted double-digit earnings and revenue growth in China. And so as we've said, in this forum and others that we think that strategy is absolutely the right one. It has certainly paid off and I think it will allow us to build a much bigger business over the course of time. So everything in China is moving according to our strategy and we're feeling really good about the results that we had in Q1.

Doug Schenkel - Cowen and Company, LLC, Research Division

And sorry, I guess one other part of that is just getting up the comparability in Q2. It just -- it seems like it would be a favorable comp just given some of the timing of the changes you made in Q2 last year?

David F. Hoffmeister

Yes, I think our growth rate in Greater China has been in the high teens. And we said that it would take time for us to put the strategy in place, but we would expect to see quarter-on-quarter improvement, which we have. And so I would expect that we'd be somewhere in that ballpark in the second quarter and for the rest of the year.

Operator

And our next question comes from the line of Vamil Divan of Credit Suisse.

Vamil Divan - Crédit Suisse AG, Research Division

Most of mine actually have been answered. But just a couple following up on the Ion Torrent line here. Just if you could maybe parse out a little bit with the new competition. Let's see, Illumina made some comments yesterday regarding market share in terms of revenues and how that might, if you have any comments there. I know you don't want to give too much color going forward, but just what you see there in terms of share for PGM versus the main competitor there on the desktop side?

Mark P. Stevenson

Well, yes, we still feel very good about the positioning first of our PGM instrument. And have continued to get good, strong placement and win share during the second full year that we've been going now. So the first quarter was as expected for us. We won units and new customers and existing. Particularly strong was the AmpliSeq uptake for us and with those customers who want to do panels and sets of genes, that was very strong. We started taking orders for Proton and that's really a game-changer as we start to take multiple orders for those systems, and feel good about getting prepared to start shipping those, as we say, coming up to the third quarter here and I think that will really position us strongly not only in the segment of the market we're being at genes, but now to enable the market to address exomes and whole genomes as we start shipping the Proton system. So I think we feel very good about the competitive positioning we have and we're all set for the year.

Vamil Divan - Crédit Suisse AG, Research Division

And just one more if I could follow up just on that same sort of topic. Looking forward kind of end of the year next year, obviously, might get new competition in the space. Are you sensing any sort of hesitation or are people holding back on making purchases in anticipation of what might be coming?

Mark P. Stevenson

We haven't seen that. I mean, really customers want to get going in their research. I mean, this is a very fast-moving space, so customers really want to get going, get results and so we've seen broad adoption. We continue to release upgrades to the system so as we've done each quarter, we're improving the performance of the system. We're focused on ease of use of the PGM, the AmpliSeq more on the improvements and the accuracy and read length. So customers are really appreciating now that these -- in the roadmap we have, they're getting better and better performance out of the systems as we go forward. So that's really the feedback we're getting from the marketplace.

Operator

And our next question comes from the line of Isaac Ro from Goldman Sachs.

Isaac Ro - Goldman Sachs Group Inc., Research Division

I just want to ask maybe a long-term question to start regarding the Applied Sciences business. If we think about the secular growth that we're likely to see in the research world, give or take, the near-term budgetary environment, I think it's safe to argue that it's probably not going to return to the rate of growth that we've seen in the 90s. And so if we look at the Applied side of the business, there's obviously a lot better secular growth demand there to work with. So I'm just wondering if you're looking at M&A opportunities, is it fair to say you guys are maybe more inclined to look at assets that would fit into that part of your operating structure?

Gregory T. Lucier

I think that's a fair gauge of how we are thinking about capital deployment if we do an acquisition.

Isaac Ro - Goldman Sachs Group Inc., Research Division

Great. And then not to harp on this too much, but if we look at the impact of the extra day in the quarter, just want to tease out exactly what you thought the impact was? It sounded like you thought it was pretty de minimis, but if you just kind of help quantify that, that will be very helpful.

David F. Hoffmeister

I don't think we want to go into the details of that.

Operator

And our next question comes from the line of Dan Leonard from Leerink Swann.

Daniel L. Leonard - Leerink Swann LLC, Research Division

I was just hoping you could provide us an update with your efforts to improve margins at Ion Torrent?

Mark P. Stevenson

Yes, so a couple of things going on. Firstly, on the PGM side, we actually moved and started this quarter production in our Singapore operating plant. And that allows us to both improve margins and also start to build in a factory that is a regulated factory. It's where we build our qPCR instruments that have 510(k) approval, and so that has dual advantage. Also, as we're seeing more uptake on consumables, we have the opportunity, again, to in-source some of the components and build those kits ourselves and just we have greater margin in the consumable uptakes. So both of those things will result in improved margins as we go through the year related to Ion Torrent product line.

Operator

And we also have a question from the line of Bill Bonello from RBC Capital.

Bill Bonello - RBC Capital Markets, LLC, Research Division

I just want to revisit the earlier discussion of the currency and the way you're thinking about that relative to guidance, because you did increase the benefit that you expect to get from currency but you did not increase the EPS guidance. And I understand being conservative because that currency can fluctuate quite a bit. What I'm trying to understand, though, is on the cost side. If there's anything that switched or changed relative to when you last gave the EPS guidance. So is there anything on the margin front, on the expense front that you expect to be a little bit different, that sort of offsetting some of that anticipated currency tailwind?

David F. Hoffmeister

You mean for the full year?

Bill Bonello - RBC Capital Markets, LLC, Research Division

Yes.

David F. Hoffmeister

I don't think that there's anything in particular that we're expecting that's going to be different from our outlook that we've provided last quarter.

Bill Bonello - RBC Capital Markets, LLC, Research Division

Okay. So just to think about that, then, if the currency does hold at the rates where it is in March even though you're not raising your guidance, it would be likely to think of that as either putting you towards the high end or above -- of the guidance?

David F. Hoffmeister

That's correct, that was John's earlier question.

Bill Bonello - RBC Capital Markets, LLC, Research Division

Okay. I just wasn't sure. I know that's what he was asking, I wasn't sure I understood the answer exactly.

David F. Hoffmeister

Yes, that is the answer and we'll take a look at currency at the end of next quarter and we'll decide at that point in time if it looks like we want to raise guidance. At this stage, we've gotten $0.03 above what we originally thought. But as we've said, currency has been so unpredictable the last couple of years so we just think it's premature to raise it at this point.

Bill Bonello - RBC Capital Markets, LLC, Research Division

Okay. And I'll ask my last one question, which is, is the Ion Proton launch -- is that kind of a 3 month-ish delay from maybe what you'd been initially expecting when you said mid-2012?

Mark P. Stevenson

No, Bill. That's exactly on track for middle of the year, so nothing changed from our roadmap in January and everything is good. As we said then, we would announce milestones like we announced today when we started shipping to the early access customers and we're on track for full commercial release between now and the end of the third quarter.

Operator

And our next question comes from the line of Bryan Brokmeier from the Maxim Group.

Bryan Brokmeier - Maxim Group LLC, Research Division

Just kind of getting back to the funding environment. We've known about the funding environment in the U.S. and the potential impact in the back half of the year, but I think that the strong first quarter and your outlook for the second quarter is above my expectation. Have you -- do you have more concerns about the U.S. funding environment? I don't want to beat a dead horse, but I think that despite the headwinds of the currency that we could still see a stronger back half of the year, depending on the funding environment.

Gregory T. Lucier

I'm not sure I understand your question. So are you saying that we could see it stronger...

Bryan Brokmeier - Maxim Group LLC, Research Division

Well, so I mean, I guess when you said that you saw a stronger first quarter and -- or it was above what we were expecting and the second quarter is above what I'm expecting, but you haven't -- you didn't really raise your revenue outlook for the year.

Gregory T. Lucier

That's right. And I think it really falls into this philosophy David used around the currency question is, we're just going to be very cautious. We don't see a deterioration of research spending in the United States across 2012. And equally, we're not banking on it strengthening either, and so our guidance, we think, is built on a reasonable cautious assumption of the spending profile through 2012.

Bryan Brokmeier - Maxim Group LLC, Research Division

And just quickly lastly, on -- with the economic customers in your conversations with the economic customers and their purchasing expectations, can that be applied to their view of their -- of the whole Life science industry or were your conversations really pretty specific to your product portfolio?

Gregory T. Lucier

I think that our comments would be a broad brush for biomedical research spending. Now having said that, within that overall generalization, as we have said, there is certainly a real focus on Genetic Analysis, next-generation sequencing, stem cell research still, and those are the key areas where we are investing our R&D efforts accordingly.

Operator

Our final question comes from the line of Dan Arias from UBS.

Daniel Arias - UBS Investment Bank, Research Division

Greg or Mark, I appreciate the comments on some of the directions you're going in for Genetic Analysis. In that vein, I'm wondering whether you'd be willing to make a rough guess percentage-wise -- what you think the breakdown of installed PGMs looks like by the end of the year, just in terms of research labs versus clinically focused labs. Just trying to better understand the pacing of the application expansion here.

Gregory T. Lucier

Maybe we'll fric and frac on that one. In the research side, it's -- there's many, many different opportunities because I think, as Mark said, we are seeing the democratization of sequencing across research. It's hypothesis free. It is becoming ever more the starting point for more and more experiments in Life Science research. So that's all good and that plays to our cards, if you will, that we want to be evermore that essential research provider of key tools. On the diagnostics side or clinical side, obviously that is a enormous market opportunity and we're seeing commensurate uptake of the product there as well. And as we've said, we're doing a number of things to further penetration there. We are seeking a 510(k) on the PGM. We've hired Ronnie Andrews. We think this AmpliSeq technology is an absolute game-changer and the more that people understand that, the more they'll realize the words we're saying. And so we have actually created a focused selling force around the clinical opportunities that is very experienced in that domain. And we think that'll be evermore of a percentage of what we're doing. But I would just conclude, we see ourselves us a diversified technology company. Sequencing, Genetic Analysis is very important, but it's one of several things we're doing to drive growth and create shareholder value, and that's why we're not going to get into this discrete submarket clarification because I think it just doesn't play to what we're saying to investors of being a very strong technology company.

Carol A. Cox

Okay. Thanks, Karen. You can repeat the replay information for everyone. And thank you for joining us on the call.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone, have a good day.

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