Applied Biosystems Group Applera Corp F3Q08 (Qtr. End 03/31/08) Earnings Call Transcript
Applied Biosystems Group Applera Corp (ABI)
Q3 FY08 Earnings Call
April 24, 2008, 11.00 AM ET
Executives
Peter Dworkin - VP, IR
Tony White - Chairman and CEO
Mark Stevenson - President and COO
Dennis Winger - Sr. VP
Laura Lauman - Division President, Proteomics and Small Molecule Division
Kathy Ordoñez - Sr. VP, Applera and President
Catherine M. Burzik - President and COO
Analysts
Dough Schenkel - Cowen and Company
Peterson Tycho - J.P. Morgan
William Quirk - Piper Jaffrey
Quintin Lai - Robert W. Baird
Dan Leonard - First Analysis Corporation
Jonathan Groberg - Merrill Lynch
Derik De Bruin - UBS
Bruce Cranna - LeerinkSwann
Peter Lawson - Thomas Weisel
Presentation
Operator
Thank you ladies and gentlemen for your patience and we definitely apologize for the technical difficulty. Good day, and welcome to the Applera Corporation's Third Quarter Fiscal Year Earnings Conference Call. My name is Sylvana and I will pass the call over to your host for today's conference, Mr. Peter Dworkin. You may proceed, sir.
Peter Dworkin - Vice President, Investor Relations
Good morning everyone, and let me offer an apology for the conference call service technical problem this morning, but we're glad that you're with us. Thank you for joining Applera management to discuss the third quarter fiscal 2008 financial results that we issued earlier this morning for Applera Corporation and its Applied Biosystems Group and Celera Group.
As in previous calls, this morning we will discuss both of our businesses separately starting with Applied Biosystems and then moving on to Celera.
The Celera portion of the call will begin at 11:45 Eastern Time. Unless the Applied Biosystems portion should run beyond that time, in which case the Celera portion will follow immediately thereafter.
Present today are Tony White, Chief Executive Officer of Applera; Dennis Winger, Chief Financial Officer; Mark Stevenson, President of Applied Biosystems; and Kathy Ordoñez, President of Celera; as well as other executives from the Applera operating businesses.
During this call, we will be making forward-looking statements about Applera's businesses. These statements are subject to the risks and uncertainties relating to our businesses and corporate structure that are referred to in the releases issued this morning and in Applera's filings with the SEC. We also will be discussing historical and forward-looking non-GAAP financial measures for both businesses. These non-GAAP financial measures are not in accordance with/or an alternative for GAAP and may be different from non-GAAP financial measures used by other companies. A reconciliation of GAAP and non-GAAP financials for each business can be found in today's press release and on the Financial Reports page of the Investor Relations section of the Applied Biosystems website which is appliedbiosystems.com and the Celera website at celera.com.
Also please note that after this call, the text of these prepared remarks will be posted on the Investor Relations section of the Applera website and on the separate Investor Relations sites of Applied Biosystems and Celera.
Now, Tony White and Applied Biosystems President Mark Stevenson will comment on the performance of Applied Biosystems during the quarter. And also on the call today is Bill Craumer, IR Director for Applied Biosystems.
Tony White - Chairman and Chief Executive Officer
Morning everyone. Sorry about the delay. I am not quite sure what happened. Apparently our vendor forgot how to do the one thing they're suppose to know how to do so. Anyway good morning and just to comment, the highlights of Applied Biosystems' performance for the third fiscal quarter were similar to the second quarter's, with good growth in our consumables product lines, which is up 7% year-over-year and is now 42% of revenues on a year-to-date basis, and the transitions and challenges in some of our instrument systems, a category that decreased 1% and now represents 39% of our revenue year-to-date. Also notable was an 8% increase in our other sources of revenue, which are primarily services, support, and royalties.
On the expense side we continue to manage costs prudently, in part to free up funds that we are redirecting to support higher growth areas of the business. Careful cost management as well as the weaker U.S. dollar helped the non-GAAP earnings per share increase 22% this quarter.
Geographically we saw 24% growth in Asia Pacific, with especially strong results in China, and we also saw good growth in other emerging markets such as Latin America. Elsewhere business conditions have been challenging. Most notably, compared to the prior year quarter, we saw a far more cautious spending by a number of our larger pharmaceutical companies customers in the United States, Europe and Japan, which affected our mass spec sales in particular.
During the third quarter, Applera filed a registration statement with the SEC to make possible the spin off of Celera. We remain hopeful that the spin off can be completed by June 30, which is the end of our current fiscal year. Following the spin off, our intention is to retire the Applera name and re-brand the company under the name Applied Biosystems, Inc.
Investors have asked about restrictions on Applied Biosystems in the in vitro diagnostics field if Celera becomes an independent company. The answer to this question is that the operating principles Applied Biosystems and Celera have agreed to as part of the proposed separation put time-limited constraints on Applied Biosystems. There is a three-year transition period during which Applied Biosystems has generally agreed not to commercialize assays or OEM instruments which compete with a defined set of Celera assays. These restrictions will end after three years. Applied Biosystems will continue with product supply arrangements with Celera. The specifics are set out in the registration statement. Among the emerging opportunities in the broader healthcare market, molecular diagnostics may be a logical area for expansion for Applied Biosystems for the longer term, and one that fits with our strategy of applying our technologies outside the research field.
I'll now turn the call over to Mark. Mark?
Mark Stevenson - President and Chief Operating Officer
Thanks Tony. Today I'm going to start with a high-level commentary about each of our specific product lines and platforms. I'll then give you some additional color on two important topics: SOLiD Next Generation Sequencing system development and our internal infrastructure project. I'm extremely proud of how our teams have executed in both of these areas.
With DNA sequencing in transition, we are extremely pleased with the development progress we have made in Q3 with our SOLiD system and with the way we are managing through the market transition. As expected, CE instrument placements are declining in the research market as instrument funding priorities shift toward next-generation sequencing platforms. But CE consumables volumes continue to grow. CE instrument revenues in applied markets were also up during the quarter for both human identity and for quality and safety testing. We continue to see good growth opportunity in biopharmaceutical manufacturing, where operators need to routinely monitor their products for the presence of bacterial and fungal contaminants.
We recognized revenue in the third quarter for SOLiD shipments that we made during our second quarter, the December quarter, as units passed customer acceptance requirements. As indicated in our last call, in January, we purposefully constrained shipments of SOLiD systems to new customers while we focused on supporting our existing customers and further improving the system. We are pleased that we are now past this stage. Next month we plan to ship, on an unrestricted basis, a significantly upgraded version of the SOLiD platform, one that will enable customers to double the throughput to 6 gigabases per run, in far less time than the previous version.
With this new upgrade, we continue to lead the next-generation field in platform performance, and we believe that no one else comes close to our combination of throughput and accuracy. Just as important, we have a long runway in front of us and are convinced that SOLiD is the most scalable of the next-generation technologies on the market today. We have early-access upgrade customers who are already generating nearly 10 Gigs of data per run, while our research team has reported runs with significantly higher throughput. And our pipeline is filled with developing methods to automate and further reduce front-end time and to optimize new applications development.
With the progress we are making with our SOLiD system, we're confident that we are on our way to restoring our sequencing business as an overall contributor to the growth of Applied Biosystems.
The Real-Time PCR/Applied Genomics category continues to be both our largest at 36% of revenue, and our fastest grower, weighing in with another 10% growth over the prior year quarter. PCR-based research consumables, which are recorded in this category, include our Ambion products, TaqMan assays, real-time PCR master mixes for, both, genotyping and gene expression. Consumables revenues for DNA forensics and other applied markets are also included. The product lines I've just mentioned all contributed to the category growth in this quarter.
On the instrument side of real-time PCR, we are seeing strong demand for StepOne products we introduced last year. These have set a new standard for ease-of-use and accessibility, and we are pleased that StepOne won the SelectScience Award for the best new Life Science product in 2007.
Our real-time PCR group now has a very strong new product pipeline. And even though our TaqMan assays are already the gold standard, we continue to improve the workflows, to develop related enzymes and master mixes, and to introduce performance-enhanced application-specific TaqMan assays. In the last two months alone, we've introduced and announced three new sets of gene expression tools: one for faster answers from cell-based samples; one for microRNA profiling; one for performing digital gene expression research on our SOLiD system. We also introduced a new family of reagents for reverse transcription PCR.
And in the forensic area, during the quarter, in addition to strong operating performance, we introduced some powerful new software tools including for our Chinese customers a Mandarin-language forensic package. And in the forensic fast-growing food quality and safety testing area, we announced that we will begin to sell pathogen detection kits directly to end users while continuing to supply instruments and reagents to DuPont Qualicon under an updated collaboration agreement. We introduced a salmonella test kit as part of the new direct-sales strategy and have several additional food pathogen assays in development.
The Mass Spectrometry product revenue category increased approximately 1% compared to a tough comp in the prior year quarter when revenues rose nearly 12%. In addition to the tough comp, we're facing a weakening in economic and budgeting climate. We are challenged by constrained capital spending in pharma markets, particularly in Europe and Japan but also in the United States. Pharma spending has been offset somewhat by the shift to CROs where we have a broad footprint and strong market position. Our Applied Markets mass spec showed continued strength in North America and in Asia, particularly in China. In fact, our high-end QTRAP and triple quad product exhibited good uptake in Applied Markets for applications like quality and safety monitoring in food and beverage markets and environmental testing.
Overall we continue to see the mass spec market as one of the most competitive markets we participate in with some current challenges in customer spending patterns and both new and established players strengthening and broadening their offerings in both product types and application areas. We fully recognize the need to reignite growth in this category. Recently, we introduced a variety of software packages that improve ease-of-use and productivity, which are particularly important for applied markets application. In the mass spec area, we are focused on providing the required combination of new platforms, new software and new workflows for the high-growth markets we are in.
I now want to add some additional color to the quarter. In many ways, Q3 was all about execution of our plans. Next-generation sequencing was the most obvious example, and our development teams deserve special mention for the work they've done in bringing an upgraded platform to market. From a customer standpoint, we have already made significant progress and a subsequent round of improvements that we expect will continue to position SOLiD as the performance leader in the field and drive even more experimental value into the marketplace.
And finally, I want to recognize some ongoing work, the results of which have been seen indirectly by the Street in our earnings growth. These results have been achieved by the team driving our infrastructure project. During this fiscal year, in addition to goals to drive revenue, we also set productivity goals to improve costs and margins that would both improve our earnings growth and free funds for re-investment in growth initiatives. As one example, R&D productivity and the number of new product introductions... especially in consumables... have increased dramatically this year, even in the face of decreased overall research spending, underscoring the benefits of this renewed focus. The operational improvements we have made have been the result of the collective efforts of many people and functions across AB that have delivered well beyond our internal targets resulting in continued strong earnings growth.
And now Dennis Winger will comment on Applied Biosystems' financial results for the quarter.
Dennis Winger - Senior Vice President
Thank you, Mark. As mentioned, our third quarter results were highlighted by solid gross and operating margins and strong EPS growth on both a GAAP and non-GAAP basis compared to the prior year quarter.
Gross margin in the third quarter of fiscal 2008 was 56.9% compared to 56.5% in the prior year quarter. The favorable effect of foreign currency was the primary factor contributing to the improvement.
During the third quarter SG&A expenditures increased 6% from the prior-year level primarily due to employee-related costs, the unfavorable impact of currency and regional investments.
R&D expenditures decreased 11% in the third quarter from the prior year period due principally to lower employee-related costs and the termination in June 2007 of a contract for the U.S. Department of Defense.
Third quarter fiscal 2008 earnings per share on a non-GAAP basis were $0.44, an increase of approximately 22% compared to $0.36 in the prior year period. Excluding foreign currency, non-GAAP earnings per share increased approximately 11% over the prior year. The Group's accelerated share repurchase transaction completed in January 2008 was accretive to the quarterly per-share results by approximately $0.01.
To reiterate our comment made in January on the last earnings call, we continue to expect the accelerated share repurchase transaction to be accretive to Applied Biosystems' fiscal 2008 earnings by approximately $0.02 per share. We did not make any open-market purchases of Applied Biosystems' shares during the third quarter as we decided not to repurchase shares while we are finalizing the spin off of Celera from Applera. Our intention is to resume open-market share repurchases after we have finalized the registration statement and we are not in a quiet period. Since 2002 we have repurchased $1.8 billion of Applied Biosystems' shares.
The reconciliation of GAAP and non-GAAP financials can be found in today's press release as well on the Financial Reports page of the Investor Relations section of our website, www.appliedbiosystems.com.
Cash flow from continuing operations during the third quarter was strong at $119 million and capital expenditures were $11 million. At the end of the third quarter accounts receivable were $459 million, representing 62 days sales outstanding, and inventory was $172 million, representing 3.9 months of inventory on hand.
As of the end of the quarter, cash and short term investments were $365 million, down from $495 million as of June 30, 2007. This decrease was largely the result of $602 million payment to Morgan Stanley for our accelerated share repurchase transaction, a portion of which was funded with the available cash and the balance of which was funded by $275 million in short-term debt. We have repaid $150 million of these borrowings, leaving $125 million outstanding as of the end of the quarter.
Regarding Applied Biosystems' expectations about its financial performance for fiscal 2008, I would refer you to today's earnings release. Other than capital expenditures, we have made no changes to our outlook compared to that issued with the second quarter results. That said, I will provide an abbreviated version of what we are forecasting.
At current currency rates, we expect mid single-digit revenue growth, with revenues comparable to prior year level for Instruments and up for consumables. We also anticipate growth across all product categories with the exception of other product lines. We anticipate gross margin improvement in fiscal 2008 compared to fiscal 2007 and we expect to increase operating margin in 2008 by at least 200 basis point compared to the prior fiscal year. Finally, we expect non-GAAP EPS to exhibit double-digit growth compared to fiscal 2007.
We now expect CapEx for the fiscal year to be in the range of $50 million to $55 million... slightly lower than we projected last quarter.
We'll now be happy to take your questions about Applied Biosystems.
Question And Answer
Operator
[Operator Instructions] And the first question comes from the line of Doug Schenkel from Cowen and Corporation [Cowen and Company]. You may proceed.
Dough Schenkel - Cowen and Company
Hi, good morning guys and thanks for taking my questions. Across tools at this point I think it's fair to say and this is consistent with what you said in your prepared remarks that firming demand for instrumentation has been a key driver to weakness in certain areas where it looks like consumables demand has held up, especially at pharma and I would say more so in another areas. With that as a backdrop, I'm still looking for some answers on real-time PCR performance in the quarter. Maybe it's just our model, but you did come up light of our forecast for year-over-year and sequential growth. And I was wondering if could provide some colors specifically on whether real-time PCR results were affected, maybe positively or negatively, by instrument or consumable mix or were there any dynamics in end user demand during the quarter and how do these dynamics look moving forward?
Mark Stevenson - President and Chief Operating Officer
Hi, Doug, it is Mark. Okay, so I'll take that question. So maybe just crossing it out. On the pharma side, certainly we saw... particularly towards the last couple of weeks of the quarter. Just pharma requiring some extra signatures, a bit more consolidation going on in pharma and that does tend to impact a small part of the instruments in real-time PCR. But the main part of the... light going on in instruments is just a wider adoption of real-time PCR. So we see a shift to adoption like the kind of products I mentioned in StepOne, StepOne Plus, and that's really where we see the market growth is going on and that's where we participated.
Now within that category, as you also mentioned, a lot of that category is actually now consumables and we saw good strong growth in the consumables that category for us continues to perform very well. It's a series of different products, here as mentioned, the range across the research areas going to forensic and applied. So there is quite a mixture within what's going on within that real-time PCR category and some is the market-specific of pharma but you are going to expect continued strong growth in that category going forward as we continue to drive more consumable products into that category.
Dough Schenkel - Cowen and Company
Okay, that's helpful, any change in royalty performance Q to Q in that line item, that was of note that that would bounce back maybe next quarter?
Mark Stevenson - President and Chief Operating Officer
We don't disclose that.
Dough Schenkel - Cowen and Company
Okay, I took a shot, and... almost got you. Quick one on NASDAQ, I don't think it's used anybody about the performance they are across the market. Anything you can share in the way of competitive dynamics there, anything you have seen to that is affecting performance or do you thing that is mostly a market wide dynamic that's going on there?
Laura Lauman - Division President, Proteomics and Small Molecule Division
Hi, this is Laura. I think by in large, the business is really affected by the Pharma slow down and really delays in funding, that really affected the business primarily. There is still is some competitive or strong competition at the low end of the market but that's been ongoing quarter-to-quarter.
Dough Schenkel - Cowen and Company
Okay, and maybe I can just ask one last one, going back to your Q4 commentary... on your Q4 call last year. Is that when you guys first announced the accelerated time line associated with the solid roll out and at that point you seen pretty confident that you were in a rush to product out if you don't think it was ready and you rolled the product out in October of course, on your fiscal Q2 call of this year as you were eluded to today or mention today you purposely think strengths SOLiD shipments that you need through that you are allocating sufficient resources to the roll out, sounds like we are moving past that now, but maybe can you give us a little bit more color on maybe what developments surprised over the past nine months and if you roll out for SOLiD upgrade and how do we, maybe more importantly, the scientific community get comfortable that the challenges, is that challenge, is that's the right to describe on that you have faced in the early going of the SOLiD roll out don't continue with the upgrade of the instrument roll out. Thank you.
Mark Stevenson - President and Chief Operating Officer
Dough, yeah, when you speaking of very exciting toll during the last year, we sold it... and actually we got to say we are pretty pleased with where we are, you see from a covenants in our interim and we've made a tremendous progress when are rolling down just about and we said the custom is... here what we got and get one dig. We started talking in the October call that we thought we could get may be increase may be up to 9 or 10, and here we are launching 60 system and we are seeing customers that are exceeding that. So actually we are being conservative here what we are explaining.
What the community was ought to see is it's customers presenting data on that, so that will really support that, you will also see from our press release this morning customers like genome centers like Bella engaging in the 1000 Genomes Project and deciding to scale up on the SOLiD technology, if you look back to the conference in AGBT Applied, they were presenting the accuracy of the data and just getting going, but now they have a chance to work with the systems, see the throughput... they have made the choice to scale up with SOLiD. As you roll out during this quarter you will see posters coming forward, for example of the Cold Stream Harbor meeting in May showing both the applications on the Genome variance as well as gene expression studies that are going on. Year
You will see this increasing momentum going on, this coverage of course prove what translates to a lower project cost, so you saw us make the announcement from the R&D team of doing a genome for $60,000. You see us this through put translate into cost program, cost projects. We expect increasingly people are going to say, Okay, now let's think about these new projects, we can do SOLiD And so we feel we got good momentum going on. We also adjust that participated in field applications training, we brought nearly 50 people in to cost of city that they had to get up, updated training on this as in 2.0 was starting to launch and very exciting as we support our existing customers and roll this out, so we are feeling very good about the progress we have made in this year, and I think you will just see continued good news coming forward here now.
Dough Schenkel - Cowen and Company
Great, thank you very much.
Operator
And our next question come from the line of Peterson Tycho of J.P. Morgan, you may proceed.
Peterson Tycho - J.P. Morgan
Hi Good morning, may be just following up on your comments Mark, on SOLiD, I appreciate the color, could give us a sense to what you are seeing in terms of validation times now and how quickly you start to see the consumable ramp up and then also the geographically are you seeing interest in SOLiD outside the U.S. and then between the core genome centers and outside genome centers if there any color there, it will be helpful.
Unidentified Company Representative
Yes, firstly on the ramp up times so that's certainly accelerating, one of the things that we have done is have given ourselves more time to adjust to validation and verification testing in-house and as we do that and get more experience as in stores and shipping, the in-stores were done recently, had been quicker and we get through acceptance test, and we do expect that to translate to more consumables getting online quicker. Its obviously a very dynamic environment as we try to model it on those, you try to model it and so give you as much color on some of these data points going forward but that's kind of where we were, or are with it, so there is third part...
Peterson Tycho - J.P. Morgan
And yeah just trying to kind of think about the demand outside the U.S. and also within the U.S. in terms of core genome centers and outside the genome centers.
Unidentified Company Representative
Yeah so we are seeing good demand throughout the world I would say, this last quarter I have mentioned the people we started as well as shipping here in the U.S. we shifted at the end of the quarter into Japan, as it was there fiscal year ends, so we seeing good tomorrow and going on there, and I had mentioned I've been... about my trip in February to India that we weren't ready to start shipping to countries like that but actually we have just started taking orders in other places like that, so we see it internationally in Europe in Asia, and I think you would also see those announcement out from BGLI, as they build up installations in China as well, so it is pretty widely spread, you see customers in Canada scaling out as it all, much more in traditional genome centers scaling up outside the big five. And we continue to work with both of the big 5 genome centers and also other centers as they get up and running in their different projects.
Peterson Tycho - J.P. Morgan
Okay with regards to some of the productivity initiatives you discussed, can you give us a sense as to what you know the key steps here are the key focus areas are, I know you talked a little bit about the R&D rationalization and focusing on more productive projects, but as we think about that 200 basis points operating margin expansion, can you give us a sense as to how much would that may come from, better cost rationalization?
Unidentified Company Representative
Well I highlighted one of the areas... as you say Tycho was around the R&D, both the prioritization and just the portfolio process we now have going linking to our strategy which gives us a much better price line and after that then there was a series of other project that continue to look at both the gross margin level where can we have the opportunity in cost and efficiencies in manufacturing, you know as now, coming up the period as nearly two years, with the ambient integration and we continue to make improvement both if we book volume into that and also make improvement in to that and also make improvements in the manufacturing system down in Austin, and we are please with the progress we are making there and we continue to look at that sort of global infrastructure, whether the cost that are not essential to driving and supporting our business and can we leave our job our footprint in a better way, can we serve our customers in a better way, so there is a series of other initiatives that we continue to drive that productivity.
Peterson Tycho - J.P. Morgan
Okay, as we think about the real-time PCR business going forward maybe some of the opportunities to multiplexing, can you give us some incremental commentary on BioTrove and how you looking at that market opportunity in that collaboration?
Unidentified Company Representative
Probably the collaboration is going very well, we just passed one of our internal milestone checkpoints. And the collaboration between the two organizations and sort of West Coast collaborations is also going very, very well, so we are on track, we were really looking at that market obviously a physical multiplexing to TaqMan assays into 3000 well format, and we just see that the sort of ultimate flexibility you have in that, the samples against assay. There is really a lot of flexibility end by end as you think about, how do you line up the content that we've got in the TaqMan assays that are available on our Website on our assay then to be seamlessly ordered and put into a format that can be run in these screening experiments either in clinical trial in studies and at bio customers. These are some of the initial customers showing a lot of interest in these applications. And we will be rolling this out into next fiscal year, and we think it will be big part of the continued growth for the real-time PCR category in the genotyping part of our franchise.
Peterson Tycho - J.P. Morgan
Okay, thanks, finally Denise you had made a comment about your ability to repurchase share, and when do you expect you may start being able to doing I know you said right now right now your not.
Unidentified Company Representative
We are not going to do it till after we complete the separations so which we are currently hoping to as target by June 30th and likely we probably won't be able to commence till after we have released year-end earnings because we'll be in the quite period of that point. But there are only certain times that we can commence to put a share repurchase program typically it's after earnings have been out 2 or 3 days. So the most likely scenarios will be back in the market late July, early August.
Peterson Tycho - J.P. Morgan
Okay thank you very much.
Unidentified Company Representative
Thanks.
Operator
And your next question comes from the line of Bill Quirk from Piper Jaffrey. You may proceed.
William Quirk - Piper Jaffrey
Thanks Good morning. Mark just kind of continue don't mean to make this a solid call but I just want to ask you about if we took out the contributions from the next generation sequencing side, did we see an improvement at all to the underlying sequencing growth rate, I guess thinking about this in a constant currency standpoint from recent quarters.
Let me repeat that, see if I can suffice. So, if we take out SOLiD, the sequencing business is running at a kind of mid single-digit negative constant currency growth number and is that a fair way to continue to think about the business guys or do we see a change in that trend in this most recent quarter.
Unidentified Company Representative
Yes so the way we think about this business actually, and we are not going to break it out further for you, it is as a whole sequencing it's a genomic analysis business, so we are managing through there's a lot of interest in the variation that goes on in sequencing, it turns out there is more structure analysis work to be done. It's also further complicated of course by a gene expression business as well. So we are seeing customers beginning to adopt the gene expression studies and the throughput and the amount of ability to do this tag based counting, takes us into new application areas. So the way we think about the business and the way you have got to think about the business as sort of as a category, this is a category where we are transitioning from how you do genomic analysis in some applications in the research area on a CE-based platform to take in this technology and this technology has got a lot of headroom in front of it, to grow that category.
In addition, what you think about is some of the applications are going to continue to grow as we called out, the consumables continue to grow and that shows the installed basis that's out there, it's still driving those applications and still running that work. We also called out that the customers that are more validated environments appreciate a robust, easy to use system, continue to grow. Even as we've have had strong growth in new instrument placement, so in the HIV and forensic area, in the pharmaceutical customers, in the production environment, we are seeing growth in those segments, so we are not going break out all the individual moving parts as you came from explanation, a lot of different applications in there, but you should think about it as a whole category and as I made in my comments this is the category that we believe is returning to growth and its part of the transition we have made in this business, so we are feeing pretty good about that. Yes, I think that I'd just turn to exclamation point, we look at sequencing business as a total business and SOLiD is a product line within there, with our goal and I think we are going to achieve is to get that whole business, that whole $570 million business growing again and obviously SOLiD and its various applications are going to help drive that but the expectation we want to create is we think can achieve it is to get the overall sequencing business are growing and soluble will certainly play major role in that.
And so Tony remarks, it's safe to say then at the underlying trend and some of the sub sectors if you will since sequencing and I have been thinking this specifically about forensic. That trend of, a positive trend continues innovative.
William Quirk - Piper Jaffrey
It does. We are seeing an expand... the application for sequencing capillary electrophoresis sequencing, sort of outside the high throughput genome area and particular in the Applied Markets has a positive trend. There is some dislocation in the mid range today in the research markets, because people have all their attention on writing brands for next gen projects and that sort of things. There has been some slowdown there, we think that's... we think we understand that we are not too concerned about it. The applications of Forensics and other areas pharma QC, is stuff what looks like it has a lots of potential and we really start to see that develop at a faster pace of anything. So it's the totality of all of this that we think is going to get the overall sequencing business back to a reasonable growth period.
William Quirk - Piper Jaffrey
Understood thanks guys.
Operator
And the next question comes from the line of Quintin Lai from Robert W. Baird. You may proceed.
Quintin Lai - Robert W. Baird
Thank you, good morning. Looking again back at to mass spec business some of the competitors have reported this earnings season, they have also started delays, but no ones talked anything about cancellations... and one competitor actually said that in April things look more cautiously optimistic. Could you currently deliver the color on that commentary Laura?
Unidentified Company Representative
Sir I think we are on to. Right now there is a pharma accounts are singling delays. There are few that is actually said there is loss in funding. I think it's too uncertain right now to say forward what's going to happen. I have seen several cycles now with the funding has come back obviously over time the pharmaceutical companies will start to purchase again but the timing of that right now is unclear.
Quintin Lai - Robert W. Baird
But then on the... as you said in your prepared remarks on that the Applied markets, any idea of ...that the funding for that, visibility seems to be good, or at least the spending so far is good, what about the visibility in those markets?
Laura Lauman - Division President, Proteomics and Small Molecule Division
In Applied markets, the business is strong there at the end of the top of the much smaller base we've had significant growth in the food and environmental application areas and that's been a very solid state throughout.
Quintin Lai - Robert W. Baird
and then going back to consumables, one of thing that some of the companies have decided is ...the calendar effect in Easter and offsetting some of that, some people have increased some of their prices, how did that affects you consumables business this past quarter?
Mark Stevenson - President and Chief Operating Officer
Well, we certainly have the same calendar, the same effect that we had Easter there I think experienced that and certainly as we, we become more of consumables company as you see 42% of that revenue now coming in consumables, your going to track some of that weekly, performance is important to us. As we go at the pricing, there is nothing specific, we've changed in the pricing mix. Our focus is been into increase, introduce new products that are going to improved the performance I've just made the work flow easier which then allow us to take market share away from our competitors.
Quintin Lai - Robert W. Baird
Great, thank you.
Unidentified Company Representative
The weak dollar is in fact the price increase in over the half our customers so I think about ...where our customers are outside the U.S. weak dollar is the fact of pricing critical.
Operator
And the next question comes from the line Dan Leonard from First Analysis. You may proceed.
Dan Leonard - First Analysis Corporation
Hi Good morning. Mark, my first question is about your guidance for the, for I guess the last quarter. Your revenue guidance, you mentioned that you haven't changed any of the language except for the capital expenditure but the dollar is weakened about 8% versus the euro and some other major currencies since your last offered guidance year. Your effectively looking for weaker organic growth, and I'm wondering is there any specific business that has come inside your expectations, and where you are looking forward to be shy for your expectations from a couple of months ago.
Mark Stevenson - President and Chief Operating Officer
Well, we didn't change the language because we can get in the somewhere and splitting of hairs here in terms of few million dollars but its some of the stuff around. But if I had to put my finger on one area that is probably new versus last quarter is the uncertainly of mass effect. We were quite surprised, our field was quite surprised as how the weakness developed in the last few weeks of quarters in that business, and what I would like to think it was a temporary development nor have any evidence to the contrary so that probably fills up whatever difference there might be in the sense of there.
Dan Leonard - First Analysis Corporation
Okay, thank you. And then my other question for Mark, on the head room you have installed, do you have a timeline or can you offer us a timeline at when additional improvements will role out throughout the year? We do have a time line and the head room is there, I m not going to announce the full timeline on this call, obviously I appreciate it's a very competitive space and sir, we want to continue to roll out improvements to our customers without time. I think you got a sense and I have talked about sometimes following more roll here that as we go across each quarter we have been increasingly the improved cost selling out 1 Gig, 3 Gigs, 6 Gigs. So you are getting a sense of where we are and the kind of pace of improvement we see. And I've also commented that we're really just getting going on some of this technology. So, so far what we've been optimizing is sort of the runtime some of the molecular biology, just how to be support.
So some of these things we knew when we acquired the technology, get it working get the technology out there, improve the robustness but as we go forward we're also looking at more end to end systems and opportunities to improve it even further is in our roadmap as we look out but the one to two year horizon but also as we're looking out five years in this technology, we can see where we would like to go and you will see continual improvements because we think the headroom is there in this system.
I mean ...again that's a critical point about SOLiD. Yes, we are late into the market versus competitors that have been out a year more ahead of us. And its always uncomfortable to have to play the catch up game and all of the things that go with it but we are very deliberately chose this technology because while we had to sacrifice advantage in the short term because of the timing and the development of the technology we felt that the long term advantages were substantial and compelling. And I think we're starting to see that now the ... in our hands these things ... in the customers hand its improves six fold in productivity in a few months and in our laboratory its far more than that and we ...as I talk to the scientist main stairs I think they are thinking about levels of productivity and improvement that would be shocking and when you do that, its going to open up a new applications. Applications outside of deploying some of the 16 projects we've seen, part mentioned Gene Expressions others.
So there is ... so one other difficulty you have and trying to describe to people when we're going to see big improvements is, what do you mean by that, we see a long time for this technology is going to continue to have as Mark, Paul said as the limits to this technology are far more impressive than anything else that we have not fairly said before we make this choice and so we are going to, you can bet we are going to put everything we got into exploring those revenues, and I think you will see positive news from this product line for many years to come and a developing competitive advantage as a result of it.
Dan Leonard - First Analysis Corporation
Okay, thank you.
Operator
And your next question comes from the line of Peter Lawson, from Thomas Weisel Partners you may proceed.
Dan Leonard - First Analysis Corporation
Denis what's been driving the gross margin expansions and what elements where not as sustainable?
Unidentified Company Representative
I think a couple of things, one is obviously, currency we highlighted in the press release, and also as you know we have converted some of that and our manufacturing to self manufacturing and renegotiated the contracts using and time to resource on our ties and those contracts are more favorable it's the...
Unidentified Company Representative
Having self manufacture it was already the enzymes have given us a very negotiating leverage, as far as other enzymes that we source from third party, so those are the two primary sectors, possibly a focus on, can't really focus on try and improve our operating deficiencies in the manufacturing area, are the three main factors.
Unidentified Company Representative
I would add that our product mix is moving more towards sustainable growth market, subject to.
Dan Leonard - First Analysis Corporation
How big is FX in the course for gross margins?
Unidentified Company Representative
I don't know but I have that data with...
Unidentified Company Representative
less then 1 point.
Unidentified Company Representative
IT'S LESS THAN 1%
Dan Leonard - First Analysis Corporation
Okay and then how do you Applied markets been growing for you?
Unidentified Company Representative
Its been very... very strong contributor to growth or is, there is difference sub segments and we are being carefully going one by one entering these markets, the one we've have been talked about from the DNA side is forensic which we have seen continued good double-digit growth, expansion of the global data basis, around the world we see continued expansion here. We are hopeful of the renewed funding here going on in the U.S. and will continue to see the expansion in that marketplace.
In other markets you see as in the mass spectrometery side... the drivers for food testing continue to be strong from mas pec, D&A and so we are leveraging our technology over that making call assistance and you see in this bio pharmaceutical manufacturing areas, so these are the three specific markets we have been targeting and we see as we look out on our horizon and sort of do our planning going out into the more longer term, we will continue to see the shift of where our research customers base is but also where we are trying to grow our applied markets and that shift continuing to move as the applied market goes faster for us.
Dan Leonard - First Analysis Corporation
How big is that applied markets for you now, and it seems that it's more of the same from last quarter, it's the same kind of things that are driving growth in that market?
Unidentified Company Representative
It's certainly fair to say and this is one of the things we liked about this market is a bit of consistency about it, compared to the research market where maybe new discoveries of non-coding RNA and we'll need to come up with new tools of microRNA to surpass the changing market. The applied markets has an much more even a run way ahead of it, the same drivers as a consistency to that and also utilizes to build up capabilities were being turned out say for validations, so when we take kits tool like the TaqMan assays, we get LAC approval, the body that approves that allows us to improve our quality standards and operate in these more validated markets, so that's kind of some of the changes we've been doing and that's kind of some of the changes we have been doing and you know as a percentage of the business I think we have broken out that where it was under 20% as a sort of total of the year, the profits we had this last fiscal year was getting close to the 25% of our business.
Dan Leonard - First Analysis Corporation
Okay and then I kind of missed what was the weakness in the real-time PCR?
Unidentified Company Representative
Bob I think it is a mixture, you may have missed, because I may have missed as well, I see we do 10% and relatively we are already pleased with that 10% growth.
Dan Leonard - First Analysis Corporation
It's indiscernible accelerating.
Unidentified Company Representative
What, what did you say?
Dan Leonard - First Analysis Corporation
Sorry it has been decelerating so it is fine, so 10% growth that is prior quarter there has been a deceleration in that, is there any areas of weakness in that, has it been instrumentation that has been weaker for you or?
Unidentified Company Representative
But it is also getting a bigger proportion you got to keep in mind with that, it always took of our biggest categories, so just about mathematical nature of it, you know as it gets off to the time of the business it is, you know that does become mathematical part of the equation. So you are going to see a little bit of that in there you know there is a mixture of product lines in that, there is implied and the forensic are in there, you know I commented on some of the real-time PCR instrument side and you know that's not a new message on where we have been commenting and we see the shift is more the, I have focuses to go after the consumables with a part of that attachment to the system, rather than we are just selling the instruments, we are getting the complete system in their and that's part of the focus there.
You know also the questions have been about Ambion. Two years from the integration, those if the gross driver for that portfolio, I would have been very pleased with the way we have taken these products and it continues to grow in strong double digits and it is part of that portfolio so that's all in there continuing to drive, we feel good about the category.
Dan Leonard - First Analysis Corporation
Okay thank you for taking my questions..
Operator
And the next question comes from the line of Jonathan Groberg. You may proceed.
Jonathan Groberg - Merrill Lynch
Thanks for taking my question, hi, good morning. I have just three questions, first congratulations on all the improvements you are making on SOLiD and I just want to understand Mark if there was any improvement in speeding up the process of recognizing revenues and I assume some of your that will... your main competitor recognized revenue and shipment and you guys are a bit longer in recognizing those revenues.
Unidentified Company Representative
Yes. Jonathan so may be firstly I just send poly [ph] thing as a company we have more conservative nature on some of our claims and some of our competitors so we tend to do that the same without customers, that we've hedged, we've given them a chance to install the system, run acceptance test with them and recognize revenue. What's certainly shortening is the time from getting the system, installing the system. I also commented well they're getting twice as much capacity out of each run, they're also dramatically reduced the run times, just the time to run those acceptant tests comes down. In sort of the period I do expect this revenue recognition will come down, and as you look out, we will go through more and more revenue recognition process, but our focus is making sure the customers are happy with this technology, is complicated for them to get up on running and get used to this amount of data coming out of a system. As they got to cope with all the bioinformatics pipeline, and that all needs validating and we're helping them get set ups so they can be produced them.
Jonathan Groberg - Merrill Lynch
So you given them some targets in the past. You made some improvement but kind of where are you if you give exact days or how long if they
Unidentified Company Representative
Who said before... initially we said three months right, I don't know that we've gone out with any change to that but I know its shorter than that now, just don't know how much shorter do you.
Jonathan Groberg - Merrill Lynch
No. We are still guiding the targets that we are giving was we are recognize in revenue from shipments made in the prior quarter and we still didn't have a good way to think about it.
Unidentified Company Representative
The another way to look at is we have got some customers who in about one and then some are buying their 5th to 6th so there is very different scenario there to so we just haven't looked at what that average is and maybe we should and give you guys an update on it but for our internal purposes we use just like about a quarter and that's probably conservative now.
Jonathan Groberg - Merrill Lynch
Okay thanks. Next question had to do with I take the flipside of the gross margin argument if you can maybe just explain given this quarter it looks like you had a more favorable product mix from even the second quarter in terms of instruments versus consumables having more consumable sales and yet gross margins were down from your 58 to obviously high but maybe you can describe what caused the gross margins to go down as much as they did between quarters? What makes you think of SOLiD?
Unidentified Company Representative
Yes we commented actually on Q2 that there was some special factors that pushed it off in Q2 so I think look back on the Q2 comments made. Also in Q3 after them align it's the first time we have annualized the major step up, we commented about the enzyme improvement so that's in the Q3 part. As regard mix it's exactly as Tony, the number of moving parts in that mix is not just consumables instruments, we have also always said our instruments are about the same margins as consumables but mass speck mix has a change so there's a number of different things that move around as we go forward here.
Unidentified Company Representative
Well I think the first thing Mark said more important is the last quarter was probably out of sight.
Jonathan Groberg - Merrill Lynch
And then last question a lot of people have been asking about the real time PCR but it was the area that was striving a lot of growth and despite sequentially easier comps over 2007, that rate has been decelerating so may be you could just, you have talked a lot about of it may can you decouple within real time PCR, what instruments grew out versus consumables.
Unidentified Company Representative
Well, I guess the way you have got to think about it is Jonathan, what's going to drive the growth going forward, so in my comments I talked about the product pipe line in real time PCR is very productive, you see a series of new products coming out but are going to drive that forward and that's in there, you have got the applied markets growing forensic, you got new book-kits coming in, you got pharmaceutical manufacturing, so that's going to continue to drive growth coming forward and then we talked about the BioTrove and the introduction of new form factors, systems that will take our assays drive that growth out into new markets and that may turn to be genotyping space. So when you think about going forward, you have got to think about what historically we have done in that category, which is take that category a lot of people try to simply to simple, tat numbers, a lot of things in that category now, but we have added in that adds to the port folio products of the driving growth. So you can continue to think about it as a growth category, continue to think as growth coming from that area.
Jonathan Groberg - Merrill Lynch
Because there has been any change may then just discuss some from a different angles, from a competitive stand point, some competitors have talked about still high growth rates in real time PCR, so do feel like loosing share at all that in that business over the last couple of quarters or.
Unidentified Company Representative
Not want to look at size they are talking about you guys talked about deceleration in terms of percentage, it on a comparable basis, I think some of those concerns might go well I think.
Yes we see the same competitive intensity that we are seeing, I remember talking about it might be a couple of quarters ago may be in a year ago real time areas competitive, it is competitive, it's being competitive, competitive has introduced new platforms, we introduced new platforms, new features and new systems that no change in that in from our point of view and there is no change in our market share from that point of view.
Jonathan Groberg - Merrill Lynch
Okay, thanks.
Operator
And your next question comes from the line of Derik De Bruin from UBS. You may proceed.
Derik De Bruin - UBS
Hi, you have actually forgotten me Tony.
Unidentified Company Representative
We fractionally do that.
Tony White - Chairman and Chief Executive Officer
Is Mike as we may like to, but I wake up this morning I thought will I get to talk to there?
Derik De Bruin - UBS
I'm sure you did. Since you're going to hate for I'm going to ask next. Two questions, on the new version SOLiD 6x for run time I guess or I should dig in less run time. Could you quantify how much less run time and at the change of sample because you quantify the changes in sample that versus just actual weighing instruments?
Tony White - Chairman and Chief Executive Officer
I am pretty sure I can't even begin to answer that but I bet Mark can.
Mark Stevenson - President and Chief Operating Officer
Firstly to the run time, its spends a little bit what your running as you know Derik we're getting into the details of make pairs or not. And typically looking at a time around five to six days, which is about half the time we were doing before. And on the sample prep it's improvement in the protocols and the robustness of those protocols some of the ease of use is number of... for the more detailed steps in that but have change part of the development we've made in just in fact the customers to increase to improve the steps, to go on informing the beads and high yield prepare their samples. So that's what improved.
Derik De Bruin - UBS
But the actual cycle time of the instrument hasn't really changed?
Mark Stevenson - President and Chief Operating Officer
But the cycle time is running and imaging has improved.
Derik De Bruin - UBS
It has. Okay, alright. So I may want to comeback to the PCR question and you have discontinued the microarray business I guess. Did that have any impact on the Applied Genomic sections, net whole business segment and also, Real-Time PCR, it uses a follow up for a lot of microarray expressions, microarray hit Gene Expressions determined, could you comment potentially that how that market is looking, given that, after metrics sounds like that it had hits recently and then I have a follow up to that.
Mark Stevenson - President and Chief Operating Officer
So yeah, firstly on the Gene expression array that was a very minor impact we noted in the business in that way, and just supported our customers transition that about business. With regard to the follow up studies on the micro RNA, we still see that tackling these to gold standard if people want to check that the time script is really there, and to try to go on and quantitate that work. So we continue to see that, work go on and that continues to be a driver of follow on studies, broadly what we are seeing is the drivers be more functional studies where you might, that just be following up the array but perhaps looking at the gene regulation using RNA melt down and then follow up that experiment with the Gene Expression time as well. So that's kind of way we're seeing, some of the work going on and then obviously you get sets of targets and put them into the screening experiments and run that through which is obviously where we are targeting as we look at expanded densities and we look at options to take what has been very successful for as our micro fluidic card into different formats or content.
Derik De Bruin - UBS
And speaking of the micro fluidic card, in addition to bio attributors and other platforms out there that are starting to come in here and in the validation part and certainly you have got to do the launching the bid express platforms for doing a lot of their things. Is...are you seeing any hit your reagent sales in PCR from some of these applications which are coming in?
Mark Stevenson - President and Chief Operating Officer
No, I mean that ... we got to separate up the Gene Expression part. So the Gene Expression we're continuously seeing...
Derik De Bruin - UBS
This actually I've been hearing.
Mark Stevenson - President and Chief Operating Officer
And focus on that. In the genotyping space, using TaqMan for genotyping that's where we see the expansion opportunities for growth... to go back in to take the space in between what would be the high density array, that will all be done by sequencing, of course sequencing comes into that as a higher density form or you can think of find a way of doing the gene type of experiment. And so that's how we think about and see the market.
Its also different types of customers since you have a better markets, some of these are big centers and more the genotype in projects with the decentralized things your tax tends to be smaller groups during follow up studies typically where we ...do you see just much more raw expense.
Derik De Bruin - UBS
Okay. And then one final question. Can ... are we expecting any thing, are you expecting to have new products at the SMS?
Laura Lauman - Division President, Proteomics and Small Molecule Division
Derik, you're making me smile. Well, I guess that late assignment is for always working on, my answer here will always work down new software, new applications and new hardware and we are going to continue to do that in first vehicle future.
Mark Stevenson - President and Chief Operating Officer
But it is our policy not to comment on new product launches until we have to launch them in the aspect area.
Laura Lauman - Division President, Proteomics and Small Molecule Division
That's true, Derik we typically don't reintroduce new product.
Unidentified Company Representative
That was a good try, Derik.
Derik De Bruin - UBS
I'm just doing my job. Alright. Thank you. I'll hang around for the next round.
Peter Dworkin - Vice President, Investor Relations
Thank you, Derik. Now we are going to move on to the second half of our call today.
Unidentified Company Representative
No questions.
Peter Dworkin - Vice President, Investor Relations
Yes, it is. And in the second half of the call, Tony White will make introductory remarks about Celera, and then Celera President Kathy Ordoñez will review the Celera business.
Also on the call today for the Q&A portion are other Celera and Berkeley Heart executives as well as David Speechly, Senior Director for IR, for Celera. For those who may have just joined us this morning, please note that during this call we will be making forward-looking statements about the Company's businesses. These statements are subject to the risks and uncertainties relating to our businesses and corporate structure that are referred to in the releases issued this morning and in Applera's filings with the SEC. We also will be discussing historical and forward-looking non-GAAP financial measures for Celera.
These non-GAAP financial measures are not in accordance with or an alternative for,
GAAP and may be different from non-GAAP financial measures used by other companies. A reconciliation of GAAP and non-GAAP financials for Celera can be found in today's press release and on the Financial Reports page of the Investor Relations section of the Celera website at www.celera.com.
Tony White - Chairman and Chief Executive Officer
Thank you, Peter, and good morning everyone. I'm encouraged with the continued progress at Celera this quarter as the management team has made substantial progress on the integration of Berkeley HeartLabs, or BHL, and Atria Genetics. The commercial and organizational focus that has been implemented over recent quarters has starting to gain traction, resulting in a business with a stronger financial profile.
With a strong balance sheet, Celera is in a good position to exploit the growth opportunities in molecular diagnostics and personalized disease management. The business is still expected to be profitable on a non-GAAP basis for the year, and as planned, we filed a registration statement with the Securities and Exchange Commission this last quarter in an effort to complete the separation of the Celera and Applied
Biosystems businesses by the end of the current fiscal year.
I'll now hand it over to Kathy who will discuss Celera in more detail.
Kathy Ordoñez - Senior Vice President, Applera and President
Thank you Tony and good morning everyone. This was another productive period for us across all parts of our business. Our recent acquisitions of BHL and Atria Genetics continued to contribute both financially and strategically this quarter, while sales in our alliance with Abbott grew. We also made substantial progress in our cardiovascular programs, particularly around the development of our KIF6 assay, which are expected to contribute to the future of our business.
As described in our registration statement, we now have three categories of revenue: revenues from services, consisting primarily of sales by BHL, revenues from product sales, which include equalization payments from our alliance with Abbott Laboratories; and, lastly, the revenues from licensing and collaboration activities.
I'll start by describing our service business, which contributed $22.6 million of revenues during the third quarter of fiscal 2008, representing more than half of Celera's total revenue for the period. There are two key components to our strategy for growth within the BHL business: first to increase the number of patients and physicians participating in the Berkeley program, and second, to expand the menu of tests performed at BHL.
During the quarter, we continued to add resources in the field at BHL and expanded our presence and focus on selected market areas as we seek to identify more physicians and patients to participate in the Berkeley program, We have completed the training of most of our new hires and rolled out new tools to support the sales effort.
Most of the field positions that we had planned for a few months ago have since been filled. In January, we opened an important 4myHeart Center in Englewood, New Jersey and currently have 18 4myHeart centers operational, supported by additional clinical educators who are mobile or supporting patients by phone. We are now seeing an uptake in sample volume in the laboratory as a result of these efforts.
Our second strategy for BHL's growth entails adding relevant new tests to the menu.
Following the publication of 3 papers on Celera's findings around KIF6 in the Journal of the American College of Cardiology in January, BHL completed the development and validation of a laboratory service assay for KIF6 status in the middle of March, and began offering the test to a select group of physicians participating in a trial market. Uptake of the KIF6 assay to date has been strong, and thus far appears to be outperforming previously successful trial markets conducted by BHL for Apo E, NT-proBNP, and Lp-PLA 2 tests at the same stage of trial marketing.
The test market is expected to refine pricing and positioning for the KIF6 assay and also determine how the test will be reimbursed by major payors. The trial market activities for KIF6 are targeted to be completed by the end of the current quarter, in anticipation of a full scale launch of the KIF6 testing service at BHL over the summer.
As a reminder, KIF6 is a novel gene variant that conveys up to 55% increased risk for coronary events versus people who do not have the risk form of the gene. This incremental genetic risk for coronary heart disease has been shown to be essentially mitigated by statin therapy. KIF6 is the most advanced of a number of new tests that are in various stages of development at Celera and have the potential to expand the menu of tests offered by BHL. Another example was reflected in the publication of a paper in the Journa in March based on our collaboration with scientists at the University of Leiden in The Netherlands that identified several novel gene variants that are each associated with approximately 50 percent increased risk of deep vein thrombosis. Other findings of our research could lead to potential tests that identify people who benefit from aspirin therapy and others that identify those people at elevated risk for stroke and early MI, or early heart attack. All of these complement the BHL vision for personalized disease management. Celera's pipeline of diagnostic discoveries and their application in personalizing disease management was integral to our thinking in making the acquisition of BHL.
I'll turn now to the performance of our diagnostic, or IVD, product sales category that includes equalization payments from Abbott. This category also consists of Celera's portion of sales of Atria human leukocyte antigen, or HLA, products and shipments of Celera-manufactured products to Abbott, at cost. Product sales in this category grew by 44% in this last quarter to $9.1 million from $6.3 million in the prior year quarter. Total end-user alliance sales was $30.8 million compared to $24.3 million in the prior year quarter, and the equalization payment from Abbott in this last quarter was $4 million compared to $3.7 million in the same period a year ago. Increased volume of HIV, HCV and HBV Real Time viral load assays used on the m 2000system and thrombosis ASRs all contributed to the year-over-year growth. These increased sales were partially offset by lower sales of cystic fibrosis reagents and the removal of HCV genotyping ASRs in the U.S. and a CE marked product in Europe due to an injunction against sales of these products by Abbott previously issued in litigation with Innogenetics. As described in today's press release, Abbott and Innogenetics settled this litigation this month, and these products have already been... reintroduced onto the menu of products offered through the alliance. Efforts are also underway to register the HCV genotyping assays for use on the m 2000 system.
We were pleased with the sustained penetration of the m 2000 system in its existing markets in this last quarter, as the system continues to contribute substantially to the growth of alliance end-user sales. Last week, on its first quarter 2008 earnings conference call, Abbott reported that the m 2000 Real Time PCR system continues to gain share worldwide, with more than 450 instrument placements at over 300 customers. There were other advancements for new products and development that our part of our alliance with Abbott. First, the Chlamydia and gonorrhea assays that run on the m 2000 system are under review with the FDA. These tests, which are already marketed in Europe, are expected to achieve FDA clearance and commercialization in the U.S. over the summer. Secondly, the alliance has developed an m2000 assay for human papillomavirus, or HPV. We have been working on this project for several years and anticipate this new test could be approved for launch in Europe during the first half of calendar 2009. A third development is in the HLA product line within the recently acquired Atria portfolio. During the quarter, we were awarded a bone marrow registry tender by the French National Blood Service for high resolution HLA typing using Celera's HLA sequencing based testing products. The term of the award is for three years and is effective immediately. It is anticipated that approximately 45,000 individuals will be tested over the coming the years, with each one tested over multiple loci representing approximately for 200,000 HLA tests performed on these repository samples.
Separately, data on a new chimerism [ph] HLA product that assesses engraftment success was presented at the European Federation for Immunogentics in [Technical Difficulty] France. This new product may have utility with both bone marrow and SOLiD organ transplants, and since the test is expected to be performed multiple times on a transplant patient, we believe it could add substantially to the Atria business.
In the third category of revenues from royalties, licensing and milestones, revenues were $7.8 million in the third quarter of fiscal 2008 compared to $3.5 million in the prior year quarter with the increase due primarily to higher licensing and royalty revenues. In April we licensed up to ten cancer targets to Merck for the development of RNAi-based therapeutics and continue to make progress in previously announced pharmacogenomic collaborations with Ipsen and Merck.
Lastly, we have now completed the rebalancing of our R&D resources and other activities in line with our current business activities. This resulted in a charge of $2.2 million in the quarter.
In closing, we're pleased with the developments and growth across all parts of our business. We're encouraged by the integration to date of BHL and Atria into Celera and with the consequent expansion of revenues from these sources, as well as the growth of
our IVD product business. We anticipate the expansion of the service menu through the broad commercial launch of KIF6 testing over the summer, and this test is likely to contribute visibly to service revenues in our next fiscal year.
With a balanced portfolio of revenues across products and services, we see opportunity for further improvement as we manage our pipeline of products in development more strategically and inject further discipline into our operations. Based on the performance
this quarter, and thus far year-to-date, we're tracking toward our stated goal of profitability on a non-GAAP basis for the fiscal year. We're also working diligently to prepare for the planned separation from Applera by the end of June.
Now, Dennis Winger will make a few comments regarding the financial results for Celera and our financial outlook for fiscal 2008.
Dennis Winger - Senior Vice President
Thank you, Kathy. In the third quarter of fiscal 2008, Celera reported a net loss of $7.4 million, or $0.09 per share, due to factors outlined in today's press release, compared to a net loss of $4.5 million, or $0.06 per share, for the third quarter of fiscal 2007. Reported revenues for the third quarter of fiscal 2008 were $39.5 million, compared to $9.8 million for the third quarter of fiscal 2007. Excluding revenues that were derived from services and products related to the BHL and Atria acquisitions, Celera's reported revenues for the third quarter of fiscal 2008 increased $4.9 million compared with the prior year quarter. The increase was primarily related to higher licensing and royalty revenues and a slightly higher equalization payment from Abbott. In the recent quarter, R&D expenses decreased by $2.8 million compared to the same quarter last year, primarily due to reduced spending in proteomics discovery efforts. SG&A expenses increased by $14.2 million in this last quarter compared to the prior year quarter, primarily reflecting expenditures relating to BHL service revenues.
Celera ended the recent quarter with cash and short-term investments of approximately $338 million, down about $4 million in the quarter.
The guidance that we can provide for Celera for the remainder of fiscal 2008 is as follows: Total reported revenues are anticipated to be $135 - $140 million range. Reported R&D expenses are anticipated to be between $40 - $50 million, and SG&A expenses are anticipated to be between $70 to $75 million. Celera anticipates that it will be profitable on a non-GAAP basis for fiscal 2008,
although non-GAAP earnings may be near break-even for the fourth quarter, which is expected to include, among other things, ongoing integration expenses from the Berkeley HeartLab and Atria Genetics acquisitions and internal costs incurred in preparation becoming an independent public company. The reconciliation of GAAP and non-GAAP financials can be found in today's press release as well as on the Financial Reports page of the Investor Relations section of our website, www.celera.com.
Amortization of intangibles relating to acquisitions, which are excluded in the determination of non-GAAP earnings per share, are expected to be approximately $0.06 per share for the fiscal year. The total pre-tax impact of FAS 123R in fiscal 2008 is expected to be approximately $6.5 million, with an EPS impact of approximately $0.05. Celera currently anticipates it will end the fiscal year with $330 - $340 million in cash and short-term investments, due in part to payments to the alliance with Abbott for the settlement charge associated with the Innogenetics litigation and working capital requirements. The Group believes this outlook and its financial performance could be affected by a number of factors and other risks and uncertainties outlined in today's press release and in our filings with the SEC. These comments reflect management's current outlook. Applera does not have any current intention to update this outlook and plans to revisit the outlook for its businesses only once each quarter when financial results are announced.
We will now be happy to take your questions regarding Celera.
Question And Answer
Operator
[Operator Instructions] And our first question comes from the line of Sarah Michael [ph] from Cowen. You may proceed.
Unidentified Analyst
Thank you, I was wondering Kathy, can you just remind us how bigger product the in genetic compared to the HCP genotype in product was prior to that, didn't take in of the market, is it really material amount of profiting revenue when it gets to you guys and just a clarification on Dennis' comments, how does the... your portion of the inogenic [ph] settlement payment works through the PNI, I assume that there is a reduction in the amount of equalization payments for us, if you can just take us through mechanics of that and what the assumed in guidance that you mentioned, thanks.
Kathy Ordoñez - Senior Vice President, Applera and President
Sure Sera, and Good morning. First of all your question about HCB gene, as you know we don't break out our sales by product but as we've said before this products is not a significantly ...was not at its peak, a significant contributor to alliance sales financially but strategically we consider to be very important because it is a to our knowledge the only real time approach to HCB genotyping and while most of the testing today is performed on the AB 7000 or 7500 system, a version of the test has been developed for the end 2000 and we think that strategically will be very important going forward.
I'll let Joe answer the second question.
Unidentified Company Representative
Yes Sarah, the actual settlement with Innogenetics between Abbott and Innogenetics is actually accounted for separately from the equalization payment. So it really doesn't have an impact on equalization and those cost a portion of that was taken in prior periods and the remainder is taken in this quarter and is reflected in the adjustments to the non-GAAP numbers.
Unidentified Analyst
Okay and if you could just talk second about growth margin dynamics in the quarter, the cost of it did come in a little bit higher than what we had modeled if you could just talk about if there is anything unique in this quarter or such sort of the ebb and flow of the costs, thanks.
Unidentified Company Representative
We're not sure what you must notice that we can't reconcile that but the costs of goods are sort of consistent well it where we thought they would be.
Unidentified Analyst
Okay and it was sequentially lower than last quarter though, was there any
Unidentified Company Representative
It fluctuates based upon shipments et cetera. I don't think you comparison quarter risks quarter is fairly meaningful in the business, to be honest with you.
Unidentified Analyst
I don't think it's made for any material would been why there would be a shift. Can you --
Unidentified Company Representative
No it's impacted by shipments to Abbott it cost, obviously has an impact on that that the impact of the service business in this quarter would certainly have impacts on that. So again we don't really can really reconcile what you've modeled. But was it inline with our expectations.
Unidentified Analyst
Okay thank you.
Operator
And then next question comes from the line of Derik De Bruin. You may proceed.
Derik De Bruin - UBS
Hi guys, you had a lot of income call as I might had miss something but the reason for the modest week down in the revenue forecast, what is the biggest distributor in that?
Catherine M. Burzik - President and Chief Operating Officer
Derik this is Cathy as you noted that we have narrowed on our guidance for revenue, and as your pointing out that narrowing is to the lower end of the revenues that we had projected earlier, and that's just our actually our realization of where we are. You have to note that the business is growing very-very rapidly and projecting exactly where it's going to hit is difficult. But the business is tracking our expectations and there is nothing specific to say.
Derik De Bruin - UBS
Okay I guess when you start looking out at all the thing you have in pipeline, and the growth opportunity there, once you get the spin done are you planning any sort of analyst meeting basically give us some more focus for the company and what are you
Unidentified Company Representative
Sure, we have been talking about that, our current thinking is that we will schedule and analyst day shortly after the spin potentially right after Labor Day.
Derik De Bruin - UBS
I mean given that... looking at the periphery heart business and everything how is that potentially impacted at all by some of the consumer spending concerns that are going on I mean is it more of if you look hence doing public an adversities is have there been history of people going West to do that type of services in the past?
Unidentified Company Representative
I don't think so but I think I will ask Chris Hall [ph] to comment on that.
Unidentified Company Representative
This is something we dynamic we haven't seen traditionally there is been a couple of things that have underlined the business one is then that we are dealing secondary prevention heart disease patients so these are patients that have known disease, they have known issues and their doctors pushing them into the program and I think that dynamic insulates us a little bit from the consumer spending because I have and we have seen that traditionally because the doctors driving it in the context of disease just progressing. The second piece of the business is that most of these patients pay minimal or very little out of pocket. Medicare is covering most of or covering everything that we are doing at the patients of the secondary prevention patients we are increasingly getting into networks and the PPL patients are paying some $100 because of strong reimbursement across the board so I think with a relatively small out of pocket combined with the doctor pushing in it and it is these environments we haven't seen it and we are not really expecting to see that occur over the next few quarters.
Derik De Bruin - UBS
Great and Kathy there have been some concern about the ramp of the M2000 in the U.S. relative to the Europe. I mean how has that changed? Are you still seeing do you seeing better pick up now in United States?
Unidentified Company Representative
Abbott continues to do a great job in Europe Derik, the uptake of the M2000 in the United States particularly among the large customers has not been a strong as we would have liked to see.
Derik De Bruin - UBS
When you look at where your customers are in the same and what type of centers what type of places are buying the products?
Unidentified Company Representative
Well its all types of customers, there are hospitals and reference laboratories both are contributing to the growth here but we haven't penetrated the very large customers as affectively here in the United States as we would like to as I said before. On the other hand in Europe the spectrum of customers is all sizes; small, medium large. And so as we said today we are pleased with the performance of the M2000 the 450 placements is a very solid performance these customers on average continue to generate well over a $100,000 in revenue per year for us and so is this very important part of our portfolio.
Derik De Bruin - UBS
Okay thank you.
Operator
And the next question comes from the line of Bruce Cranna from LeerinkSwann. You may proceed.
Bruce Cranna - LeerinkSwann
Thanks good morning everyone. Kathy not so I don't want to press it too hard on this but I... the change in the top end of the guidance... is it fair to say you are little more conservative because of U.S. placement trends with M2000 or cystic fibrosis, you know may be even a little more than you thought previously?
Kathy Ordoñez - Senior Vice President, Applera and President
Well actually what we have done is just narrow the guidance. We have done this every year, actually where we start with a wider range and when we get to the fourth quarter we narrow it and in this particular case we narrowed it to the lower ends of the guidance that we had put out there previously but that's just reflecting how we think we are going to end the year.
Bruce Cranna - LeerinkSwann
Okay so you wouldn't point necessarily at one of the other of those two things or maybe something else is being a little more disappointing in your portfolio?
Unidentified Company Representative
We just got three quarters of actuals down.
Bruce Cranna - LeerinkSwann
I understand but so...
Unidentified Company Representative
So more accurate.
Kathy Ordoñez - Senior Vice President, Applera and President
But it is also what I said before, just to be clear about this, the revenue growth at Celera has been very, very strong and when you have a business with this much dynamic in it projecting exactly how you're going to come out 12 months in advanced or nine month in advanced is very difficult. If you look at the growth in our IBD business and the overall business it's great and we have just narrowed the guidance as I have done in previous years.
Bruce Cranna - LeerinkSwann
Okay. And I guess in terms of KIF6 at Berkeley and the test marketing can you give us some senses I assume this is really I guess the pure expense for you at this point or can you actually generate some reimbursement from a sort of another code at this point or I guess I am getting a this kind of same thing as a prior question, it is a sort of a gross margin hit as you will KIF6 at Berkeley?
Unidentified Company Representative
I don't think so actually, what were earlier enough in the test market that we haven't got in a lot reimbursed testing, yes. But our expectation is that this is going to be reimbursed depending on whether it's private or Medicare somewhere between $80 and perhaps a $100 plus and that's a good reimbursement level for a service test. I'll ask
Chris Hall [ph] to comment briefly on the uptake of KIF6 at Berkeley.
Unidentified Company Representative
We went and began to talk to a small subset of our clients about the test and all we have seen is a part of that is been a couple of dynamics one is been they have adopted it and we further along now in this launch because of how positively the message about KIF6 and integrating KIF6 under the disease was received then we have under the test that we have gone through this process with.
The second piece of this the reception from the sales force is been high and we've got a lot of feed back from physicians that have heard about it, wanting to know wanting to know where we are in this whole market launch. So we've got in this quarter really positive feedback about the test and how its been conditioned. As Kathy said the other things and we are working on rest of this quarter is reimbursement in confirming where we are and been able to set pricing and the second piece is confirming clinically utility and how its being used use in the test market.
Bruce Cranna - LeerinkSwann
Into that, that ASP or that reimbursement you are thinking about it, have you guys tampered that a little bit, or assume to remember we are kicking on to number last quarter.
Kathy Ordoñez - Senior Vice President, Applera and President
Now its consistent with what we said in the past, we've talked about the list price for this test to be slightly under $500 and that's consistent with other similar testing services and its very typical that the reimbursement is has that amount of differential versus the list price of the test.
Bruce Cranna - LeerinkSwann
Okay, and then I guess last thing just the restructuring cost you booked related to BHL on the quarter or I guess that's my question is related to BHL on the quarter or were they somewhere else in the business?
Unidentified Company Representative
No the restructuring cost were not at BHL, there were some integration cost that we, the ongoing integration cost in the quarter, but the restructuring or the non GAAP adjustments for the quarter were actually on the IVD side of the business and cost related to external cost of preparing the company for this split from Applera.
Kathy Ordoñez - Senior Vice President, Applera and President
and also in proteomics, we basically as we said a few months ago have we focused on R&D effort around our current strategy with a heavy emphasis in the cardiovascular space now and have curtailed activities that are not supportive of this strategies that we outlined here today.
Bruce Cranna - LeerinkSwann
Okay and then, Kathy, can you, I know this is tough, but can you give any sense as to when in France with HLA, can you size that for us at all?
Kathy Ordoñez - Senior Vice President, Applera and President
Well, as you know we don't break out of sales by product, but I can say that its million of dollars but not 10's of millions of dollars.
Bruce Cranna - LeerinkSwann
Over the duration of the contract?
Kathy Ordoñez - Senior Vice President, Applera and President
Correct.
Bruce Cranna - LeerinkSwann
Okay, thank you.
Operator
And your next question comes from the line of Peter Lawson from Thomas Weisel Partners. You may proceed.
Peter Lawson - Thomas Weisel
Kathy, what was the contribution from Berkley during the quarter, I missed that?
Kathy Ordoñez - Senior Vice President, Applera and President
The revenues were $22.6 million.
Unidentified Company Representative
That's the service business segment.
Peter Lawson - Thomas Weisel
Okay, and then both business is going to be break even by the end of the year?
Unidentified Company Representative
Peter we are not... we are not going to break out the actual profitability of the businesses at this point in time, we are still evaluating this segment reporting requirements that we have as a separate stand alone company but as part of Applera we're not going to break out business segment profitability.
Peter Lawson - Thomas Weisel
Okay, that's good to hear. But break even, is that going to be just of that EBIT or less alone just non-GAAP EPS levels.
Unidentified Company Representative
Our guidance is for non-GAAP EPS.
Peter Lawson - Thomas Weisel
Okay, did they should break even EBITDA as well?
Unidentified Company Representative
We are not... Peter, the guidance is for non-GAAP EPS at this Celera level.
Peter Lawson - Thomas Weisel
Okay, and then HPZ, when is it expected for the U.S.?
Kathy Ordoñez - Senior Vice President, Applera and President
We haven't projected for the U.S. the registration process, as you probably know in Europe, its pretty straight forward for a test like this and sites are being set up in Europe etc. and we are targeting for the first part our calendar 2009 to commercialize the assay in Europe.
Peter Lawson - Thomas Weisel
And I think you will target the U.S. eventually?
Kathy Ordoñez - Senior Vice President, Applera and President
We haven't made any announcements about our plans in the United States.
Peter Lawson - Thomas Weisel
Okay and was there any shares pull back during the quarter?
Unidentified Company Representative
No, no... we are not clear, we don't have a share repurchase program going back for Celera. The share repurchase program is for Applied Biosystems only.
Peter Lawson - Thomas Weisel
Okay, so the drop in share count was not related to any purchases by you?
Unidentified Company Representative
No.
Peter Lawson - Thomas Weisel
Okay, thank you.
Operator
And the next question comes from the line of William Quirk from Piper Jaffray. You may proceed.
William Quirk - Piper Jaffrey
Thanks, good morning rather. First question, can you help us think little bit about the pay or mix at Berkley Heart Lab, I am thinking largely going to Medicare versus health care.
Kathy Ordoñez - Senior Vice President, Applera and President
Sure, it's about 50% Medicare.
William Quirk - Piper Jaffrey
50% of the Medicare?
Unidentified Company Representative
50% of the volume is Medicare. Obviously less than percentage wise is Medicare. The remaining balance is a mixture of private pay mostly out of network private reimbursement from the large insurance companies.
William Quirk - Piper Jaffrey
Understood. Thanks very much. Secondly just thinking about the HPV product thank you, by the way for the color of that Kathy. Any plans or I should have you taken a license to subtype 52 to Kaigen and if you have not do you have any plans to do so?
Unidentified Company Representative
Typically wouldn't discuss pattern issues in that much detail but as I have said previously Celera and Abbott are very confident that we have freedom to operate under all of the necessary IP to sell this product as intended.
William Quirk - Piper Jaffrey
Understood. And then lastly and then is it will be a bit of a nit picking question here but FDA is going to tighten the ASR rule in mid September of this year. Frankly it looks to us to be largely more of a logistics issue than anything else but certainly we would love to hear to comment I am not sure if there is any parts of I guess particular the added business I guess I am thinking the CFS assay in particular that, that might cause some problems?
Unidentified Company Representative
Well it could been have a problem for us with our CFS assay had we not gotten an FDA clearance on the product several months ago and so we are in the process of preparing to commercialize the FDA cleared product and intend to get to that completed within the next couple of months.
William Quirk - Piper Jaffrey
And on the Berkeley side Kathy I assume that what you are going to do is just work with your existing vendors to basically separate the individual probes
Unidentified Company Representative
The only ASRs that that I am aware of that are at the new at the HL in the April E area and my understanding is that third wave is doing what's necessary to be client.
William Quirk - Piper Jaffrey
Very good, thank you.
Operator
If there are no further question in the queue I will now turn the call over to Mr. Pevel Doctrin for closing remarks.
Peter Dworkin - Vice President, Investor Relations
Thank you all, for participating in the call today. A reminder that managements remarks will be posted within the hour on our website and the audio replay will be held at later today using the phone numbers listed in today's press releases. Thanks.
Operator
Thank you ladies and gentlemen. This will conclude the presentation for today's conference. You may now disconnect.
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