Invitrogen Corp. Q4 2007 Earnings Call Transcript

Feb. 6.08 | About: Invitrogen Corp. (IVGN)

Invitrogen Corporation (IVGN) Q4 FY07 Earnings Call February 5, 2008 5:00 PM ET

Executives

Amanda Clardy - VP, IR

Gregory T. Lucier - Chairman and CEO

David F. Hoffmeister - Sr. VP, CFO

Analysts

Quintin J. Lai - Robert W. Baird

Tycho W. Peterson - J.P. Morgan

Ross Muken - Deutsche Bank North America

Jon Wood - Banc of America Securities

John L. Sullivan - Leerink Swann & Co.

Derik De Bruin - UBS

Peter Lawson - Thomas Weisel Partners

John Goldberg - Merrill Lynch

Operator

Good day ladies and gentlemen and welcome to the Fourth Quarter and Full Year 2007 Invitrogen Corporation Earnings Conference Call. My name is Maria, and I will be your audio coordinator for today. At this time, all participants are in listen-only mode and we will be facilitating a question-and-answer session towards the end of today's conference. [Operator Instructions] At this time, I would now turn the presentation over to Ms. Amanda Clardy, Vice President of Investor Relations and Corporate Communications. Please proceed.

Amanda Clardy - Vice President, Investor Relations

Thank you Maria and good afternoon everyone. Welcome to Invitrogen's fourth quarter and full year 2007 earnings conference call. Joining me on the call today are Greg Lucier our Chairman and CEO, and David Hoffmeister, our Chief Financial Officer. If you haven't received the copy of today's press release, you may obtain one from our website at invitrogen.com. Before I begin, I want to remind our listeners that our discussion today 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 that actual results may differ materially from those indicated. 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.

In addition, we'll be discussing GAAP and non-GAAP measures. Our full reconciliation of the non-GAAP measures to GAAP can be found in today's press release as well as on our website. For today's call we will be referencing a presentation that you may view online. Instructions to access the web cast are on our website. In addition we'll be posting the presentation to our website following the conference call. We will begin today's call with Greg discussing the business accomplishments and David will follow him with a more detailed review of the company's fourth quarter and full year operating results, as well as 2008 guidance.

I will now hand the call over to Greg.

Gregory T. Lucier - Chairman and Chief Executive Officer

Thanks Amanda. What a difference a year makes. When I addressed the investment community at this time last year, we had come off a difficult year, filled with integration challenges and execution issues. It was clear that we had to make significant improvements quickly and most importantly, we had to become a company that did what we said we are going to do. In 2007, we did what we said we would do and didn’t some. Over the last year, we have accomplished a lot meeting and exceeding many of our own internal goals. We are a company that is now completely aligned and we enter 2008 focused on the things that matter most.

I believe consistency and focus are the keys to success. Therefore, we plan to stick with what has worked so well for us throughout 2007, which is optimizing the basics while keeping our sights on the future. At the beginning of 2007, we expected to achieve organic revenue growth of low to mid single digits. We ended the year with 11% revenue growth, 8% without currency. We exceeded our expectation for organic growth due to a variety of factors including a radically improved selling organization, enhance marketing know how, new product introductions and new partnerships. Last year, we also committed to expanding our operating margins. We make tremendous strides in driving efficiencies and leveraging our cost structure throughout the company, which resulted in 100 basis points of improvement.

We are extremely pleased with this increase, which is mostly a result of real operational improvement in the business as well as fund benefits from favorable currency and legal settlements. But I think it's worth to mention that our operating margin expansion is actually much greater than 100 basis points, when you take into account the employee incentive bonus that we will be paying for 2007 versus no bonus payment for 2006. As we told our investors at the end of last year, our annual incentive bonus program cost approximately $30 million, with 2007 being slightly higher than that due to our performance. If you were to exclude the incentive compensation bonus expense from 2007, our operating margin actually expanded over 300 basis points. This is the result we are extremely proud of and it was all due to the hard work from our employees around the world. The full-year revenue growth and operating margin improvement equated to an increase of $1.06 or 30% in our non-GAAP earnings per share excluding stock option expense. If you include stock option expense, our non-GAAP earnings per share increased by $1.12 or 38% as we actively worked to decrease this expense while still maintaining a level of competitiveness in our stock branding practices. These increases in EPS are approximately 4 to 5 times organic revenue growth. Approximately 40% of the earnings per share increase were the result of increased revenue, which shows the incredible leverage we have in our business model given the high operating margins we maintain.

We were able to achieve this level of financial improvement due to the focus we put on three core areas in 2007, driving organic growth, optimizing mix, and improving operational efficiencies. We made great progress against all of these areas last year. So, let me spend a moment touching upon each one.

Improved organic growth happened in all the regions given our dedicated focus on the researcher and optimizing the basics. For the year, we achieved 7.5% organic growth in biodiscovery and 9% in cell systems. Growth was a result of the sustained pricing improvements, better sales execution, improved profitability, new products and many new customers.

Optimizing our mix is the focus area where we made the most progress in 2007 by making fundamental changes such as reviving the sales compensation plan and dedicating full time personnel to exploring the new markets and partnerships, which used our existing technologies.

And the final focus area was to increase the operational efficiencies. And we have room to go here, but we still achieved 5% total productivity and cost of goods sold as a result of many programs executed in the past 12 months. This year was the combination of low-hanging fruit and fundamental changes that took a year to realize. The improvements we made in our Camarillo antibody plant and our Carlsbad molecular biology plant dramatically improved our variable cost structure. In addition, we've taken steps to reduce the net expense of logistics by improving our freight recovery ratio from 74% in 2006 to 93% in 2007. We spent about $30 million a year in freight expense. So, this will continue to be an area of focus for us going forward. Now on top of these improvements, there were many other programs that we have not yet realized the benefits of. An example of how we significantly improved... reduced our cost structure on our nucleic acid purification product line by vertically integrating our supplier base to the $12 million acquisition of GenoMed completed in this fourth quarter. This acquisition of a German company improves our variable costs on this product line by 40% going forward. This is just one of the many examples of further operational improvements that will drive gross margin expansion into the future.

As I've said, our focus going in 2007 was to improve our execution, deliver consistent financial performance. We met both these goals as a result of fundamental changes we made in several areas. First, we finalized the integrations from past acquisitions allowing us to realize revenue cost synergies. Two, we completed the implementation of our global ERP and Europe and United States so that not more than 80% of our business is on a single instance, single systems. This has dramatically improved our visibility into the drivers of the business as well as the timeliness of the visibility. Three, we made structural changes to our sales organization, compensation plans and training resulting in improved morale and sales force effectiveness. I will just add as an aside that we here in Florida with our global sales meeting and the morale and the level of excitement has never been greater.

And fourth, we began managing our sphere of product lines differently, both in terms of material supply and marketing programs. This has allowed us to expand gross margin dollars on a product line that has little market growth in it. And lastly, we have improved our marketing know how substantially, most notably in the Cell Culture research business and molecular biology business units, with customer focused innovation, new market penetration, new partnerships, and revamped websites. A one-to-one relationship with our customer is an integral part of better marketing, and we feel our website is a competitive advantage that gives us the ability to have the kind of customer relationship, which can be a win-win for both parties. In the fourth quarter, we finalized the design of an entirely new website and launched the beta version to several leading scientific groups around the world. The final version of this new website will be launched to all customers this first quarter. We are confident that it will be again the best in the life sciences industry that rival those that are the best in all industries.

In summary, Invitrogen in 2007 is a different company than the Invitrogen of 2006 and before. It has taken several years to create this platform, but we now have a business and an infrastructure and operating principles that set us up to consistently execute going forward. As we move into 2008, our outlook on the end-markets in which we participate has not changed from 2007. In general, we would characterize our customer base in funding as relatively stable. As our investors know, approximately 90% of our revenue is research related and 10% from bioproduction customers. On the research side, the funding dynamics are about the same in 2008 as they were in 2007. US NIH, which is about 20% of our revenue, and Japan continue to be sluggish in funding, but no worse than they were last year. R&D spending by pharmaceutical and biotech customers around the world remains very solid with biotech of course growing very strong and pharmaceutical R&D spending differing by various customers. Europe is getting moderately better with increased funding from Germany and the UK, and as everyone knows, the market growth in China, India, and Korea remain robust. On the bioproduction side, the other 10% of our business, we've had extensive discussions with our myriad of customers, and at this point we see no change to our outlook of growth in the high single to low-double digits. This growth will be much more weighted towards the back half of the year, which is the opposite of 2007, and is due to both the 2007 comparables as well as several new customer start-ups in Q4. So, the bottom line is that we see our end-markets being basically the same as they were in 2007. With that in mind and our business execution on track, the strategy for 2008 is quite simple. Focus on our core business and continue to invest in high growth areas we identify. First, we will continue to optimize the core business, where run rate gains, reagent business that is highly sensitive and really differentiated by differentiated service levels and best-in-class innovation. We excel at both these elements, but we are still planning to make several positive changes to how we deliver the service and how we develop products that should move the needle. In addition, we will continue to focus on enhancing profitability through improved price management and operational improvement. These efforts will result in good revenue growth and improved operating margins over time. Second, we will invest in high-growth areas. There are five areas where we are most interested in, both because of the industry growth, but also because of our core competencies can be leveraged in these areas. First, emerging market, where we will continue to invest in distribution infrastructure to increase our direct presence. Cellular analysis, by further enhancing our position as the premier cell biology company. Instrumentation, focus only on those instruments that can offer a complete solution with our reagents that can radically improve the scientific workflow. Applied markets, where we plan to leverage our existing portfolio, while tapping at a new distribution outlet, whether it be directly or through some partnerships like we've done already.

And finally, Specialty Cell Systems, leveraging our core expertise in cell culture and stem cell technologies; we've already made traction in this area with the acquisition of CellzDirect, a company offering primary cell products and services.

I'll now take a moment to explain why Invitrogen is uniquely positioned to capture value for our shareholders, in the Specialty Cell Systems market and how CellzDirect is a critical component of our plan. Regenerative medicine and cell therapy are buzzwords used in the scientific community today, because this avenue of science holds the promise of treating diseases that are seemingly insolvable using classical small molecule approaches. As such, basic research is increasingly focused on the cell as the laboratory where genes, RNA, proteins interact. Scientists are more and more relying on primary cells such as hepatocytes or epithelial cells as more realistic models of what is taking place in tissues, organs in the body because primary cells are much more representative of actual biological function.

In addition, regulatory agencies in both the US and Europe are demanding the use of primary cell models for safety testing, which is also resulting in general academic researchers finding that their work must be validated in primary cell models before publication.

Now most laboratories don't have the expertise to develop and optimize culture systems for primary cells. And so more and more labs are focused on driving experimental results rather than assembling the tools from various suppliers.

Creating primary Cell Systems is very consistent with our historical strategy of kitted solution. In essence, we are making primary cells and primary cell culture media accessible to a wider user group much as we did with molecular biology in the 1990s. Indeed, we're already a leader in this space via our established business in CGNP, bioproduction media, specialty cell culture research media, cell separation beads and cell characterization assays.

We're one of the few companies well positioned to deliver this unique solution to a market that we think will increasingly need it. Adding to these franchises, we have invested heavily in internal development and external collaborations to launch leading tools in stem cell research, three-dimensional matrices and the actual cells via our acquisition of Cascade Biologics.

Now, let me spend a moment discussing CellzDirect and how it fits into our overall strategy of achieving leadership in primary cells. Aside from the really attractive market growth, CellzDirect is the leader in human hepatocyte cell. While this market is growing much faster than traditional cell culture research market, it is supply constrained due to the difficulty of securing the cells and the complexity of steps to isolate, characterize, preserve and culture these cells. CellzDirect is highly differentiated along many of these if not all of these dimensions. That's unlike a more commodity-like market like sera, CellzDirect enjoys better than average gross margins, and we believe its supply chain is highly defensible.

Finally, CellzDirect does not simply ship the high quality cells to its customers, but they also provide value-added services. CellzDirect had proven itself as an indispensable outsourcing partner to pharma and biotech firms seeking to bring compounds into the clinic faster and with more confidence. Thus, much like the Cascade acquisition, this will enhance our research offering and open up new directed applied markets for cosmeceutical testing and services due to their strength in skin cell.

CellzDirect enables Invitrogen to forge much closer drug discovery and preclinical partnerships with our drug and biotechnology therapeutic customers due to their strength in liver cells. This acquisition efficiently closed on January 31st. So, we'll now begin the integration process using a revised approach formulated over the last 18 months to ensure that the least amount of disruption takes place and the most synergy is realized. We're excited about the potential of CellzDirect and we welcome their employees to the Invitrogen family.

I'll now hand it over to David to discuss our financial results in more detail.

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

Thank you Greg and good afternoon everyone. I'll now take you through more financial details for the quarter and summarize the full year results. This quarter we grew revenues 12% including the impact from currency 6.5% without currency. BioDiscovery grew 13.5% year-over-year or 8% without currency to $239 million. For the full year, BioDiscovery growth without currency was 7.5%. The aggregate BioDiscovery growth was driven by growth in all regions and most product areas. Our molecular biology products continue making progress with strong growth and protein separation, RT enzymes, real time PCR consumables, and RNAi among others. Cellular analysis also continues to have attractive growth as we launched new antibody products while maintaining our leadership in cellular mechanism lately.

Cell systems had a quarter in line with our expectations growing at 7%, as reported were 2% without currency to $97 million. The segment had a very good year with growth of 9%, without the impact of currency. As a reminder, approximately two thirds of this segment is media and sera sold to researchers and the other one third is sales of these products to production customers. In the fourth quarter, we had solid low double-digit growth in both research and production media. Sera production declined as expected and sera research was flat. For the full year, the Bioproduction piece of Cell systems including media and sera performed as anticipated with significant growth in the first half that normalized in the second half for a full year growth rate of 11%. This piece of our business, in this piece of our business there is high visibility but often low predictability. So, we were pleased that we were able to accurately forecast how the timing of orders would fall in 2007. As it relates to currency, we had a $15 million benefit this quarter, or 5 points of growth. As you would expect, the impact from currency on net profits change each quarter depending on the mix of revenues and cost by country.

The year-over-year impact of currency gains was approximately $0.10 in the fourth quarter. Before I go into more detail on the year-over-year financial results, let me make one note. Last year based on a preliminary review, we provided the investment community with an estimate of what our non-GAAP 2006 financials would have been excluding the impact of BioReliance and other discontinued businesses. Subsequent to that initial review, we have identified an expense that was associated with BioReliance and thus should be moved to discontinued operations. Therefore, the financials that we provided you today in our press release for Q4 2006 are the most up-to-date depiction of what our company's result would have looked like in 2006, without the divested businesses. All the comparisons we provided thus far in our call and going forward will be against financials you have been provided today. It's important to know this is simply a move of expense between continuing and discontinued operations for fiscal year 2006. It does not affect total company reported results or any financial measures for the fiscal year 2007.

Moving back to our current financial results, gross margin was 63.1%, an increase of 110 basis points from Q4, 2006, the result of better price and productivity as well as volume related fixed cost leverage. Sequentially, gross margins declined by a 130 basis points as expected. The sequential change in gross margin was a result of lower BioDiscovery gross margins associated with a higher mix of OEM orders and lower production days. In addition, cell systems gross margins declined sequentially by approximately 190 basis points as a result of fewer production days, increased labor expense and higher royalty cost associated with a one-time payment of approximately $700,000.

Operating expenses were $131 million, an increase of $16 million over prior year levels, mainly as a result of higher employee related expenses including incentive compensation. Sequentially, operating expenses increased approximately $5.5 million, slightly higher than expected, primarily due to higher outside service fees covering several consulting projects initiated late in the year as well as a donation to the Invitrogen Foundation. Operating income was $81 million, an increase of 13% year-over-year. Operating margin was 24.1%, representing 30 basis points of improvement over the prior year.

Interest income was $8.3 million versus $5.3 million last year and $7.7 million last quarter. Interest expense was $6.9 million. Other expense was $1.3 million, primarily as a result of a one-time expense associated with of our India operations. For the quarter, the non-GAAP tax rate was 30.1%, which is slightly lower than prior quarters, due to an increase in income earned in jurisdictions having lower tax rates. The full year tax rate was 30.4%. Our diluted share count for the quarter was 49.5 million shares, which represents the sequential increase of 1.3 million shares as a result of dilution from convertible debt and employee stock options. This increase was partially offset by the continuation of our share repurchase program. We’ve purchased approximately 1.1 million shares for $100 million over the course of the quarter.

Non-GAAP earnings per share which does not include stock option expense was $1.15, which is an increase of 16% over last year. Stock option expense for Q4 was $8.2 million pre-tax, $4.8 million after tax and $0.10 per share. This compares to prior year levels of $8.3 million pre-tax expense, $6.4 million after tax expense and $0.13 per share. The tax rate on our stock option expense this quarter was unusually high as we had a large number of employee stock options exercised, which increases the tax deductibility for certain types of options. We do not expect this tax rate to be ongoing and would recommend using a tax rate slightly below our company non-GAAP tax rate for future projections. GAAP earnings per share were $0.82 as compared to $0.46 last year. And as a reminder, there is a full reconciliation between GAAP and non-GAAP measures in today's press release and on our website.

Full year 2007 results were as follows. Revenue grew 11%, operating margin improved 100-basis points, EBITDA increased 15%. Non-GAAP EPS increased by 30% and notably we ended the year with $5.05 of free cash flow per share demonstrating the quality of earnings. As Greg mentioned earlier, the underlying growth in EBITDA and earnings per share is even more if you take into account the fact that we accrued for bonuses this year whereas we had no accrual for employee bonuses in 2006.

Moving on to free cash flow, it was $56 million in the fourth quarter. Comparing free cash flow to last quarter, the sequential change was driven by an expected increase in capital expenditures. The capital expenditures were $42 million in the quarter, which brings the full year total to $78 million. This includes $6 million of lease incentives, therefore the net capital expenditures were $72 million, which is in lined with our expectations for the year. 50% of our capital expenditures occurred in the fourth quarter due to the timing of when projects were approved and started. Up until Q4, we were focused on completing the ERP launch in the Americas rather than beginning any new capital projects. Full year free cash flow was $245 million and we ended the quarter with $671 million of cash and short-term investments. Ending year return on invested capital was 7%, an improvement of a full point over the previous year level.

I'll now move on to our outlook for 2008. For the full year, we expect revenue to grow in the mid-single digits, operating margin to expand by 50 to 75 basis points, net income to increase in the low double digits and non-GAAP EPS to increase in the high single to low double digits. Quarterly growth rates will vary due to a variety of factors. Any guidance we give is based on the today's currency rate. In addition, this guidance does not include the impact from acquisitions, including our most recent one CellzDirect. Along with revenue and EPS guidance, let me provide you a few additional factors that may help when constructing your own estimates for 2008. Revenue is expected to follow typical seasonal patterns for the 90% of our business that is research related, with the one exception that the Easter holiday falls at the end of Q1 this year, whereas it fell at the beginning of Q2 last year. This will reduce selling days in Q1 and we would, therefore, expect this to have a modest impact on Q1 growth rates. For our BioProduction business, the other 10% of revenue, the growth will be back end loaded, as Greg mentioned earlier, which is the opposite of 2007. And as you would expect, the growth rates will be much lower in the first half than in the second half of the year. The first half growth rate is expected to be in the low single digits and the second half in the teens, which will equate to a full year growth rate in the high single to low double digits for BioProduction.

And lastly, the other item to make note of is that we had two legal settlements in 2007, which produced $5 million of revenue in Q1 and an additional $5 million in Q2. In 2008, we will again have some benefits from legal settlements, most notably related to the joint press release issued today with Agilent. We currently expect to benefit from legal settlements in the first quarter of 2008 to be $8 million, which will be allocated between revenue and interest income.

Moving on to operating margin, which we expect to increase by 50 to 75 basis points, this improvement will largely will be a result of improved gross margin driven by reductions in material cost, labor productivity and increase freight recovery. Our non-GAAP tax rate is expected to be lower in 2007 by as much as 1 percentage point due to faster growth in jurisdictions having lower tax rates and assuming the R&D tax credit gets approved again.

Interest expense will be equivalent to the 2007 level and interest income will vary depending on cash balances. Share count will vary depending on our stock price and share repurchases. The average stock price in Q4 2007 was $90 per share, which resulted in a weighted share count of 49.5 million. For stock price increases past this level, this will increase the diluted share count. Clearly this is a high-class problem. Our guidance today assumes an average share count for the year of 50.5 million shares. Stock option expense associated with FAS 123R is expected to be equivalent in 2007 levels. The expense will follow that typical seasonal patterns from the last two years with the first-half expense being higher than the second half.

As related to the impact of our CellzDirect acquisition, we expect it will generate $20 million to $22 million of revenue in 2008 and will be EPS neutral. At this point, we expect the revenue to accelerate modestly throughout the year. Capital expenditures will be equivalent to 2007s level, so as a percentage of revenue capital expenditures will decline. We will be implementing our global ERP at several smaller sites throughout 2008 and putting the planning infrastructure in place for the Asia-Pacific launch. In addition to the global ERP, we will be increasing capital investment in our website. And lastly, we will also be investing in improvements and expansion of several of our facilities this year.

We expect 2008 will be another strong year of cash flow with cash generated from operating activities growing in line with net income, excluding the impact of 2007 bonus payment. As you will recall, we accrue employee bonuses in the relevant year, but we pay them in March of the subsequent year. Therefore in 2008, we will be deploying the cash for the bonuses accrued in 2007, which did not happen last year. As we said before, employee bonuses of approximately $30 million were accrued in 2007.

Before we open the line for questions, I'll end by saying that clearly we are very pleased with our full year 2007 results. We made tremendous improvements in the core fundamentals of the business with some of these improvements occurring much faster than we had anticipated. And as Greg said, it could not have been accomplished without the dedication and focus of our teams around the globe. Going into 2008, we remain focused on the basics.

I'll now hand the call back over to Amanda.

Amanda Clardy - Vice President, Investor Relations

Thank you, David. Maria, you can now open up the line for questions.

Question and Answer

Operator

[Operator Instructions]. The first question comes from the line of Quintin Lai with Robert W. Baird. Please proceed.

Quintin J. Lai - Robert W. Baird

Hi, good afternoon. Congratulations on a nice quarter and a nice year.

Gregory T. Lucier - Chairman and Chief Executive Officer

Thank you Quintin.

Quintin J. Lai - Robert W. Baird

Greg, thanks for the comments on what you're seeing right now in the... year-end markets as being stable. During this earnings season, we've had a lot of chatter on certain geographies like Japan, some other companies have mentioned some lumpiness within large pharma. Could you kind of dive down a little deeper into those two issues and how your business was affected in Q4?

Gregory T. Lucier - Chairman and Chief Executive Officer

Certainly, Quintin. For us our Japanese business had one of their best quarters in 2007 in the fourth quarter. So, for us our Japanese business is actually getting stronger each quarter we go. We have made a lot of challenges to personnel, we've put in a lot of tools for our sales force there. And in spite of a sluggish market, again, but no change per se at the market, we think we are improving our execution. In terms of biopharma or just a pharmaceutical company, again, we saw no secular change with pharmaceutical clients. When we look at our business, consumables are what you need to run these franchises, and so they're largely insulated from changes and decisions around capital expenditures at biotech or pharmaceutical company [Inaudible] to do research. So generally, I'd say that we are not perhaps as prone to be subject to some of these other factors that people are looking at.

Quintin J. Lai - Robert W. Baird

So then with some of these large pharma you don't see any type of changes with their early stage drug discovery plans?

Gregory T. Lucier - Chairman and Chief Executive Officer

No, Quintin. At this point, we don't see any changes to our outlook at pharmaceutical customers, biotech customers. It is basically the same as it was and we anticipate it will be the same in 2008.

Quintin J. Lai - Robert W. Baird

And then as you look toward those new areas for high growth potential, could you kind of go over your thoughts about developing those markets with respect to acquisition or technology in-licensing, and then at a follow-up to that kind of reprioritize us on uses of cash in 2008 M&A versus share repurchase?

Gregory T. Lucier - Chairman and Chief Executive Officer

Certainly. We have a very comprehensive strategy around cell biology that we continue to execute. You saw that first take place in 2008 now with the CellzDirect acquisition, and we have several other very interesting tuck-in acquisitions or partnerships that will help continue to expand our footprint in cell biology, but we think this is a real strength for Invitrogen. And as I've said in other venues, while we're incredibly excited as everyone else is and some of the big changes taking place in next generation sequencing, we think that the world of understanding biology in the context of the cell will be the next thing that really takes place in science, and we're trying and moving very quickly to develop an incredibly comprehensive set of tools to be the leader in cell biology. So, that's where our focus is. In terms of uses of cash, we will continue to execute upon the $500 million share buyback that was authorized by our Board last July. And as David mentioned, we spent $100 million in the fourth quarter for the buyback, returning that money to shareholders. We continue to invest in world-class laboratories and information systems, and as you know, we do have the financial ability to do that. So, we are going to accelerate our lead in web systems and again in very sophisticated laboratories around the world. And then finally for our stated direction before 2008, we'll probably see a slight increase in acquisitions, but again staying close to the core, close to what we are trying to do with our business in and around itself.

Quintin J. Lai - Robert W. Baird

Great. Thank you. And by the way, I know how dependent your businesses is on shipping days you mentioned on with respect to Easter and kudos to your team for working through the San Diego fire issue in the quarter because you put up a very nice quarter.

Gregory T. Lucier - Chairman and Chief Executive Officer

Thank you, Quintin.

Operator

Your next question comes from the line Tycho Peterson with J.P. Morgan. Please proceed.

Tycho W. Peterson - J.P. Morgan

Hi, good afternoon.

Gregory T. Lucier - Chairman and Chief Executive Officer

Hi, Tycho.

Tycho W. Peterson - J.P. Morgan

Wondering if maybe you can talk… I appreciate the collar on kind of the end markets, if you could just comment may be on pricing and the backdrop there as know we've heard obviously some commentary about some biotech customers reducing their global R&D footprint, and I am just wondering whether the pricing environment has gotten more competitive or how you view pricing trends over the next year?

Gregory T. Lucier - Chairman and Chief Executive Officer

Tycho, we can give you our color commentary to our own experience, and at this point, we haven't seen a change in pricing environment for consumables. As we have said before, this is a very disciplined market. We do see the ability to have annual increases in our product and we see responsible behavior in these consumable markets. So, we haven't seen any change in the overall price environment that takes place for consumable. Now going forward, in our own particular instance, we see really wonderful opportunities to increase our sophistication around the merchandising of our products. It's not always going to be about raising the list price of our product. When we now look at our products and what we do, it's really around transactional profitability. We are trying to make every transaction ever more profitable and we can do that in really a variety of ways, in terms of our supply chain, shipping more product to a customer even though that customer may only ordered a smaller set, looking at freight charges, because we all know that freight cost have gone up, and so we have a whole host, very comprehensive list of actions we'll take in 2008 to enhance the overall transaction profitability, which will include price for the company.

Tycho W. Peterson - J.P. Morgan

Okay. That's helpful. Greg, one of the growth areas you highlighted was instrument portfolio. Can you give us a sense as to how you view that evolving in over next 12 or 18 months?

Gregory T. Lucier - Chairman and Chief Executive Officer

You bet. This is, I would say our primary focus in our R&D efforts as we speak. Our goal is to continue to create smaller instruments that are semi-consumable, if you will. We are really trying to avoid a service network. These instruments will be closely tied to our reagents and will be closely tied to work flows where we really know it well and we have a deep market penetration already. So, you are going to see continued innovation around western blotting, southern, things like that. You will see continued innovation around sample preparation and so we think these are wonderful areas for Invitrogen to expand its footprint in and it's a very logical step for us to do it.

Tycho W. Peterson - J.P. Morgan

Okay. And then just finally one for Dave. The Agilent settlement, that $8 million payment, is that recognized all at once, or you have to kind of amortize that over the remaining life of the patent?

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

That will be recognized all in the first quarter and as I mentioned before, it will be split between revenue and interest income [Inaudible].

Tycho W. Peterson - J.P. Morgan

Okay, terrific. Thank you.

Operator

Your next question comes from the line of Ross Muken with Deutsche Bank. Please proceed.

Ross Muken - Deutsche Bank North America

Good afternoon, gentlemen. Congratulations.

Gregory T. Lucier - Chairman and Chief Executive Officer

Thank you, Ross.

Ross Muken - Deutsche Bank North America

As you look back on '07, obviously, was a significantly better year than '06, as Greg you mentioned starting out. You have overcome a lot of obstacles you were challenged with initially. As you look towards '08, you obviously talked about a lot of key initiatives, but could you highlight one or two things you think across the business you need to do to sort of execute on plan and to continue this improved trajectory that the company has been on for the last four quarters?

Gregory T. Lucier - Chairman and Chief Executive Officer

You bet. I think one of the primary initiatives we have is transaction profitability, which I mentioned in my answer to Tycho's question. We see really a large opportunity there, now that we have very good visibility around all around our transaction each and every day to increase the overall profitability of the company. So, we are pretty exited about that. Now, that's in the core business. I would also say in terms of the core business, we are trying some new ideas around how we are deploying our rather large sales force to be even more specialized and get deeper penetration in certain geographies like China and India. Now outside the core business, we are also taking the opportunity to really think about where growth can happen and where we can improve the overall organic growth rate. You’ve heard me speak about specialty cell systems; that’s just one of many areas that we are now investing in, the other being instrumentation that I just described, and then we are looking at applied markets where we can partner with people with our very large patent estate to see how we can work with them to develop new kits for applied testing. So, there is a lot of different and I’d say that now that we feel the business is executing, we also have the bandwidth to look at some of these new faster growing markets that will overall enhance our growth rate.

Ross Muken - Deutsche Bank North America

Great. And you spoke about all these are operational enhancements you've done and clearly the operating margin expansion is really sort of a testament to that. Can you talk to sort of where we are in that margin expansion process? Are we in the first inning, the third inning, the ninth, talk about sort of the ongoing ability of the company to sort of drive that margin expansion?

Gregory T. Lucier - Chairman and Chief Executive Officer

That's a great question. I'd say that it's very much continuous that we believe we can continue to expand operating margins like we are describing in 2008 for you now for the next several years. We just feel that there is that much opportunity to really fine tune the machine and deliver expansion to our investors. So, we feel pretty darn good about the next couple years here.

Ross Muken - Deutsche Bank North America

And obviously you characterized all your markets as sort of stable to improving, I think was sort of the general consensus. I mean is there any there pocket that you think you are exposed to given the general economic weakness we are seeing now? Or you feel there could be a change in sort of budgetary stance or a change in R&D spend or do you feel that pretty much across the portfolio you are fairly insulated?

Gregory T. Lucier - Chairman and Chief Executive Officer

I’d say the overall statement is based on what we see today, we're fairly insulated from pretty big macro economic changes. I'd say that the one that gets the most publicity and scrutiny is the NIH spending, which continues to be very sluggish under this administration, as we know. But we've actually really increased our presence on campus at the NIH, and we are growing quite fast at the NIH now. So, maybe there is a little bit of a last-man-standing effect taking place at the NIH, but barring any changes that we can see at this point, we feel that 2008 will be pretty similar to 2007 in terms of our end-market condition.

Ross Muken - Deutsche Bank North America

Great. Thanks guys and congratulations again.

Operator

Your next question comes from the line of Jon Wood with Banc of America Securities. Please proceed.

Jon Wood - Banc of America Securities

Okay. Thanks. Greg, I think this was partially addressed in the previous question, but what do you view as the gross margin potential of this company? And then could you cheese out a little bit what opportunities you have in the direct material sourcing side of things over the next several years?

Gregory T. Lucier - Chairman and Chief Executive Officer

On the first one, Jon, I really wouldn't want to be pinned down to what the upside potential is, but like you say, I think your question gets at a little bit what Ross was asking. The next couple of years look very solid for margin enhancement in this company. We have a pretty big pipeline of opportunity that we are executing against. A lot will get done this year, but, boy, there is still a lot more even that we know will fall into '09 and '10 for sure. And then the second part of your question was direct materials, it's a great question. This year, in 2008, we are putting a very big focus on China and India. Now, we have already done a lot there, but we are really redoubling our efforts in both those countries in two ways. One, we are expanding the direct sales presence. But, secondly, and particularly in both those countries, we are expanding our R&D and manufacturing presence. And so we intend to shift more of our R&D for certain products over to India, and we intended to do more of our manufacturing to China for both manufacturing, as well as doing some sourcing in and around that country for our overall global need. So, again, it's really in putting more operations people, as well as sales people in China and India.

Jon Wood - Banc of America Securities

Okay. You want to talk about what percent of your cost structure is in Asia at this point?

Gregory T. Lucier - Chairman and Chief Executive Officer

It's minimal. There is the… I’d say back on your original question of how much opportunity is there, that opportunity of moving our manufacturing base from basically in the Americas and the UK to somewhere else is one of those big ideas that sits out in the '10 timeframe and very much being strategized now, but won't feel the benefit of a major wave until next 24 months or so. So, that's just one of the very big set of ideas that we have at the company.

Jon Wood - Banc of America Securities

Okay. And then on the BioProduction market, is there… can you give us an estimate… I mean how big is sera in the production side at this point? Is it virtually gone away or is there still a material portion in the production side at sera?

Gregory T. Lucier - Chairman and Chief Executive Officer

Jon, it's a good question as well. It's about $25 million, it's obviously decreasing year-over-year. So, it's largely becoming irrelevant at this point. I think where it ends up is, it never goes away. It will be somewhere a little bit smaller than that we think, and it will be very specialized reagent ingredients, if you will, for BioProduction. And in fact, it will be very profitable. So, that's what that business shrinks down to. All our focus and really all of the growth now is on the chemically defined media.

Jon Wood - Banc of America Securities

Okay. Thanks a lot.

Gregory T. Lucier - Chairman and Chief Executive Officer

You bet.

Operator

Your next question comes from the line of John Sullivan with Leerink Swann. Please proceed.

John L. Sullivan - Leerink Swann & Co.

Hi, guys. Good afternoon.

Gregory T. Lucier - Chairman and Chief Executive Officer

Hi, John.

John L. Sullivan - Leerink Swann & Co.

Couple of quick ones. First one, business sounds like it continues to migrate well to the web in some markets, 58% of orders I think coming through in the Americas. How does that change your sales force’s job and does it allow them to focus on higher value activities, or how should we think about how the sale force get utilized in a world like this?

Gregory T. Lucier - Chairman and Chief Executive Officer

It greatly frees up the sales force to do more market development than chasing orders and handholding customers and thinks like that. So, we see it as a real growth driver in two ways. One, we've done studies upon studies that customers like using the web to do research and then ultimately buy, and so it's a real pleaser in that regard. And then second, we get the added benefit of... even if we just maintain current headcount, that headcount can be deployed towards really opening up new channels and new opportunities for us. So, it is a real double whammy in terms of benefits.

John L. Sullivan - Leerink Swann & Co.

Okay. And to that end, you talked a little bit about supply chain related activities and your involvement. Do you find yourself in conversations with bigger customers regarding becoming a more important part of the supply chain from a holistic basis? Are there those sort of discussions going on among your customers?

Gregory T. Lucier - Chairman and Chief Executive Officer

Absolutely. Many of our big pharmaceutical customers want to continue to reduce their vendor supply list. We are one of the large vendors that they have, so we are not going away, and we are one of the vendors that supply a lot of specialized reagents, so they, in many cases, really need us. So, we understand our role in this ecosystem and we are having a lot of those discussions as we’ve had over the last year.

John L. Sullivan - Leerink Swann & Co.

Can your existing sales force orchestrate this?

Gregory T. Lucier - Chairman and Chief Executive Officer

The existing sales force obviously is primarily researcher oriented, a lot of PhDs and the like, but we’ve augmented it over the last bit of time and maybe as a bit of our success with really sharp people in supply chain that not only can know the science to a certain level, but really know have to do and sit down procurement people and supply chain people and work things out.

John L. Sullivan - Leerink Swann & Co.

Okay great. And then I will jump back in the queue, but let me just, ask any comments on particular protein kit lines that grew faster than others in the quarter, antibodies, kinases?

Gregory T. Lucier - Chairman and Chief Executive Officer

No. Great question. The assay development business around the Luminex instrument is growing incredibly fast for Invitrogen. And we are really excited about our work with Luminex and I would just highlight that as being super fast growing for us.

John L. Sullivan - Leerink Swann & Co.

Thanks. Congratulations on a great 2007.

Gregory T. Lucier - Chairman and Chief Executive Officer

You bet.

Operator

Your next question comes from the line of Derik De Bruin with UBS. Please proceed.

Derik De Bruin - UBS

Hi, good afternoon.

Gregory T. Lucier - Chairman and Chief Executive Officer

Hi.

Derik De Bruin - UBS

Few questions So, Invitrogen is an OEM supplier to Illumina for some of their DNA sequencing kits, and given that Illumina put up certainly above expectations growth for the guidance last time, I guess as their sequencing business ramps up, what type of impact could that have on your business?

Gregory T. Lucier - Chairman and Chief Executive Officer

It's a fair question, Derik. I would say the interesting answer is, we haven't, at least at my level, though about it in terms of really being a driver for growth. So, I guess the honest answer is, it is not factored in in anyway into what we are thinking in terms of what's going to drive the growth for 2008-2009. We have a lot of other ideas that are really working well for us right now that have captured our attention. So, maybe it's a.... I don't want to say, it’s upside, but I just would say it's really not been factored into our thinking per se.

Derik De Bruin - UBS

Okay. Obviously, I agree with your comments that there is going to be a lot more biology that needs to be done on the backhand of the sequencing that is going on. I guess, are you contemplating getting more involved I guess in the genotyping market and the sequencing markets?

Gregory T. Lucier - Chairman and Chief Executive Officer

Derik, we definitely are going to be more and more involved in the ecosystem, we have I think you know world class enzymology, we have world class single molecule detection technology. I think you could expect Invitrogen to have more participation in that overall ecosystem.

Derik De Bruin - UBS

Okay. You have a strong IP portfolio. How many more pending legal cases are there potentially see some upside from settlement?

Gregory T. Lucier - Chairman and Chief Executive Officer

Well, maybe more. But I would say that our legal team has gotten – and historically, because that's why we were able to settle these to our advantage, has done a really great job of protecting our intellectual property, and we are not only reaping the benefits through settling some of these lawsuits, but also what you don't see is some of the activity going on in the core of our business to talk to people before it ever reaches a lawsuit that perhaps they need to take a license. And that work has actually really done well for us in 2007. We have a really well trained team that continues to do that in 2008 and I think it is going to be part of what we do obviously going forward.

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

I agree with everything that Greg said. But the reason that we do pull them out is because they are large. We have been very fortunate that we've had several over the last few quarters here, but those are the types of things that you never can be sure when they are going to hit.

Derik De Bruin - UBS

Okay. Two quick ones. I asked the same question to Millipore the other night, and I just… what gives you confidence in the second half there's going to be bioprocess rebound?

Gregory T. Lucier - Chairman and Chief Executive Officer

Well, let me tell you what we did, because we obviously didn't want to repeat 2006 and our own experience with bioproduction. So, in our planning process, we out to all the customers in the fourth quarter, early fourth quarter, and spoke to them and said, listen, we are going to be capacity constrained in many ways in 2008, and so we need to know in detail your manufacturing plans for 2008. So, they had a real incentive to sit down with us and share with us their manufacturing plan. But to the best of there ability to forecast and the best of our ability to plan, we've been able to develop the guidance we are giving you on bioproduction. And so that… I think that's the process and that's the certain level of certainty that we can give you on how that business is going to behave in 2008.

Derik De Bruin - UBS

Okay, fair enough. And then just one final question, given that it is [Inaudible] Tuesday and you're a member of the bio board, I guess what's bio's outlook for the 2008 election. I guess which candidate would be the best for biotech in general and for life sciences in particular?

Gregory T. Lucier - Chairman and Chief Executive Officer

Well, I can't speak on behalf of bio and I really can speak on behalf of Invitrogen, but I'll take your and give you my own personal opinions on how things would shake out. Generally I think that if you have a democrat, either of the two that are now left in the race, or even John McCain, because he’s publicly stated he is very much for in NIH investments, I think that things can only get better versus the Bush administration. Now relative to other aspects of the biotech industry like funding for the FDA or follow-on biologics, I think follow-on biologics legislation will happen in the next 24 months, but I feel pretty comfortable that it will happen in a way that the industry finds it to be fair and in a way that they can be remaining competitive. So, I think that will be fine. In terms of funding the FDA, I think that beyond again this administration, I think you'll see both on the part of McCain and two democrats the real desire to fund the FDA, not just because the public outcry for the food or water testing which catches the headlines, but really for the core work of getting back on track of evaluating science for therapeutics. So, generally, I... I'm actually optimistic, I am more hopeful than pessimistic that the election would bring about some probable change for the biotech business.

Derik De Bruin - UBS

Great, thanks.

Gregory T. Lucier - Chairman and Chief Executive Officer

Yes.

Operator

Your next question comes from the line of Dan Leonard with First Analysis. Please proceed.

Dan Leonard - First Analysis

Sure, good afternoon.

Gregory T. Lucier - Chairman and Chief Executive Officer

Hi.

Dan Leonard - First Analysis

David, thank you for that very detailed forecast for 2008.

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

You're welcome.

Dan Leonard - First Analysis

Forced me to get picky here. With your working capital, do you have any room to reduce inventory days on hand? I noticed it did trend up in 2007 understandably with your ERP integration?

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

Yes, It's a very good question, something that we've highlighted for increased focus in 2008. And it has been something we've worked on. What we're trying to do is get a little more sophisticated in how we manage our inventory. And of course, when you have a business with the types of margins that we have, you need to be careful that you balance your ability to fill the orders with your desire to have the absolute minimum orders… minimum inventory level. And you know that’s what we’re working our way through right now, I think our ERP systems, some of the changes the Greg alluded to that we've made in our supply chain have given us significantly increased capabilities. So, it’s an area of focus right now, we don't have any significant change in our inventory levels built into our working capital forecast at this point.

Gregory T. Lucier - Chairman and Chief Executive Officer

Dave, I would add though as you say with the implementation of these systems, we're now going back and putting some changes into affect of how we’ve organized both our global planning and our global procurement group, so that it very much matches how a global manufacturer would do things. And so, this is kind of a next level, as David had indicated, sophistication that will allow us to do, we think, better global planning for what has to be built and yet really still allow the local manufacturing and execution to produce the products in a timely way. So, that's the type of kind of work we're doing which we think is pretty cutting-edge, actually. It is what you would see in some of the world-class manufacturers.

Dan Leonard - First Analysis

Okay, thank you. And then, Greg, a question for you. When discussing M&A, you'd highlighted some areas where you'd look in the research business, and it sounds like you made another small acquisition in the fourth quarter. What is your appetite to expand your offering in the bioproduction business via M&A?

Gregory T. Lucier - Chairman and Chief Executive Officer

We're always looking for opportunities. However, I'd say… so, we are also looking in that area of disposables, things that go in and around our media. But, I don't think you'll see us move radically outside of the things that we're really good at right now. And so, we want to stick to our knitting. We've been asked in a lot of… we've been asked that question many times, would you move into some of the downstream things? When we look at why we are in bioproduction, we're in bioproduction because we are really smart around media development and cell line engineering, and that emanates from our research focus. So, I don't think we’d want to stray too far from the core competency of how we got into bioproduction, and we've a very defendable position there. So, we're going to stick to our knitting. We're going to do things in bioproduction that add to it like disposables. We are also I would just mention thinking about how we move more into cell therapy as you see more and more clinical trials take place. So, that's kind of the next-generation of bioproduction if you will, the cell therapy business.

Dan Leonard - First Analysis

Okay. And when you see disposables Greg, are you talking specifically about disposable bioreactors?

Gregory T. Lucier - Chairman and Chief Executive Officer

Disposable bioreactors, bags, things of that nature.

Dan Leonard - First Analysis

Okay. Thank you for that color.

Gregory T. Lucier - Chairman and Chief Executive Officer

You bet.

Operator

Your next question comes from the line of Peter Lawson with Thomas Weisel Partners. Please proceed.

Peter Lawson - Thomas Weisel Partners

Greg, you mentioned IP licensing. I wonder if that is outside the classic

biopharma market into sort of applied markets and diagnostics?

Gregory T. Lucier - Chairman and Chief Executive Officer

You know it's, that's for sure, but it's also still in the research business. We have a group of about five people with both PhDs and then yet also licensing expertise, and they are knowing our technologies, looking at all markets around the world, and not just in research like to you say, but outside of research entirely, more people that use our technology.

Peter Lawson - Thomas Weisel Partners

I wonder if you could also talk about the growth in Europe, what was driving that and how much of that was from FX?

Gregory T. Lucier - Chairman and Chief Executive Officer

Amanda why don't you answer that, I think...

Amanda Clardy - Vice President, Investor Relations

Yes, the currency that contributed 11 points of growth in Europe. So that is 8% organic growth and then....

Gregory T. Lucier - Chairman and Chief Executive Officer

An 8% organic growth I would say would be generally above the market. Our European team is we think the strongest distribution team we have in our business, but we also think of the industry. We grew equally in molecular biology and cell biology. It was more research growth than bioproduction growth, which I think is good, because that has a higher operating margin for us and we have a very, I think smart way of segmenting the market where we focus on bigger customers, where we can go deeper and then we selectively use distribution partner of partners in certain countries that can get after the thousands of accounts that still use our products. So, it is a really smart distribution model we have in place, and it is shown by growing much faster than the market at this point.

Peter Lawson - Thomas Weisel Partners

How big is the revenue from India and China and do you think you have all the pieces in place to capture the growth you are seeing in Asia?

Gregory T. Lucier - Chairman and Chief Executive Officer

China and India represent about 5% of our sales. So, it's obviously small at this point. In China we are growing very, very fast and our goal in China is to play in the two China world, if you will. There is a part of China that wants the Western products and will pay relatively close to Western prices, and then there is the other China we all know about, that is ultra low costs and maybe has a different quality standard. We are also playing in that market and we can do that through differentiated branding and differentiated distribution approaches. But I would just say unequivocally our goal is to establish the Invitrogen brand and brands across China very quickly which we are doing. So that all those scientists that are coming up know the company and want to reach for the products when they got to go do the research.

Peter Lawson - Thomas Weisel Partners

What are the pieces you need to capture that growth in Asia? Is that more distributors or is it low costs manufacturers?

Gregory T. Lucier - Chairman and Chief Executive Officer

I think in 2008, we are hiring a lot of sales people. So, it's really just hiring more sales people, training them through our training programs and putting them out on the street. So, it's something we do and which is going to do a lot more aggressively in India and China right now.

Peter Lawson - Thomas Weisel Partners

Okay. Thank you so much.

Gregory T. Lucier - Chairman and Chief Executive Officer

You bet.

Operator

Your next question comes from the line of John Goldberg with Merrill Lynch. Please proceed.

John Goldberg - Merrill Lynch

Hi, good afternoon, thanks for taking the call. Two just kind of quick clarification questions, and I do apologize if they were asked earlier on, and then a couple of maybe kind of thousands of new questions. But the guidance that you gave, just so I am clear, that included the Agilent settlement, but excluded sales direct, is that right?

Gregory T. Lucier - Chairman and Chief Executive Officer

That is correct.

John Goldberg - Merrill Lynch

And the Agilent number you gave, the $8 million, is that a net number or gross number, because I think in the press release, it said you also agreed to pay Agilent something?

Gregory T. Lucier - Chairman and Chief Executive Officer

It is a net number.

John Goldberg - Merrill Lynch

Net number, okay. And then the currency benefit to the bottom line again was… I think you gave some number for the… I don’t know if it was for the year or for the quarter?

Gregory T. Lucier - Chairman and Chief Executive Officer

$0.10.

John Goldberg - Merrill Lynch

And that was for the year?

Gregory T. Lucier - Chairman and Chief Executive Officer

For the quarter.

John Goldberg - Merrill Lynch

For the quarter. Okay. So Greg, just if you look at the… arguably 2006, 2007 you had maybe, someone might want to argue with. You arguably had some easier comps in 2007, given a tougher 2006. If you look out, it is just kind of now that you are kind of firing on all cylinders, and you feel like you have better control of the organization. What is the real… is the guidance, the type of guidance you are giving this year, is that kind of the real top line in earnings power say over a three-year period you think the company has?

Gregory T. Lucier - Chairman and Chief Executive Officer

Well, I would say we will make two points, one that the fourth quarter of 2006 was a very good quarter, and so what you saw here in the fourth quarter of 2007 was not again such an easy comp. So, in many ways you are seeing an indicator of what the performance of this company can be in the last 90 days. I think that is a fair comp and a fair than conclusion of what the company is capable of. In terms of our guidance and more prospectively looking beyond the 2008 time frame, I would want to be careful doing that. I think we feel good about our guidance in 2008 and I think to the earlier questions and answers, you heard that we still feel really solid about continued operating margin expansion beyond 2008 just due to the pipeline of ideas that we have to execute upon. So, again assuming the market stays stable, which again is what we see right now, that remains the case, 2008 should be a good solid year for us.

John Goldberg - Merrill Lynch

Okay, fair enough. And then you mentioned this move, perhaps trying to move into the instrument space. You mentioned more consumable type of instruments or semi-consumable. On the other hand, there are instrument companies that are saying the exact opposite. Everyone there is trying to capture more of the work flow, capture more of the consumables. Right now, they feel like they have given to you and others. Have you seen any change either in '07 and how are you preparing for that in '08?

Gregory T. Lucier - Chairman and Chief Executive Officer

Well, it is natural if you are a capital equipment company, you want to be in consumables, because that is where the margin is higher. But selling 25,000 or whatever number we have, it changes all the time, product is an incredibly sophisticated unique operating company. So, it is not so easy just to sell to a bunch of kids [ph]. So, we think we have a very defendable franchise. And because we have a very defendable franchise, we can build off our own participation in workflows by introducing these instruments. So, I think this is a natural evolution of an industry where the consumable business is going to move more in instrumentation and vice versa. But we like our chances and we like our focus of where we are trying to do instrument and reagent play.

Amanda Clardy - Vice President, Investor Relations

And I think with that, we are on the top of the hour here. So, Maria this will now conclude our fourth quarter and full year 2007 earnings conference call. This web cast will be available via replay on our website for three weeks. Thank you again for joining us this afternoon.

Operator

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

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