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Executives

Patricia A. Spinella - Director of IR

John R. Considine - Senior EVP and CFO

Vincent A. Forlenza - EVP

Gary M. Cohen - EVP

William A. Kozy - EVP

Analysts

Frederick A. Wise - Bear Stearns

Michael Wienstein - JP Morgan

Bruce Cranna - Leerink Swann

Glenn Reicin - Morgan Stanley

Jeffrey Frelick - Lazard Capital

Quintin Lai - Robert W. Baird

Christine Stuart - Credit Suisse

David Toung - Argus Research

Peter Lawson - Thomas Weisel Partners

Becton Dickinson & Co. (BDX) Q1 FY08 Earnings Call January 24, 2008 10:00 AM ET

Operator

Hello, and welcome to BD's First Fiscal Quarter 2008 Earnings Call. At the request of BD, today's call is being recorded. It will be available for replay through Thursday, January 31st, on the investor's page of the bd.com website or by phone at 800-475-6701, for domestic calls and area code 320-365-3844 for international calls using access code 905428.

I would like to inform all parties that your lines have been placed in a listen-only mode, until the question-and-answer segment. Beginning today's call is Ms. Patricia Spinella, Director of Investor Relations. Ms. Spinella, you may begin.

Patricia A. Spinella - Director of Investor Relations

Thank you. Good morning everyone and thank for you joining us to review our fiscal first quarter results. During today's call, we will make some forward-looking statements and it's possible that actual results could differ from our expectations. Factors that could cause such differences appear in our first quarter press release and in the MD&A sections of our recent SEC filings.

We will also discuss some non-GAAP financial measures with respect to our performance. A reconciliation of non-GAAP to GAAP measures can be found in our press release and the related financial schedule. A copy of the release which includes the financial schedules is posted on the bd.com website.

Leading the call this morning is John Considine, Senior Executive Vice President and Chief Financial Officer. Also joining us are BD Executive Vice Presidents, Gary Cohen, Bill Kozy and Vince Forlenza.

I will now turn the call over to John.

John R. Considine - Senior Executive Vice President and Chief Financial Officer

Thank you Pat and good morning to everyone. We assume you all have our earnings release and the attachments which were sent out this morning and have had some opportunity to review them. We'd like to devote as much time as possible to answering your questions so our opening comments will be brief.

There are three primary topics we want to address first, initially since there is an item that affects the comparability of our diluted earnings per share from continuing operations for the first quarter of fiscal 2008 and 2007, we want to review the analysis of this results -- of these results that we provided in the press release. Second, we will describe some of the key drivers of our revenue and earnings growth for the first quarter and thirdly, we will review our revised guidance for the full year of 2008.

Starting with our earnings, I'd suggest you turn to table 1 in the press release. And as you can see diluted EPS from continuing operations for the first quarter of 2008 is $1.07. For the first quarter of fiscal 2007, we are adding back the charge of $0.45 resulting from the in-process research and development charge related to the TriPath acquisition to our reported diluted EPS from continuing operations of $0.51. This gives us adjusted diluted EPS from continuing operations excluding that to specified items of $0.96. Comparing the $1.07 for this quarter to the $0.96 adjusted amount for the prior year's quarter, gives us an EPS increase of 11%.

Moving to our growth drivers, our revenue increased by nearly 14% for the quarter which included a near 6 percentage point favorable impact from foreign currency translations. This positive translation effects related primarily to the Euro and to a lesser extent to Canadian dollar and certain Asia-Pacific and South American currencies. All three segments benefited from positive foreign exchange of 5% to 6%.

In the medical segment, first quarter revenues grew about 10% lead by sales of prefillable drug delivery devices in the pharmaceutical systems area and Diabetes Care products. Global sale for safety-engineered products in this segment grew about 8% to a $187 million. Revenues in the BD Diagnostic segment grew about 18% in the first quarter. This growth includes about 5 percentage points from TriPath which was acquired near the end of the first quarter of 2007.

Strong sales of safety-engineered devices and molecular testing systems which include GeneOhm, ProbeTec, and Viper also contributed to our growth. Global sales of safety-engineering products in this segment grew about 16% to $196 million, due most part to the continued success of the push-button blood collection sets.

Looking at combined Medical and Diagnostics, global safety sales grew by 12% to $383 million. U.S. growth rate was about 7% and the ex-US was about 24%. In the BD Bioscience segment worldwide revenues grew at 18% for the quarter. Research instruments as well as clinical and research reagents continued to be the primary growth contributors.

Turning now to earnings, consistent with our November 2007 guidance, our gross margin percentage for the first quarter was lower than that of the prior year. At the time we issued the formal guidance, we anticipated that our first quarter gross margin would be approximately 1% lower than the 2007 first quarter. Our reported results are actually an additional 40 basis points lower than that projection and this difference relates to a number of one-time items totaling about $7 million which were recorded in the first quarter of this year. Absent these items, our overall gross margin percentage would have been exactly inline with our expectations.

SSG&A as a percentage of sales improved 90 basis points primarily driven by very disciplined expense control management. Our R&D spending increased about 14%, due in part to the impact of TriPath which was acquired as I said before at the end of the first quarter of 2007. Our operating income margin was just slightly lower than the prior year's adjusted margin, due again to the unfavorable gross margin impact I previously discussed.

In terms of cash flow, we generated approximately $450 million in net cash from operations in the quarter. We used a $123 million to repurchase about 1.5 million shares of common stock and invested another $121 million in capital expenditures.

The last topic we'd like cover is our revised guidance for fiscal 2008. We expect diluted earnings per share from continuing operation for fiscal year 2008 to increase approximately 11% to 13% from last year's adjusted base of $384, which excludes $0.48 of in-process research and development charges related to TriPath and a small piece of that amount to Plasso. Our prior guidance was 10% to 12%. Our full year reported revenue growth is expected to about 10% up from our previous guidance of 8% to 9%. We expect Medical growth to be about 9%, BD Diagnostics is about 10% and BD Biosciences about 11%. These amounts would include about 2.5% to 3% of positive foreign currency benefit for the entire year.

U.S. sales of safety-engineered products are estimated to increase at about 8% and international safety should grow about 20%. Overall global safety would therefore increase by about 12%. We expect our percentage gross profit margin to be about 51.5 or about 20 basis points below our -- the prior year end and our previous guidance reflecting really the impact of higher than expected resin cost for the year. SSG&A is expected to improve to about 70 basis points as a percentage of revenues, R&D spending is expected to increase by about 11%, and our overall operating margin is expected to improve by about 40 to 50 basis points, again just slightly down from our previous guidance of 50 to 60 basis points as a result of the resin.

Our effective tax-rate is projected to be about 27.5% for the year. And as you know that can vary by quarter. Now this slightly a higher than our previous guidance due to the exploration of the research tax credit effective 12/31/07, with no certainty as to when and how it might be reinstated.

We expect to generate about $1.6 billion of net cash from operations and invest about $650 million in capital expenditures and we expect share purchases to be about 450 million and the average number of fully diluted shares outstanding to be between that 250 to 254 million.

With that introduction, we would like to begin the Q&A and as we have said in the past in order to allow for the broadest participation, we would appreciate it if you would limit your questions to one plus a follow up and with that, thank you and operator please open the call for questions.

Question And Answer

Operator

Thank you. [Operator Instructions]. And our first question is from Rick Wise with Bear Stearns. Please go ahead.

Frederick A. Wise - Bear Stearns

Good morning, John. Hi there. Can you give us a little color on the gross margin of resin and the outlook for the rest of the year?

John R. Considine - Senior Executive Vice President and Chief Financial Officer

Sure, Rick. Again, our initial guidance back in November was that our gross profit for the first quarter would be down by about 1 percentage point. So to remind you in '07, our gross margin was 52.8%. We actually came in at 51.4%. So another 40 basis points lower. As I said in the remarks, that 40 basis points which amount to just under $7 million relates to some one time items that we reflected in the cost of sales in this quarter and they were some very minor recall type costs that had to be charged against cost of sales as well as some asset write-offs that we had to take. Again tiny number, $7 million and that moved it down 40 basis points which again has us back to about a one basis... one percentage point difference. We continue to have good productivity and mix giving us about 60 basis points and then as we had said in our guidance back in November we experienced about a negative 70 basis point impact from foreign exchange and then had a number of other items primarily resin and steel which might have been 20 basis points or so to start up cost about 20 basis points. And then a bunch of other type items that run through the quarter, so you arrive at the 51.4.

When you look at the whole year importantly the... again our mix of productivity continues. Last year we had a 51.7% gross margin, we are looking for about a 80 basis point improvement in mix and productivity. As we discussed at some length in the last call start up cost will cost us about 30 basis points and then raw materials particularly the resins and the steel is about 60 basis points and then there is a little other in there but not much. That would give us a 51.5, about equal to last year 20 basis points or up and that 20 basis points is just the additional increases we have had in resin from our initial guidance. So we should be just about exactly where we said we would be back in November.

Frederick A. Wise - Bear Stearns

Got you, very helpful. Turning to a different topic, could you give us a little more color on the GeneOhm uptake and there are some questions surrounding that, any change in the regulatory landscape that would help, how excited are you about the Staph A launch and approval, what would it take for GeneOhm to ramp faster, again any color on all that, thanks?

Vincent A. Forlenza - Executive Vice President

So, this is Vince. And GeneOhm is going well. Last quarter I think, you know, that I stated guidance of about 35 million to 40 million. And I think based on where we are at the quarter, how we see the market ramping up, but more in the 38 to 40 range on that. So we are pleased with what we are seeing in the marketplace. The Staph SR that you asked about of course that's the Staph test from blood culture and that was cleared by the FDA in December. We think worldwide that's about a $50 million new opportunity... market opportunity. There are two other claims that are submitted to the FDA for the Staph SR test, remember SR means its two versions both the susceptible and the resistant version. There is a wound claim submitted to the FDA and we think that's about an incremental $35 million market. So not huge again, but where there is larger potential upside from the market standpoint is the Staph SR nasal swab which has been submitted to the FDA. And the application here is screening a high risk pre-surgical patients and in this case you want to know both resistant or susceptible and there is some guidelines that are being published by in the thoracic surgery area, suggesting that people should start screening these patients. They were not in the original high risk categories, we think that's an incremental U.S. market of about $245 million. So we are starting to think of the opportunity is bigger and that, we are starting to see it ramp up a little faster than we thought.

Frederick A. Wise - Bear Stearns

Thanks Vince.

Vincent A. Forlenza - Executive Vice President

Thanks Fred.

Operator

Thank you. Next we'll go to the line of Mike Wienstein with JP Morgan. Please go ahead.

Michael Wienstein - JP Morgan

Thank you. Good morning guys.

John R. Considine - Senior Executive Vice President and Chief Financial Officer

Hi Mike.

Michael Wienstein - JP Morgan

May be, just couple of items, first, just want to clarify, you decided on the R&D tax credit and its extension hasn't happen to go ahead and pull that out of guidance that's now 50 basis points, is that what I am hearing.

John R. Considine - Senior Executive Vice President and Chief Financial Officer

Yes, that is exactly right Mike. I should have said it like that, that we've taken it out, we got it for the first quarter because it expired at the end of the calendar year but since it hasn't been reinstituted and we don't know how it will and when it will, we've taken it out and that's about 50 basis points.

Michael Wienstein - JP Morgan

Okay, so it's obviously not in your new... it was in your old guidance but now that's not in your new guidance, right?

John R. Considine - Senior Executive Vice President and Chief Financial Officer

That's correct.

Michael Wienstein - JP Morgan

Okay. Can Vince spend a minute on Phoenix and ProbeTec and how does it do in the quarter?

John R. Considine - Senior Executive Vice President and Chief Financial Officer

Absolutely.

Vincent A. Forlenza - Executive Vice President

Sure, so on a reported basis, Phoenix was up 16%, that's 8% on the performance basis, that was just under $8 million, so last year was the total year of about, I think 28 million. So it's continuing kind of on the same pace that it has been. We had a good fourth quarter with that. We haven't seen real large uptake yet in the U.S. marketplace. We are still looking to get that auto craft out this year in the fourth quarter and we think that's going to be very important to us. On the molecular side, the molecular growth was on a reported basis 15.7 and about 12% on the performance basis taking the FX out. So, we continue to do well in the molecular space. So, that's molecular not including GeneOhm. That's the ProbeTec and of course Viper and from product lines.

Michael Wienstein - JP Morgan

And could Gary just spend a minute on safety in both segments?

Gary M. Cohen - Executive Vice President

Sure. Well, as John described, overall safety was up over the first quarter last year about 12%, and Diagnostics growing about 16%, Medical about 8%. We had strong growth in both segments, both Medical and Diagnostics internationally, both came in over 20%. In the U.S. Diagnostics was strong at around 10%, Medical growth of safety in U.S. was about 5%, and but that was a combination of a very strong growth in Nexiva albeit off of a small base but Nexiva sells more than double and we are very much in line with our expectations. We are having a decline in interlink sales, that's one of the safety process that has been around for a while, that's been more or less flat, flat to slightly declining, that offset some of the growth on Nexiva in the quarter and our outlook for the year has been consistent with what we had originally guided, 20% U.S. and about 20% international.

Michael Wienstein - JP Morgan

Great. And the last question, last financial question, any update on the cash flows guidance for the year, was that unchanged?

Gary M. Cohen - Executive Vice President

We did our bit, from... we are at $1.4 billion and we believe it's now closer to $1.6 billion.

Michael Wienstein - JP Morgan

Thanks, perfect.

Operator

Thank you. And next we will go to the line of Jeffery Frelick with Lazard Capital Markets. Please go ahead.

Unidentified Analyst

This is actually Joe Herrick [ph] with Guttermen [ph] Research. Couple of questions for you guys, regarding your operational initiative, what are you guys doing in terms of lean manufacturing, TPM, Six Sigma to overall help improve results to the bottom-line?

John R. Considine - Senior Executive Vice President and Chief Financial Officer

Well, each one of our business heads can chime-in after I just give you just an idea is that we have been after Lean and Six Sigma for a number of years, under the kind of the leadership now of our Head of Manufacturing, a guy man Jonathan Macy [ph], we have a really concerted effort around driving variation out of all of our manufacturing processes some of what you see when I talk about gross margin in terms of productivity is related to that work which is on going and will be for all of our business careers. Vince and Gary and Bill you want to -- there is nothing... one specific item that I would mention but...

Vincent A. Forlenza - Executive Vice President

We were organized with Lean and Six Sigma leaders in our plants, it's just an ongoing part, it's just a part of the way that we do business. And I think some of the biggest impacts that we see at the operational level is the amount of space and throughput... space that we free-up and then productivity we get out of these lines which pushes up the need for capital in these plants and we expect that to continue that to happen.

Gary M. Cohen - Executive Vice President

This is Gary. Just to add... as John said Lean and Six Sigma are part of our operations culture. We have been working on both for over five years. As Vince mentioned, we had Lean leaders working on our plants. We do value free mapping in our plants which... in all of our plants which is one of the key components of Lean, and this is an evergreen process and now one of the things we are engaged in is very close benchmarking of both our costs and projections of competitive costs all around the world, so that we could be benchmarking the absolute best practices, not only in terms of operating efficiency, but also in terms of things like cost of raw materials, cost of moulds, cost of presses. This is very much just baked into the DNA of BD.

Unidentified Analyst

You mentioned throughput a minute ago, how are you guys measuring metrics like OE and Rona, which are so highly critical in a business like yours?

John R. Considine - Senior Executive Vice President and Chief Financial Officer

Well, I mean... we could spend a whole day on metrics. We have a set of dashboard of standard metrics that we look at. And we look at these quarterly, the operating guys were looking at them daily. And we... we do look at OE, we look at Rona, we're very much driven by our return on invested capital for the whole business. Some of these efforts extend well beyond the manufacturing effort and into transactional Six Sigma processes. So, I mean you could take it for being as Gary and others have described it, its in the DNA, and something that we just continue to drive in an area where we have, price is not something that we can necessarily increase. We have to continue to drive in efficiencies and our price has to come from new and innovative products.

Unidentified Analyst

And the final question, to accelerate your CI initiatives for remainder of 2008, what systems and solutions are you going to be putting in place to make sure BD remains a leader like you always have been in the market?

John R. Considine - Senior Executive Vice President and Chief Financial Officer

When you say CI?

Unidentified Analyst

Yeah...

John R. Considine - Senior Executive Vice President and Chief Financial Officer

Okay. Say again I didn't... I didn't hear you.

Unidentified Analyst

To accelerate your CI initiative, continuous improvement initiatives for remainder of 08, what systems and solutions are you going to be putting in place to make sure BD stays and remains number one in the market?

John R. Considine - Senior Executive Vice President and Chief Financial Officer

Well, you get of lot of faces that start to smiling around here. But so we put in our SAP system about eight year ago, seven years ago and we are about venture into the upgrade to 6x, if you will of SAP globally. Certain operations were left out there, there were certain older systems that weren't brought in to the fold. This is a effort that will be one that will be all inclusive for the entirety of BD and it will facilitate a lot more immediate information and should really allow us to get to the next step on continuous improvement which is just another... we think of continuous improve like we do Six Sigma, Lean and everything else, it is just part of the DNA around here and that one extends actually into regulatory and quality and everything else.

Unidentified Analyst

Thanks, got it...Hello. Congratulations on a solid quarter good luck down the road.

Operator

Thank you and we will go to line of Bruce Cranna with Leerink Swann. Please go ahead.

Bruce Cranna - Leerink Swann

Yes. Thank you, good morning.

John R. Considine - Senior Executive Vice President and Chief Financial Officer

Hi Bruce.

Bruce Cranna - Leerink Swann

I guess John, or Bill or someone could you possibly may be part with an account number on the GeneOhm side or if not an actual account number may be talk about growth in the account base this quarter and then, I recall you have launched in Germany and UK, may be a quick update on U.S. GeneOhm?

John R. Considine - Senior Executive Vice President and Chief Financial Officer

So, as I say... we are not giving out account numbers but the sales numbers that... the guidance that I talked about, you should think about that we're... we are not selling a lot of equipment, that's like 90% cash. So, we think we are doing very well in the market. I will just say in another large account, IDN, Henry Florida, Detroit, just decided to go with this system. So, I think consistent with... the strategy that we talked about of focusing on large lab high volume accounts, we are doing well with and I will repeat the guidance of, $38 million to $40 million, for the year is what we are thinking up from the $35 million to $40 million so moving towards the higher end of the range. So, that's where we are now.

Bruce Cranna - Leerink Swann

Okay. And are you guys, you still feeling pretty good about timing of new instrumentation sort of end of '08?

John R. Considine - Senior Executive Vice President and Chief Financial Officer

Yes, so I... our internal program is on track at this point and we think we have got a good transition plan in place.

Bruce Cranna - Leerink Swann

Okay. And I guess one for Vince if I could; the numbers and flow keep surprising us to the upside. And I guess... couple of things there. Do you... are you seeing any weakness in the Far East, in flow cytometry and the strength that you are putting up, is it more on the clinical side or on the research cycle globally?

Vincent A. Forlenza - Executive Vice President

You really want Bill for that, he is right in Biosciences now, that was Vince talking about GeneOhm, so...

Bruce Cranna - Leerink Swann

I am sorry.

John R. Considine - Senior Executive Vice President and Chief Financial Officer

We kept switching chairs to confuse you, but so... Bill will answer that question.

William A. Kozy - Executive Vice President

Yes, I am here. The story for the quarter was around research instruments and particularly in U.S. and Europe and it will continue to commence with the earlier quarters around Canto II and RAF [ph] which both had really positive double digit growth. And then on the clinical side to your question, the clinical reagents who are unusually strong, we had favorable timing particularly on HIV monitoring in Middle-East and Africa. And we had a very strong quarter particularly coming out of Africa on the clinical reagents side. Additionally the cancer reagent, the LNL [ph] reagents in the U.S. had another good solid double digit quarter. So you have got both the LNL and the HIV monitoring on a global basis performing... just continually strong and you have got Canto II and RAF kind of maintaining momentum.

Bruce Cranna - Leerink Swann

Okay, thank you.

Operator

Alright, thank you and we will go to the line of Glenn Reicin with Morgan Stanley

Glenn Reicin - Morgan Stanley

Hey folks. Just a couple of questions here, when I look at the constant currency results I was really surprised with the strength of the Diagnostics business and I am trying to understand the source of that strength because I think you gave a TriPath number, the implied number was roughly $26 million and then you gave us the ProbeTec and the Phoenix numbers. Just trying to understand what's driving that especially in light of the very light flu season? And then on a more negative note, the reverse thing you said about medical surgical overseas. Can you give us some idea what's happening there and whether those trends will reverse?

Vincent A. Forlenza - Executive Vice President

Glenn, on the diagnostics side, this is Vince, if you pull out the impact of TriPath the performance number would have been 8%.

Glenn Reicin - Morgan Stanley

So how big was TriPath, 26 or more?

Vincent A. Forlenza - Executive Vice President

In the course 29.1. So we are seeing... now it was 4.6 in '07. So you can do the math from there. But and if you kind of normalized all in for the sales that we didn't record in '07, because we didn't own it it's up about 9% to 10% exactly where we though it would be, so it's doing fine. The second part of your question is, kind of unexpected strength would be microbiology on a reported basis was up 9.8 and almost 5% on a performance basis. And part of what's going on there, is one, they just had a strong quarter in the core microbiology plate business and a chunk of that came from Chrome Oger. Now remember, we continue to talk all the time about the molecular pieces of AJI but there is also a product that we've put out there, this Chrome Oger and as people start to do surveillance to understand their overall AJI MRSA situation, they use Chrome Oger and so we saw some really nice growth to about $4.5 million in the quarter, up a 195% on the Chrome Oger product line.

Glenn Reicin - Morgan Stanley

So that's sustainable?

Vincent A. Forlenza - Executive Vice President

Oh, yes.

Glenn Reicin - Morgan Stanley

Yes. Okay, Gary I am glad you finished it.

Gary M. Cohen - Executive Vice President

On Medical Surgical, there were two unique events in the first quarter, affecting international one was, and the larger of the two was that part of the sales that go through that business are sales of special types of syringes called auto-disable syringes that are used for trial for the immunization in developing countries and UNICEF have been procuring those types of devices for sometime, for most developing countries including India and India pulled out of procurement through UNICEF and is bringing it into their own procurement system, initially through UNDP but then ultimately be done through their own system. And that was pretty substantial portion and that hindering process is now on going in India but it wasn't included in UNICEF and we had a fairly large number in the first quarter of last year that obviously didn't occur this year as a result of this.

Glenn Reicin - Morgan Stanley

And then simply catch up going forward.

Gary M. Cohen - Executive Vice President

So it's little bit predictable because it's dealing with another entity. But it's... this quarter the impact was particularly felt on the year-over-year basis because there was a large amount for NDA in last year's UNICEF's purchases. And this may come back, it may not so, we don't want to give a prediction on that. And then there was also a one time order in Japan last year of all places in our critical care business which is fairly small business to a customer who was exporting our critical care process part of a larger system, we knew that wouldn't return and that was actually a pretty significant number as well. So both of those drew down, the international medical surgery. In the U.S. Med Surg what is worth we had a tough comparison roughly around 9% last year in the first quarter which for that businesses is quite a bit a growth, so we have a tough comparison there. Up for the full year our outlook is more or less what you might expect on the performance the currency neutral basis, it's sort of in the 5% range.

Glenn Reicin - Morgan Stanley

Perfect. And then John just one quick follow-up. The tax rate situation, 27.5 for the year do you play catch up in any one quarter or do we just go 28% for the next three to get to 27.5. And then also what did you say about SG&A and R&D I missed that?

John R. Considine - Senior Executive Vice President and Chief Financial Officer

Well R&D we expect for the year to be up about 11% year-on-year sales. SSG&A we said that we thought would be up, improved by about 70 basis points. In terms of the tax rate, while it can vary in those quarters it won't be exact but I would think you are, the way you approached it is right, is to go like that number 28 for the remaining three quarters. When we hear more or no more about the R&D credit, if it is indeed reinstated, we will reflect that as upside in the tax rate.

Glenn Reicin - Morgan Stanley

Thank you.

Operator

And we do have a follow up from Jeffrey Frelick with Lazard Capital. Please go ahead.

Jeffrey Frelick - Lazard Capital

Hi, this really is Jeff this time. Thanks guys. Question for Vince, Vince if you look at the VA Hospital, that network, what's your take on the penetration right, how many of the hospitals have adopted rapid MR say using molecular?

Vincent A. Forlenza - Executive Vice President

Now, I don't have the VA penetration on total hospitals off the top of my head. I think that's something I think we would have to give back. My impression is that, it's been a fair amount of equipment bought, but not that much testing that's been implemented, implemented yet.

Jeffrey Frelick - Lazard Capital

Okay. So, we still have some run way there, correct?

Vincent A. Forlenza - Executive Vice President

Yes, I think so.

Jeffrey Frelick - Lazard Capital

Okay. And then, as a follow up what is the, what's the mix on GeneOhm U.S. versus OUS?

Vincent A. Forlenza - Executive Vice President

Sure. Just give me a second here. Yeah, we are starting to see a little ramp up ex-U.S. mostly in Europe and we... if you break out the 8.8 about 5.8 of that is United States and then the balances is the rest of the world, most of that rest of the world is in Europe at this point really being driven by Germany and the UK.

Jeffrey Frelick - Lazard Capital

Okay. Great, thank you.

Operator

Alright, thank you. And we will go to the line of Quintin Lai with Robert W. Baird. Please go ahead.

Quintin Lai - Robert W. Baird

Hi, good morning. Looking at your biosciences business and the exposure into the life sciences research side, could you kind of give a little background Bill on what you are seeing in the end markets, especially U.S. and Europe and how new product attraction like a your media business is going?

William A. Kozy - Executive Vice President

Sorry Quinn I didn't hear the latter part of the question, can you repeat the second half?

Quintin Lai - Robert W. Baird

Sure and then how new initiatives like your media business is coming along?

William A. Kozy - Executive Vice President

Sure, yes. The advance bio processing business did have a nice quarter. They were up year-on-year a little North of 20% and the outlook for the year continues to be pretty favorable. We have seen some of our emerging pharma customers fluctuating their demand, looks a little softer than what they had told us a year before and that's based on their production scenario as opposed to anything going on, on our business but the outlook for the business and of course the continued biopharma growth continues to put lot of our attention on this. We do hope to have that Miami production facility that we described last year up and running in '09 so that we are really prepared to meet some pipeline demand that we see downstream.

Quintin Lai - Robert W. Baird

And then Gary in the past there has been a lot of talk about inhaled insulin and this over are the last few weeks we have seen some therapeutic companies exit that area, does that change any of your thoughts about the diabetes market and the BD strategy going forward

Gary M. Cohen - Executive Vice President

I would say there is a few thoughts that are very consistent and may be a few things have changed. One thing we are very consistent and we felt this way throughout is that the precise control that is enabled by injection of insulin could not be replicated with inhalable insulin. The ability to be very, very precise in administrating doses and measurement has a direct impact on glucose control which has a direct impact and abundance of complications in that. Injection remains the method that allows for that tightest control and in that respect even as inhaled insulin was getting a lot of lets say press and was in the spot light our sense was it was always better suited, potentially better suited to people who are on orals, and were failing on orals at an entry point to insulin, ultimately potentially leading to injection rather than something that would replace injection.

If anything that's changed is that, with Pfizer's withdrawal from the market and with some question marks emerging on some of the other inhalable technologies, it's that's clear what role in the future inhalable may play, I would hesitate. It's not for us to say whether it is going to play a role or not, but what role it may play is less clear now. There are still some open questions about the long term effects of inhalable insulin. And our strategy going forward in the near-term is to ensure that injection of insulin is done in the most effective, precise, and least discomforting way. With our devices over the longer term, we have other technologies in development that we don't routinely talk about, that could further enhance both from the stand point of effectiveness of the injection and comfort of the injection. So there are things that we continue work on, that can take things to the next level and, what happens with inhalable over the long term will be determined by the markets and technology development, but this seems to be, this year a little bit more in line with what we may have expected in the past year.

Quintin Lai - Robert W. Baird

Thank you.

Operator

Alright, thank you. And we'll go to the line to Christine Stuart with Credit Suisse. Please go ahead.

Christine Stuart - Credit Suisse

HI, good morning. I was wondering if you guys could provide an update just on your progress with bringing out your own instrument, I know that the agreement ends later this year. Where do you stand on your own instrument?

Vincent A. Forlenza - Executive Vice President

Sure, this is Vince. We... program is moving ahead as I have described in the past. We are doing this in a partnership. So, we are going to be employing a technology that is proven technology here. So it's not an issue of us starting all over and developing an instrument from scratch. So we will be replacing the thermal cycler and then second is that's one piece of it and that's coming along fine. We are really focused on the software developments so it's an integration task. And then the second piece is on the upfront sample processing and there we are using a technology that's also been proven in our customer hands and in fact we have some customers who have self validated that technology and in fact that's where the big improvement comes from in terms of workflow on the system. That's where we are focused on. The back end with the thermal cycling and is more of... it's not a big deal from a workflow standpoint, it's really the upfront sample processing fee. So we are about ready to go into clinical trials with that. That's where we stand.

Christine Stuart - Credit Suisse

Would you be willing to disclose who the partner is at this stage or when might may be hear a little bit more details on that?

Vincent A. Forlenza - Executive Vice President

No, when we launch the system you guys will find out who it is.

Christine Stuart - Credit Suisse

Okay. Any update on how long you would expect the MRSA test to take on the new platform?

Vincent A. Forlenza - Executive Vice President

There is nothing new here to report. I guess all I would, I don't know what you meant by how long it would take. Are you talking about, it would... it shouldn't take the time... it shouldn't change the time to result. It's going to be a PCR based test. What is going to... if that's what you are asking?

Christine Stuart - Credit Suisse

Yes, and VRE and C-Dif those sales are slated for clearance before the end of 2008?

Vincent A. Forlenza - Executive Vice President

Yes, so VRE we expect to submit to the FDA in March, so that will depend on how fast the FDA acts on it. And C-Dif, we are looking at probably around an April submission to the FDA.

Christine Stuart - Credit Suisse

And anything on MRSA or these two that... just in terms of the market size that over the past couple of months with the continued I guess movement towards HAI that makes sure to take the market may be a little bit bigger, than originally anticipated?

Vincent A. Forlenza - Executive Vice President

Yes, there were two things that we are seeing and we are beginning to believe that the market is somewhat potentially larger on first on just the MRSA screening side. We talked about screening around 30% of admissions, probably about 35% and $25 cash but what we are seeing is the number per patient of the cash is now 1, its 1.3 because when they get a positive they go back in retesting, after they done the decolonization. So we are thinking the U.S. potential market is about $400 million or about 16 million tests. The rest of the world could be ultimately as large as $750 million in about 30 million tests. But the only question I have got there is, they lag at number of years. That could be 3 to 5 years behind the U.S. just like we've seen in the safety area. And then lastly the other application that appears to be emerging could be this pre-surgical screening is not done routinely right now but a number of thought leaders and there is papers that have come out, some initial guidelines that say you should screen for not just MRSA but also the susceptible version. So this new Staph SR test, when that gets approved in the nasal format there maybe a new market for that as well.

Christine Stuart - Credit Suisse

How about VRE and C-Dif, where do you think those markets could be?

Vincent A. Forlenza - Executive Vice President

Yeah, so VRE, we think that it's about a $125 million worldwide market. The bulk of that is in United States, it is jut the way the testing is and then it's much more a problem in U.S. And C-Dif is probably about $75 million U.S. and a $150 million outside the United States and of course that is primarily done by immunoassay today.

Christine Stuart - Credit Suisse

And just to clarify and the MRSA that was, the market size that you were using were based on the 30% or 35% of emission being screened [ph]?

Vincent A. Forlenza - Executive Vice President

Yes, that's right. And in 1.3 test per patient screened.

Christine Stuart - Credit Suisse

Okay. Perfect, thanks very much.

Vincent A. Forlenza - Executive Vice President

You're welcome.

Operator

[Operator Instructions]. And we will go to the line of David Toung with Argus Research. Please go ahead.

David Toung - Argus Research

Yes, good morning. I think you have answered some of the questions about the TriPath growth but I just wanted to get into a little bit more color on how TriPath is being part of the larger organization, what kind of opportunities have opened up. I think you have talked about that when the acquisition would close, I realize the numbers are... I think you mentioned 9% to 10% growth organically. But I realized that, within the opportunity to file larger than that given that TriPath is... has access to a lot of more of resources now?

John R. Considine - Senior Executive Vice President and Chief Financial Officer

Yes, let me, I will help you out there. So you are right, I gave 9% to 10% organic growth. Now remember most of the sales in that business over 80% are U.S. so the next area in the core business, that does leverage some BD resources is ex-U.S. And we are working to create plans in Europe, Asia Pacific, China, and taking that product into some new markets. So we are kind of in a transition year in terms of figuring out country-by-country exactly how we are going to do that. So that's one thing that we are working on.

Second area in terms of bringing this into BD was building up the regulatory staff, getting the clinical trial process under control. So the FocalPoint GS instrument which of course has been launched in Europe, the FocalPoint of course is the reader for the slides and GS stands for guidance screening. And that trial is finished, the FP has been submitted to the FDA and if you remember they had trouble finishing off the trials. And the FDA has done the site inspection, so now we are waiting for approval on the GS for the United States. Then lastly we continue to work on the molecular path, and we are, as we work on the molecular path we are running a simultaneous trial of both the molecular path and an HPV claim and that trial should be finishing up in the next coupe of months. It was lengthened by some changes in the FDA requirement. So we are making some good progresses there as well, we think that's a big opportunity.

David Toung - Argus Research

Great, Thank you.

Operator

: Thank you and our final question is from Mr. Peter Lawson with Thomas Weisel Partners. Please go ahead

Peter Lawson - Thomas Weisel Partners

Hi John, when you look across the different business lines which business do you think has the most room for margin expansion?

John R. Considine - Senior Executive Vice President and Chief Financial Officer

Which of our businesses have the most room for margin expansion. Well I believe that I believe all of the business lines that we have right now do have margin expansion. If you take Med Surg and I encourage my associates here to join if they like, when you take Med Surg they have core products that frankly are being looked at very closely in terms of trying to drive lower cost product out of where we are right now and make those core products as well as possible. Safety certainly has margin expansion as we have higher impact products come along. So through our whole sharps business you see that type of thing. Clearly as you get into the diagnostic side and you get into the... particularly the molecular side here, there's ample room for margin expansion, as is there in biosciences in terms of the new and added instruments. Instrumentation kind of our consolidation of reagent manufacturing in Puerto Rico and things like that. So I wouldn't want to pick out anyone specifically if you probably could but I think it suffice us to say that all of them have reasonable opportunities for margin expansion

Peter Lawson - Thomas Weisel Partners

Then if you look across the U.S. markets what was leading the growth, was that within diagnostics, was that just say, flow or what was real driver there?

Vincent A. Forlenza - Executive Vice President

Well within Diagnostics, remember flow of coarse is not reported in the Diagnostics' business, as in the Bioscience business. But, in the U.S. that was the push button, the conversion to safety on the PAS side with a push button, did very well. And in the core micro businesses, I'd mentioned before and we are starting to see that ramp up of some Chrome Oger. And we just had a little bit of unusually strong quarter in, some other core media products there. So, those were the things, we break our GeneOhm separately so obviously that, TriPath is that of growth as well.

Gary M. Cohen - Executive Vice President

And the medical side in the U.S. pharmaceutical systems continues to perform well, if not the growth rate that is experienced last year, but, if I'm correct first quarter last year we grew 51%, in the U.S. pharm systems this year we grew 16.5%. So, that's 16.5% on top of that 51 from last year. That won't necessarily continue at the same pace. But, other businesses are doing well, like diabetes care is growing in the U.S. well above the rate that it did last year. Consistent with the fourth quarter but higher than the full year rate. So, those are the two things that have been helping there.

John R. Considine - Senior Executive Vice President and Chief Financial Officer

Well, thank you all for your attention, and hope that this is how we look forward to talking to you next quarter, and should you have any clarifying questions or want to spread on the super ball, call Pat and she'll be glad to tell you where to place your bet and we can only say Go Giants and Go BD, so talk to you later. Thanks.

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Source: Becton, Dickinson & Co. F1Q08 (Qtr. End 12/31/07) Earnings Call Transcript
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