Bio-Rad Laboratories, Inc. Q4 2007 Earnings Call Transcript

Mar.17.08 | About: Bio-Rad Laboratories, (BIO)

Bio-Rad Laboratories, Inc. (NYSE:BIO)

Q4 2007 Earnings Call

February 28, 2008 5:00 pm ET

Executives

Ronald W. Hutton - Treasurer

Christine A. Tsingos - Chief Financial Officer, Vice President

Norman Schwartz – President, Chief Executive Officer and Director

John Goetz – Vice President and Group Manager, Clinical Diagnostics Group

Bradford C. Crutchfield – Vice President and Group Manager, Life Science Group

James R. Stark – Principal Accounting Officer and Corporate Controller

Analysts

Jon Wood - Banc of America Securities

Analyst for Quintin Lai - Robert W. Baird

John Gibbons - Odin Partners

Vito Menza - Sandler Capital

Weidong Huang - TimesSquare Capital Management

Steve Valiquette - UBS

Operator

Welcome to the Bio-Rad 2007 earnings call. (Operator Instructions) I will now turn the presentation over to Mr. Ron Hutton, Treasurer.

Ronald W. Hutton

Before we begin the call, I would like to caution everyone that we will be making forward-looking statements about management’s plans, goals and expectations. Because our actual results may differ materially from these plans and expectations, I encourage you to review our filings with the SEC, where we discuss in detail the risk factors in our business. The company does not intend to update any forward-looking statements made during the call today.

With that, I’d like to turn things over to Christine Tsingos, Vice President and Chief Financial Officer.

Christine A. Tsingos

Today we will review the fourth quarter and full-year financial results for 2007, the impact of our DiaMed acquisition, as well as provide some insight into our thinking for 2008. We know this is a lot of information and I’ll do my best to walk through it slowly.

Let’s start with a review of the quarterly results. Net sales for the fourth quarter of fiscal 2007 were $459.7 million, an increase of more than 28% versus the year-ago period sales of $343.1 million. These quarterly sales include approximately $62 million contributed by the DiaMed business.

Excluding DiaMed, sales in the fourth quarter grew 16% compared to last year, to $397.7 million. On an organic, currency-neutral basis, sales for the quarter grew 9%. This strong year-over-year growth was fueled by solid performance in both Life Sciences and Clinical Diagnostics.

During the quarter we posted record sales with in our Life Sciences group. This growth was the result of increased sales of Protein Expression, amplification and processed chromatography products. Diagnostics also posted a record quarter even before the inclusion of DiaMed which is a reflection of strong performance in blood virus, clinical systems and quality control.

Consolidated gross margin for the quarter was a reported 50.8% which includes more then $3 million of amortization expense related to the DiaMed transaction and another $3 million of foregone profit margin as required under purchase accounting. The gross margin for the base Bio-Rad business came in as expected at 53.4% as product mix in our fourth quarter typically shifts toward lower margin instrument sales.

SG&A expense for the fourth quarter was $163 million or 35.5% of sales. This represents a significant increase from just last quarter but it is important to note that the inclusion of DiaMed in our consolidated results constitutes more than $20 million of that increase. In addition approximately $2 million of amortization expense related to the deal, $8 million of negative foreign currency affect and increased selling costs, commissions and bonuses associated with the strong top-line growth also contributed to this sequential rise.

However, despite all of these additional items, as a percent of sales SG&A is flat with the fourth quarter of 2006.

Research and development expense in Q4 was 8.7% of sales or nearly $40 million including the DiaMed financial results. During the quarter we incurred a one-time non-cash charge of $7.7 million for purchased in-process R&D. This compares to $4.1 million in similar charges in Q4 of last year related to the acquiring of the sale the assets from Ciphergen and the Blackhawk acquisition.

Interest and other for the quarter was a net expense of approximately $10.6 million compared to $1.8 million last year. This amount includes a one-time foreign currency loss of $2.5 million related to the DiaMed purchase as we readied our cash for the Swiss franc transaction.

The decrease in cash balance is also significantly decreased investment income for the quarter. And finally the Q4 other expense reflect the one-time write-down of an asset of $1.6 million.

The tax rate used during the fourth quarter was actually a benefit of approximately 8.5%. Its benefit was primarily the result of favorable tap product resolutions of prior years as well as increase in R&D tax credits in our French operation. In addition, with the incorporation of DiaMed, we benefit from the lower statutory rates in Switzerland.

As you can see, our financial statements now include a line for minority interest for the DiaMed operation. This reflects two things. The 14% of DiaMed holdings that we did not purchase as part of the original agreement, as well as a few DiaMed subsidiaries where we do not own 100% of the stock. We will be conducting a tender offer for the remaining 14% of DiaMed holdings later this year. And, as we integrate the business we will also review the benefit of wholly owning all of the DiaMed entities.

Reported net income for the fourth quarter was $12.4 million, and diluted earnings per share were $0.45. During the quarter we recorded $1.6 million of stock compensation expense for FAS 123. We are estimating that the one-time non-cash charge for purchase R&D of $7.7 million plus quarterly amortization of $5.2 million, $3 million of foregone gross profit and the $2.5 million of foreign exchange loss all related to the DiaMed purchase, negatively impacted diluted earnings per share by approximately $0.68.

And now for certain segment information, Life Science reported sales increased 16% from the year-ago period to a record $184.5 million. On a currency-neutral basis sales grew an impressive 9% for the fourth quarter. This increase reflects strong sales of amplification products, process chromatography media and Protein Expression products.

Gross margins in Life Science increased slightly both sequentially and year-over-year primarily due to improved manufacturing absorption and lower costs associated with our new Singapore facility. In addition to improved gross margins, our Life Science group also posted good operating leverage from its record sales and segment profit increased to more than $12 million as a result.

Our Clinical Diagnostic group also reported strong sales for the quarter of $271.4 million including DiaMed. [Inaudible] business for Diagnostics increased 16% to $209 million, compared to $180 million last year. These sales were led by continued strong performance and quality control, as well as our blood virus and diabetes product line. Sales were especially strong in the United States, Asia-Pacific and Eastern Europe.

On a currency neutral basis, excluding DiaMed, Diagnostic sales grew 9% during the quarter. Diagnostic gross margins were down both sequentially and versus last year reflecting the inclusion of the DiaMed business and the related expand. As a result, reported fourth quarter segment profits for Diagnostics decreased to just over $4 million.

Looking at the full-year results, we are pleased to report annual revenues of $1.461 billion. Excluding DiaMed, annual sales were $1.399 million, an increase of 9.8% over 2006. This is 5.2% on a currency-neutral basis, and in-line with the mid-single-digit guidance we gave at the beginning of the year.

If we exclude the one-time revenue of $11.7 million recorded in 2006 related to the patent infringement settlement with bioMérieux, then sales for 2007 actually increased 11% before the addition of DiaMed. Both of our primary segments contributed to growth in 2007. For the year, Bio-Rad Diagnostic sales were $770 million, an annual growth of more than 12% and currency-neutral growth of 7.4%. Including DiaMed, our Diagnostic group sales for the year were $832 million.

During the year, the group launched several new products in diabetes, blood virus, infectious disease and quality control. On a geographical view, both Asia-Pacific and the United States continue to be strong double-digit growers. During the year, we placed 50 new BioPlex 2200s in the U.S. and Europe, and have several other systems in evaluation at customer sites. The recent launch of our MRI-safe test in the United States and our new “point-of-care” diabetes device, the in2it, are off to good starts.

And finally, the inclusion of DiaMed into the Bio-Rad family brings with it new opportunities for both geographic and market expansion over the next several years as we continue to upgrade the technology and expand the business.

After a rather slow start for the year, our Life Science group also posted good annual sales, primarily fueled by growth in our core markets of multiplex protein analysis and process chromatography. Asia-Pacific and Eastern Europe also continue to be very strong growth regions for the tools business.

Recorded growth in Life Science for 2007 is 6.9% and just under 3% on a currency-neutral basis. However, this growth rate also reflects our challenges in the Japanese research market, as well as another significant decline in our BSE business. Excluding the BSE decline, core Life Science sales grew 11% year-over-year.

During the year we introduced several new products for food testing, protein purification and analysis, and gene amplification. During the fourth quarter we received regulatory approval in both Europe and the United States to sell our suite of food pathogen tests based on real-time PCR. The strong year-end results for Life Science also reflect a continued demand for our new ProteOn system, multiplex reagents and process media, as well as a good start for our new family of thermal cycling products.

Total company gross margins for the full year were approximately 55% prior to the inclusion of DiaMed, compared to 55.9% in 2006. Remember that last year’s strong margin is primarily attributed to the bioMérieux settlement which accounted for $11.7 million of both sales and gross profits. The impact of DiaMed and purchase accounting reduced full-year reported margins to 54.2%.

Research and development expense in 2007 was in-line with expectations at $140.5 million. During the year we launched more than 50 new products worldwide and have several more in the pipeline to help keep our return on R&D investments strong.

SG&A expense as a percent of sales was 34.8% for the year, about equal to last year despite the inclusion of one-time expenses and increased amortization of intangibles. Net income for the full year was $93 million versus last year’s net income of $103 million.

As I just reviewed during the Q4 commentary, various one-time expenses and non-cash charges accounted for approximately $20 million of negative impact to income which had a direct negative impact on full-year earnings per share. Also remember that 2006 included after-tax profits of approximately $6.5 million related to bioMérieux. The tax rate for the full year of 22% was lower than originally projected due to benefits primarily related to favorable audit conclusions and new tax regulations in the U.S. and France.

Going forward, we expect the tax rate to be between 24% and 26%. This improvement over prior years reflect the benefits anticipated from the new regulations as well as the benefit of tax planning surrounding the DiaMed acquisition and having a sizable operation based in Switzerland which carries a significantly lower effective tax rate.

For 2007 Bio-Rad’s balance sheet also remained strong. As of December 31, total cash and short-term investments were $223 million compared to $488 million at the end of last year and $543 million at the end of September. The significant change from last quarter reflects the approximately $400 million used to purchase DiaMed, partially offset by strong cash flow.

The purchase of DiaMed has also impacted other areas of our consolidated balance sheet. The preliminary accounting for purchase accounting is reflected in increases that you can see in purchased intangibles of $178 million, property, plant and equipment increases of $64 million, and increased goodwill of $201 million.

Strong cash collections throughout the year coupled with good inventory management has resulted in excellent cash flow for the company. Net cash generated from operations during the quarter was $102 million, primarily reflecting the higher quarterly sales as well as good collections in inventory management.

For the year, cash generated from operations was a record $192 million compared to $118 million last year. Remember that cash flow in 2006 was negatively impacted by more than $45 million paid to settle litigation with Applied Biosystems.

However, the strong cash flow in the fourth quarter is not necessarily indicative of a new trend line. Remember that our first quarter historically has been a very high cash-use period as we pay commissions, bonuses, and annual royalties associated with the top-line performance. Net capital expenditures were $14.7 million for the quarter and $60 million for the full year.

Going forward, we expect CapEx to be in the $60 to $70 million range for 2008, reflecting increased investment and information technology and e-commerce as well as the inclusion of DiaMed requirements. Finally depreciation and amortization for the quarter was $23.9 million and $67.3 million for the full year.

As I said at the beginning of the call, this is a lot of information to digest. But the bottom line for us is that underneath the numerous one-time and non-cash expenses in the fourth quarter lies a pretty good business in Life Science and Diagnostics and in DiaMed. Looking ahead to 2008, we see continued opportunity.

The emerging markets of Eastern Europe and Asia-Pacific continue to grow nicely and we have several new product offerings in the pipeline. While there is much to do to integrate the DiaMed operation, the business continues to grow.

Thus our outlook for 2008 sales growth is currency-neutral, organic growth in the mid- to high single digits. Obviously the incremental acquired sales of DiaMed will likely lead our reported growth to be in the teens for 2008.

We report and manage our business on a GAAP basis and do not intend to move to pro forma reporting like many others in our industry. As such though, our outlook for 2008 is also on a GAAP basis. However, we will try to give you color regarding the non-cash and other one-time items that are recorded during the year.

We anticipate full-year 2008 gross margins to be in the 54% to 55% range which includes an estimated $12 million of amortization expense, offset somewhat by anticipated improvements in our Life Science group margin. Moreover, we have made progress towards our goal of reducing SG&A as a percent of revenue.

However, anticipated reported results will also include about $8 million of amortization and another $5 to $10 million of integration spends. And thus, SG&A on a reported basis, margins could look flat to slightly down from the 2007 levels. R&D on a consolidated basis is projected to be in the 8% to 10% of sales range.

As I mentioned earlier, we are estimating a full-year effective tax rate to be between 24% and 26% although, as we have seen in the past, discrete items can increase or lower that rate in any given quarter. But overall, the collective impact of the anticipated top-line growth and other comments regarding the outlook bode well for significant growth in both operating and net income for 2008.

And now I’ll turn the call over to Norman for a few comments.

Norman Schwartz

I think in my view, 2007 was a productive year. I think in addition to the continued expansion of our base business and I think about the fact that we expanded our manufacturing footprint in Asia, introduced some very interesting new products, secured large orders from people like Quest and CDC, and of course, topped it all of at the end of the year with the acquisition of DiaMed. I think we’ve really set the stage well for 2008.

As you can hear from Christine’s comments about the outlook, we seem to be pretty buoyant about it. You think about the number of new products, increased positions in these markets, certainly including immunohematology. I think our selling organizations around the world are enthusiastic about the opportunities for 2008.

As I think about going forward in 2008, I think the successful integration of DiaMed will be one of the key areas of focus for us, in addition to continued work to enhance our operating margins and better serve our markets. I think we’ve got a lot to look forward to.

We certainly appreciate your continued support and interest and with that, I guess we’ll open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from Jon Wood - Banc of America Securities.

Jon Wood - Banc of America Securities

First on BioPlex, I think Christine just disclosed 50 installations. is it safe to assume Quest was about half of that?

Norman Schwartz

Yes.

Jon Wood - Banc of America Securities

How many analytes do you have on that? It looks like you just got an approval. How many analytes do you have on the system currently?

Norman Schwartz

We’d say somewhere around 25. I don’t have the exact number. John, do you have an exact number?

John Goetz

Yes, that number is really close to mid-30s.

Norman Schwartz

Mid-30s, okay.

Jon Wood - Banc of America Securities

And could you just, at least qualitatively, talk about what you have on the docket for ‘08 for that machine? Should we see that significantly, granted the FDA is uncooperative, should we see that number significantly increase in ‘08?

Norman Schwartz

There will be a number of assays that we hope to introduce in ‘08, again depending on the cooperation of the FDA. Again, I don’t have the exact number for you, but it should be pretty significant.

Jon Wood - Banc of America Securities

On the food testing opportunity, do you have an automated PCR system for the food testing market in the works?

Bradford C. Crutchfield

We do have a new platform for PCR out. We just introduced it, real-time basis. And it is compatible with automation front-end. So the answer would be yes. Although a majority of the laboratories right now are still able to operate in the 96-well format and certainly the through-put of the machine is more than ample to handle that. But it is an automatable machine with the front-end.

Jon Wood - Banc of America Securities

And can you just review the opportunity there, Brad? What do you view as the ultimate market opportunity for a molecular food-based modality?

Bradford C. Crutchfield

Well, I think really the key aspect is to move into fresh foods, and I think that we’re talking about testing. Traditional methods can take five to seven days, and most fresh food needs to ship before that. That’s why it necessitates recalls.

I think as more and more of the regulatory agencies and the industries get comfortable with a real-time test that gives them the sensitivity and the speed, you’re going to see more and more fresh food being tested in that 24-hour mark. So then a product can be quarantined prior to shipping. And I think at some point that’s going to start to set the standard in what the consumer is going to expect.

Even today, all it takes is one outbreak. We had green onions a few, about a year-and-a-half ago, and that sort of decimated the industry for some period of time. So I think we’re seeing a lot more interest. As far as exact numbers, I think if we look at over the next, I’d see the market continue to grow maybe in the real-time or certain rapid tests, as much as 15% over the next five years at least.

Jon Wood - Banc of America Securities

Norman, can you comment just on the M&A environment? Has it changed any? I know you’ve just done a big deal. But as far as what you see in the industry, has the market changed at all with respect to acquisitions, either with the assets on the market or pricing?

Norman Schwartz

It doesn’t seem to have changed too much so far. It seems about, I don’t know, about the same, maybe there are a few less deals coming, but I think we’re going to need a little more time to see what the trajectory is.

Operator

Your next question comes from Quintin Lai - Robert W. Baird.

Analyst for Quintin Lai - Robert W. Baird

This is actually [Matt Natorni] in for Quintin.

Could you just talk a little bit kind of globally about what you’re seeing in your segments in terms of demands, either geographically or customer-based. Are there any that are particularly strong in Q4? And just kind of how do you see those end markets shaping up over the 2008 timeframe?

Norman Schwartz

We think about geographic markets and we continue to talk about this. The Asia-Pacific and emerging markets, we’re seeing above-average growth rates compared to the rest of the world. Having said that, we’ve had pretty good results in the Americas this past year and see continuing opportunities. Probably Europe has been the slower of the three segments around the world. That’s kind of the landscape.

Analyst for Quintin Lai - Robert W. Baird

With DiaMed, the quarter in terms of revenues looked kind of strong. And just trying to figure out, is there seasonality to this business? Or how should we think about kind of growth going forward with the DiaMed portion?

Norman Schwartz

I wouldn’t expect much seasonality in that business. The only seasonality might be the kind of the summer months in Europe which is traditional in the Diagnostic arena, but otherwise, that would be about it.

Christine A. Tsingos

Matt, we have one quarter under our belt here. I think as time goes on we’ll get a better feel for the business, both geographically as well as seasonally.

Analyst for Quintin Lai - Robert W. Baird

Just wondering if I could kind of dovetail into that, just to see if there’s any progress you could provide just kind of on how integration is going and what we can kind of look for as the year progresses.

Christine A. Tsingos

We are just getting started. We closed the transaction on October 1, and not surprisingly, our initial focus, besides seeing our new employees and the business, and John can speak to that, and my role has been on financial reporting and getting this private Swiss company welcomed in this new world of US-GAAP public accounting and reporting.

And there’s, so there’s a fair amount of work we need to do there and a lot of the integration efforts will focus on more infrastructure type of events and items this year in finance and IT and things like that. I think that overall the business itself is quite well run when you look at manufacturing production, sales distribution, etc. But we will be looking at all of those areas for potential opportunities to create and record synergies as well as continue to help grow the business.

John Goetz

Just one little addition there I might throw in here and that is that, we do see that over time as we begin to integrate the distribution side of the house of this acquisition, the ability to start pairing up some of the traditional blood virus products that we have that are manufactured in our French and U.S. operations and to be able to pair those up with the, with the blood typing product line of DiaMed.

We’re already seeing that certain customers are already very interested in talking to us about that. So, as we start to integrate those two selling arms of the business, people will be able to pick up some of that synergy there.

On the ground in Switzerland itself, we have basically designated this operation as a full operating division of Bio-Rad and we’ve organized it in a very typical divisional approach way that installs an R&D group, a marketing group, a manufacturing group and reporting to a division manager. So we think that that will give great focus to the things that we need to do from an R&D point of view and product point of view. So we’re pretty pleased with how all that’s coming together now.

Analyst for Quintin Lai - Robert W. Baird

Just one final housekeeping question on the tax rate, Christine. If I were to kind of strip away the amortization and the R&Ds, can you help me out with kind of what we could use as a pro forma tax rate for the fourth quarter?

Christine A. Tsingos

Well, you know, interestingly enough, the tax rate coming in at a benefit is really based on the base Bio-Rad business, if you will, and not as much the acquisition-related costs. Now having said that, because income is much lower in the quarter and you look at the tax rate on a full-year basis, all of these little changes of income get magnified in terms of the tax rate.

But the real benefit had to do with favorable resolutions of audits and tax credits that are available for us on the R&D side, especially in France. And despite the inclusion of DiaMed, we would have had a pretty attractive tax rate in the quarter anyway.

That’s the best I can do, Matt, because it’s really hard to play the what-if game of this and this and this, what would the tax rate have been?

Operator

The next question is from John Gibbons - Odin Partners.

John Gibbons - Odin Partners

Christine, just walk me through the foregone profit margin concept. I understood everything else but that.

Christine A. Tsingos

But under purchase accounting, you have to review all the components of the inventory, from raw materials, finished goods, etc. And under purchase accounting, there are things you can and cannot do in terms of valuing that inventory. So as a result of that, we had to take an expense of about $3 million into cost of goods for finished goods inventory that we needed to change the value of.

James R. Stark

The purchasing accounting requires us to recognize that when we pay for the business, the earning potential of finished goods is something that we bought, so we’re not allowed to basically lower the inventory and record the income twice. So what the production process has earned lowers our margin.

And, as we go through the finished goods, and then it’ll be less through the work in process, we get to realize all of it from our contributions and none of it, eventually, from the purchase of finished goods.

John Gibbons - Odin Partners

So it’s really a sort of a one-time event as you go through this?

James Stark

Yes. And as the inventory rolls, it will go away.

Operator

Your next question is from Vito Menza - Sandler Capital.

Vito Menza - Sandler Capital

On DiaMed, I’m pretty sure you said it, but full-year sales for ‘07 DiaMed came out to be what?

Christine A. Tsingos

Well, we’ve only owned them for a quarter so I’d tell you that the fourth quarter sales were $62 million. We published the 8-K for the estimate on the first half of the sales. I don’t have a full-year number to give you for ‘07 at this time. So we will be putting some sort of estimate in the 10-K as best as we can see it for GAAP purposes.

Vito Menza - Sandler Capital

And did you estimate that it was up 4% year-over-year? DiaMed was up in local currency? Is that what I heard?

Christine A. Tsingos

No, we didn’t estimate that at all.

Vito Menza - Sandler Capital

So the DiaMed projected growth rate is the same as the rest of the Diagnostics business? Is that right?

Christine A. Tsingos

Yes, I think across the board on a currency-neutral, organic basis, whether you’re looking at our traditional Life Science or Diagnostics or DiaMed, it’s all in that, kind of that, mid- to high single-digit growth rate is what we’re seeing for ‘08. And then, obviously, we’ll actually have four quarters of DiaMed in ‘08 versus one quarter in ‘07. So reported growth should be much, much higher than that. But I think organically the businesses seem to be growing in that mid- to high single-digit level.

Vito Menza - Sandler Capital

Some of the currency benefit that your getting as the U.S. dollar depreciated is coming back at you in SG&A? Did I hear that?

Christine A. Tsingos

Yes, you did hear that. And, in fact, it was like $8 million just on a sequential basis. For the full year it’s probably double that. So the good part about that though, Vito, is that we have, it gives us some bit of a natural hedge to protect the income line.

Revenues are higher, but so are expenses. And so that’s good because all of this outlook is based on kind of the dollar where it is today. Obviously if the dollar starts to strengthen, then it suddenly becomes a headwind on the top-line.

Operator

Your next question is from Weidong Huang - TimesSquare Capital Management.

Weidong Huang - TimesSquare Capital Management

Christine, I missed what you said about CapEx and depreciation amortization during the quarter. Could you repeat those?

Christine A. Tsingos

CapEx for the quarter was $14.7 million. So full-year CapEx was $60 million. And depreciation amortization in the quarter was $23.9. and $67.3 million for the full year, $63.9 with the increase of $5.2 related to DiaMed.

Weidong Huang - TimesSquare Capital Management

How much of it was DiaMed? I’m sorry.

Christine A. Tsingos

In the quarter it was about $5.2 million split between cost of goods and SG&A, so about $3 million in cost of goods and $2 million in SG&A. And we talked about in the guidance that we’re looking at about $20 million in ‘08 of amortization, again the majority of it, $12 million-ish in cost of goods and $8 million in SG&A. So, $20 million of additional amortization expense in ‘08 on top of what we have.

Weidong Huang - TimesSquare Capital Management

And option expenses, what was that in the quarter and for year?

Christine A. Tsingos

It was $1.6 million for the quarter and a little over $5 million for the year. It’s about $5.5 million for the year. And that may increase slightly in ‘08 in line with option grants.

Weidong Huang - TimesSquare Capital Management

I heard that J&J just raised it’s manual blood typing test price by 100% to 110%. Can you confirm that?

Norman Schwartz

I don’t know what the exact percent was, but I do remember seeing something in the last few days that they are raising their prices, I guess to keep up with Immucor.

Operator

Your next question is a follow-up question from John Wood - Banc of America Securities.

John Wood - Banc of America Securities

Have you seen any change in major pharma or just the pharmaceutical segment’s spending patterns recently?

Bradford C. Crutchfield

If anything, we’ve probably seen to go up a little bit. There’s obviously been a lot that’s gone on in terms of not as much consolidation but changes in some of the product mix has changed in these companies. But in general, the pure research dollar part of that which we see primarily is, if anything going up a little bit.

There’s no big technology change or seed change that’s driving that but in general we see them continuing to invest in R&D. And then we continue to benefit from the production side of it as several products that use our technology or our products, being pharmaceuticals, go into full production obviously in 2007 with the rousing success of Gardasil had a very positive impact for us.

John Wood - Banc of America Securities

And so you’re not exposed to on the chromatography side, you’re not exposed to some of the bigger biotechs that have been experiencing some weakness lately?

Bradford C. Crutchfield

Well, it all depends if we’re in that process it certainly can be an issue. When Pfizer decided to drop Exubera we were in the Exubera process. And so to the extent going forward, we’re not going to get a lot of sales into that process. But there are literally hundreds of drugs in process. There’s a lot of them that we’re in, and it’s one of those businesses. Some things are up; some things are down. But generally, given our position in the market, more are up than down.

John Wood - Banc of America Securities

And then on the DiaMed intangibles, $12 million in cog, about $8, is it right to assume about $8 million in SG&A?

Christine A. Tsingos

Yes.

John Wood - Banc of America Securities

Can you give us the impact of the mad cow decline in the quarter on the Life Science business?

Christine A. Tsingos

It was pretty much in line with what we expected. Remember we were talking about for the full year about $15 to $20 million, and that’s where we ended up for the full year. And it was fairly ratable through the year. We are expecting another decline in that business in ‘08. But it’s my personal rule to not ever have to talk about it, because there’ll be so many other good things going on in the Life Science business that you won’t even notice it.

John Wood - Banc of America Securities

Is that franchise nearing a steady state at this point?

Bradford C. Crutchfield

Well, yes, just sort of the law of mathematics. It certainly gets to a point where the market is decreased, the number of animals tested, despite some of the things in the news recently, most of the North American testing is controlled by the government and policy hasn’t changed. In Europe, the number of animals being tested continues to drop. And but, we’re seeing probably, at a point just mathematically, the drop in the price, or the average selling price is not as severe.

Operator

The next question is from Steve Valiquette - UBS.

Steve Valiquette - UBS

But just to make sure that I understand the numbers here, if I backed out the $12.9 million of non-cash charges that you cite and then I use a tax rate somewhere in the low twenties, I’m getting an EPS number that’s still pretty far below the consensus number of $0.80 for the quarter. I’m not sure if you mentioned an EPS number, exit charges or if that’s including something else.

Christine A. Tsingos

And we also talked about that the tax effect, it’s probably not appropriate to use a tax rate in the twenties to tax effect those charges. But we did talk about $7.7 million of amortization of in-process R&D, $5.2 of amortization, $3 million of foregone gross profits, [$2.5 million in this FX] loss, equating to about $0.68. So you can add that to the $45. And that’s at a zero tax rate because basically the benefit was on the base business.

Operator

As there are no further questions in the queue, I’ll turn the call back to management for any closing remarks.

Christine A. Tsingos

Thank you, everyone, for bearing with us here through this very long and complex call but we hope that you share our excitement, not only in our results, but what the future holds for us. Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!