GoPro, Inc.
Q4 2005 Earnings Call Transcript
Published:
- Operator:
- Good afternoon, I would like to thank all participants for holding. All lines will be on listen-only until the Question and Answer portion of today's conference, and I would also like to inform all participants today call is being recorded. If you do have objections you may disconnect at this. Right now I would turn the call over to Mr. Michael Watts, thank you sir, you may begin.
- Michael Watts:
- Thank you Brian, and good afternoon everyone, this is Michael Watts, I am a Senior Director Of Investor Relation and Corporate Communications. I am pleased to welcome you to this conference call to discuss our Fourth Quarter 2005 Financial Result. Press release announcing our result was issued today, if you haven't seen it, its posted on our website at www.genprobe.com. In our call today, Henk Nordhoff, our CEO, will first provide an overview of our accomplishments in the fourth quarter and some of our priorities for 2006. And Herm Rosenman our CFO, will review fourth quarter financial results and 2006 guidance, we will then take your questions. Before we begin, let me first review our Safe Harbor policy. Forward-looking guidance financial or otherwise is only provided on conference calls or in our press releases. Any statements in this conference call about our expectations, beliefs, plans, objectives, assumptions or future events or performance, are not historical facts and are forward-looking statements. These statements are often but not always made by the use of words or phrases such as believe, will, expect, anticipate, estimate, intend, plan and would. For example, statements concerning 2006 financial guidance, financial conditions, regulatory approvals, and timelines, possible or assumed future results of our operations, growth opportunities, industry ranking, and plans, and objectives of management are all forward-looking statements. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, and uncertainties that may cause actual results to differ materially from those expressed or implied. Factors that might cause such differences include, but not are not limited to, those discussed in our SEC filings, including our report on Form 10-K for the year ended December 31st, 2004, and all subsequent periodic reports. Copies are available on our website at www.sec.gov and on request from our Investor Relations department. Gen-Probe assumed no obligation and expressly disclaims any duty to update any forward-looking statements to reflect events or circumstances after the day of this call or to reflect the currents of unanticipated events. With that administrative detail as a layout, I will turn the call over to Henk Nordhoff, Gen-Probe's CEO.
- Henry Nordhoff:
- Thank you Mike, and good afternoon everyone. As described in our press release our fourth quarter results caped off another strong year for Gen-Probe. We showed impressive top and bottomline growth while making important progress for advancing key short, medium and long-term growth drivers. We have a lot to cover in our prepared remarks so, let me jump right in. I planned to discussed three areas today. First, I’ll provide a high level overview of our record fourth quarter financial results. Second, I give you an update on the regulatory strategy for our near-term growth drivers in blood screening. And third, I’ll help you understand, why we are so excited about the future by highlighting some exciting work taking place on our prostate cancer and industrial initiatives. Let's begin with the fourth quarter results. Product sales were $78 million in the quarter, a new all-time high and 33% higher than last year. This extends an impressive track record of consistent organic growth of the 14 quarters since our spin off, this is the 13th time we have achieved a new sequential record in product sales. This strong growth and products sales help drive total revenues in the fourth quarter up 28% versus last year to $88 million, and earning per share up 39% to $0.32. Our fourth quarter results demonstrate that the fundamentals of both our current key business
- Herm Rosenman:
- Thank you, Hank and good afternoon everyone. As described in our press release Gen-Probe had a strong fourth quarter. Products sales grew impressively over the same period in 2004 and also increased on a sequential basis establishing another quarterly record. Total revenues also hit an all-time high and earnings per share exceeded expectations as well. Hank already covered the dynamics of product sales, but let me reiterate that blood-screening sales benefited from approximately $3.6 million of previously differed revenue. We told you to expect this revenue last quarter, but the actual amount was higher than we anticipated, a simply on the rate at which US inventory was transferred out of the Chiron Virtual Warehouse. This benefits our topline more than our bottomline however, since we record the revenue at a contractual transfer price that includes little margin. Now let me turn to collaborative research revenues, which were $6.5 million for the fourth quarter of 2005, a decrease of 18% compared to the prior year period. This decrease was expected and resulted primarily from low reimbursement from Chiron who shared blood screening development projects. Royalty and license revenues were $3.5 million in the fourth quarter, up 59% from the prior period. As anticipated, this increase resulted from BioMerieux exercising their option to pursue additional diseases targets using our patented Ribosomal RNA technologies. BioMerieux next option is in the fourth quarter of this year, which we expect to be our next opportunity for revenue recognition under this agreement. Gross margin on product sales was 66% in the fourth quarter of 2005, compared to 70% in the prior year period. The gross margin percentage was reduced by the virtual warehouse liquidation and more importantly by the sale of $2 million of TIGRIS instruments to Chiron at cost was $2.1 million of spare parts to support a growing international fleet of 40 TIGRIS instruments. These sales reflects strong global demand for the ULTRIO assay on the TIGRIS system and we expect to continue shipping TIGRIS instruments to Chiron over the balance of 2006. In fact as Hank mentioned, when we combine diagnostics and blood screening, we expect to roughly double our installed base of TIGRIS instruments in 2006. These continued shipments will somewhat diminished improvement in gross margin that we would otherwise expect based on new product approvals and increased capacity utilization. Research and Development expenses for the fourth quarter of 2005 were $18.2 million, a decrease of 2% compared to the prior year period in which we recognized $1 million expense related to our agreement with AdnaGen. R&D expenses were less than anticipated in the fourth quarter primarily because we reduced the size of our West Nile Virus development lot in response to the early approval of the assay. Marketing and sales expenses were $8.8 million in the fourth quarter of 2005, up 22% compared to the prior year period. The increase was due primarily the costs associated with the rollout of the TIGRIS instruments and the assessing new markets such as prostate cancer, HPV and others. General and Administrative expenses were $9.3 million in the fourth quarter of 2005, the increase of 19% compared to the prior year period. The increase was due primarily the increases in outside legal fees associated with our two patent infringement losses against Bayer, which we expect to move to trial in the second half of this year. All this necked out to fourth quarter fully diluted earnings per share of $0.32, an increase of 39% compared to the prior year period. For the full year earnings per share totaled $1.15, an increase of 8% over 2004. Please keep in mind however, that two non-recurring payments from Tosoh and Chiron added approximately $0.17 to 2004 earnings per share. Not let me turn to our 2006 guidance, I will first provide the numbers on a non-GAAP basis comparable to our 2005 results, then I will translate to GAAP numbers that include the effect of expensing all stock-based compensation pursuant to FAS 123R. This is the only adjustment between our non-GAAP and GAAP numbers. Reconciliation and a discussion of non-GAAP financial measures are also included in our press release. We will of course begin reporting on a FAS 123R effective GAAP basis this quarter, so I would encourage our friends in the sales side to begin adapting your models accordingly. We expect 2006 to be another year of solid top and bottomline growth for Gen-Probe. With product sales growing about 15% and non-GAAP earnings per share a little faster inline with our long-term growth objectives. We are pleased to be able to forecast these results in a year in which we expect R&D spending to increase significantly, in support of future growth drivers such as oncology and industrial testing. Like in 2005, we expect product sales growth to be driven by continued market share gains of the APTIMA Combo 2 assay, by ongoing international penetration of the PROCLEIX ULTRIO assay, and by continued global placements of the TIGRIS instrument for blood screening. For the time being, we have taken a conservative stance on sales associated with several new product introductions, such as the commercial West Nile Virus assay, the PCA3 ASR and the qualitative HIV and Hepatitis C products for clinical diagnostics. We expect these new products begin contributing revenue around midyear, which will add to product sales in the second half. For West Nile Virus, the transition to commercial revenues will be dated by which system the customer is using. The logistics of migrating customers over to the commercial test and by our recording donation related revenue two months after Chiron does. As you might imagine, Chiron is in the thick of negotiating pricing with our blood screening customers, so please understand that we wouldn't be able to comment on any West Nile pricing issues. Based on roughly 15% product sales growth, we anticipate total revenues of $325 million to $335 million including collaborative research revenues of $14 million to $15 million and royalty and license revenues of $7 million to $8 million. As Hank said, our guidance for royalty and license revenues obviously excludes the $10 million milestone associated with US approval of the ULTRIO assay on the TIGRIS system. This reflects our decision to prioritize TIGRIS West Nile Virus ahead of TIGRIS ULTRIO, and the resulting belief that approval of ULTRIO on TIGRIS is more likely in 2007 than this year. As you know this milestone represents approximately $0.11 of earnings per share, we also know however that based on the regulatory strategy, Hank described, we are likely to begin generating ULTRIO revenue on the eSAS before we earn the milestone associated with the approval on the TIGRIS. Now lets turn to the guidance for the expense lines. On a non-GAAP basis we expect gross margin on product sales to improve to 70% to 72%. These improvements in gross margin percentage will continue to be partially offset by the sale of TIGRIS instruments to Chiron and the expected doubling of our installed base this year. Just to give you a sense of the magnitude of this effect, our gross margin of 69% in 2005 was depressed by nearly 400 basis points as a result of TIGRIS sales to Chiron. These sales however, represent in part a necessary precursor to high margin sales of the ULTRIO assay. On a GAAP basis, we expect product gross margins of 68% to 70%. Consistent with comments we made in our last call, we expect R&D expenses on a non-GAAP basis to range from 23% to 24% of total revenues based primarily on the projects Hank discussed. We expect to invest heavily in R&D in 2006 as well as in 2007, because we run our business for the long-term and are excited about the opportunities we see ahead of us on oncology and industrial markets. Yet even as we invest so heavily in the future we expect to continue delivering exceptional net aftertax margins relative to our peers. On a GAAP basis, we expect R&D expenses of 26% to 27% of total revenues. We anticipate marketing and sales expenses of 9% to 10% of total revenues on a non-GAAP basis, with the absolute dollar increase driven primarily by market development activities for our PCA3 assay. On a GAAP basis, we expect marketing and sales costs of 10% to 11% of total revenues. We expect G&A expenses of 9% to 10% on a non-GAAP basis, with the absolute dollar increase driven primarily by outside legal costs associated with our two patent infringement lawsuits against Bayer. We expect to go to trail in the second half and we believe we have an excellent case. On a GAAP basis we expect G&A cost to be between 11% and 12% of total revenues. This leads to our initial 2006 earnings per share guidance of between $1.30 and $1.35 on fully diluted non-GAAP basis. This estimate is based on a weighted average share count of 53.5 million shares and a full year tax rate of about 37% on a non-GAAP basis and 36% on a GAAP basis. We expect FAS 123R to reduce non-GAAP earnings by between $0.30 and $0.35, and as a result we expect GAAP earnings per share of between $0.95 and $1.05. Please note that we are providing a range for the effective equity compensation under FAS 123R. It's difficult to precisely estimate the expense of stock options due to the uncertainty of several factors including stock price, expected volatility and forfeiture rates. Estimating volatility is both an art and a science and under the rules of FAS 123R, forfeiture estimates will now be trued up and revised to reflect actual results, in period subsequence to grant. In terms of quarterly earnings per share split for 2006, let me emphasize that the fourth quarter of 2005 benefited from two items that will not recur in the first quarter. Approximately $0.02 from the liquidation of our virtual warehouse for US blood screening inventory and another $0.02 associated with royalty income from BioMerieux. So, while we do expect some gradual growth in product sales this quarter, these gains will largely – be largely offset by a 750,000 our milestone payment we've already made to AdnaGen, the cell capture technology we are using in our oncology program and by higher 2006 salaries, ticking in across the board. At the same time we expect G&A cost to remain high as we prepare for the Bayer trail. And remember that the Federal R&D tax credit has once again lapsed, as a result our tax rate will be slightly higher until the credit has been reinstated. So to summarize the financial section of our conference call, 2005 was a record year for the Company in terms of product sales, total revenues and earnings per share. And we expect more growth in 2006, with solid topline gains and we are doing significant investments in R&D, and doubling of our worldwide TIGRIS fleet. Now I would like to turn the call back over to Mike.
- Michael Watts:
- Thanks Herm, we are very happy to take your questions now, for Q&A we are join by Larry Mimms, Executive Vice President of R&D; Bill Bowen, Vice President, and General Counsel; Glen Freiberg, Vice President for Regulatory Quality And Government Affairs; Steve Kondor, Vice President, Sales and Marketing; and Lynda Merrill, Vice President of Industrial Relationships. In order to ensure broad participation in the Q&A session, please limit your questions to one but the follow-up then, please jump back into the queue. Operator, we are ready to take the first question.
- Operator:
- Operator Instructions Our first question comes from Bill Quirk, please state your company name
- Bill Quirk:
- RBC Capital Markets. Was the risk of, incurring you are at, Herm on then I go with Chiron question. Is Chiron currently negotiating with West Nile customers presumably you have the eSAS but what about those of TIGRIS, I assume that they are talking about that?
- Henry Nordhoff:
- Bill, Herm is in rages over here. He asked me to take the question, as you know, very many of the West Nile customers have the TIGRIS instrument. So, as far as we know, Chiron is talking to all the West Nile Virus customers.
- Bill Quirk:
- Understood and so, if we think about the ultimate approval of West Nile and TIGRIS, should we be thinking about a similar delay in terms of customer notification that we are seeing right now with eSAS? Or since the negotiations are basically taking place right now, we're essentially going to be able to in essence kind of, flip to switch, and we should be able to move the commercial pricing soon after the alternative FDA approval for TIGRIS?
- Henry Nordhoff:
- That's a little complex and we alluded to that a little bit though in the commentary, there will be a delay, contractual delay when we go to commercial pricing. For those customers that are still under an IND, we will probably rely first on an increase in the cost recovery price. And in some cases, it may very well be that the increase price for cost recovery is in advance of the commercial pricing on the IVD product.
- Bill Quirk:
- So, if we think about the logistics of how pricing is going to move once we get TIGRIS approval for West Nile, we should continue to essentially assume that this delay for customer notification, I can't do what we were experiencing right now with West Nile and eSAS?
- Henry Nordhoff:
- I think that's right.
- Bill Quirk:
- Okay.
- Henry Nordhoff:
- Again, I think that's right Bill.
- Bill Quirk:
- Thanks very much guys.
- Henry Nordhoff:
- You are welcome.
- Operator:
- Your next question comes from David Lewis, please state your company name.
- David Lewis:
- Thomas Weisel Partners. Good afternoon.
- Henry Nordhoff:
- Hi David.
- David Lewis:
- Just a couple of quick ones here. I guess, first of all, you are talking a lot of interesting opportunities in 2007 but sales and marketing was little lower than we would have thought. I guess, maybe, talk us or walk us through your sales or marketing priorities, we are trying to prepare for a launch with Millipore in 2007, PCA3 is, you have started to think about potential programs there. How you are prioritizing given sales and marketing has been drop 9% to 10% of sales?
- Henry Nordhoff:
- Steve Kondor, would you reply to this one.
- Steve Kondor:
- Yes thank you. David, PCA3 is very important for our future success in oncology and we are prioritizing our efforts accordingly. CTGC our APTIMA business remains solid and PCA3 is important for our future success.
- David Lewis:
- Is it a safe assumption that to make no pro-relationship also would like a PCA3 to what we would like for broader commercialization of '07, the rate of spending has to be increased in 2007 versus '06?
- Henry Nordhoff:
- I will let Lynda to answer the similar portion of the question.
- Steve Kondor:
- On the PCA3, for sure, is going to increase this year, a lot of that will be in publicizing some trails that we have and I will pass to Lynda the Millipore.
- Lynda Merrill:
- With Millipore being our marketing partner, I don't believe we will see a tremendous increase in Gen-Probe's marketing expense for that.
- Steve Kondor:
- A lot of the work this year will be, I guess, what we call now an alpha test. We have the specs, putting the specs into our products and then sending that products when probably it’s about half finished according to the way we normally do things. To make sure that we get the early customer input to incorporate that back but the sales and marketing again, that the vast majority of that all will be done by our partner Millipore.
- David Lewis:
- Okay then, Herm for last question. On PACE degradation, can you focus here in terms of some of your larger customers are beginning to upgrade with new equipment with other competitors, is there a reason to believe that, because of that relative shift we should we should see more PACE degradation in '06 than we saw in 2005?
- Herm Rosenman:
- Right now.
- Henry Nordhoff:
- Steve, are you in a better position to answer that one?
- Steve Kondor:
- Excuse me.
- Henry Nordhoff:
- Are you in a better position to answer that question?
- Steve Kondor:
- I did not hear the question.
- Henry Nordhoff:
- Whether we are going to see a greater decline in PACE sales this year compared to last year?
- Steve Kondor:
- We expect to see a decline of approximately the same amount, our conversion rate is going to be about 60%. And we, our customers continue to request the amplified assay.
- Henry Nordhoff:
- As you can you probably tell, Steve is at our Annual International Sales Meeting, he is not in the same place that we are.
- David Lewis:
- Okay, thank you very much.
- Henry Nordhoff:
- David, just to give you the numbers, PACE I believe, for the full year was down about 13% this year, it’s down, fourth quarter of about 16%, we will expect somewhere in that range next year as well for '06 revenue.
- David Lewis:
- Okay, that's actually very helpful.
- Operator:
- Our next question comes from Bruce Cranna, please state your company name.
- Bruce Cranna:
- Hi good afternoon, it Leerink Swann. Guys, can you remind us, and maybe this is the question for Herm not sure about it, at the back during the beginning of the trials for ULTRIO, a similar call in the percentage of the US blood screening new business was being done on TIGRIS, was somewhere around 10%, is that still a good number?
- Herm Rosenman:
- You are talking about, I think, we started trials for ULTRIO
- Bruce Cranna:
- No, the initial problems with ULTRIO and FDA
- Herm Rosenman:
- I don't know, that we ever gave a percentage.
- Bruce Cranna:
- Okay, well I am fishing for that, can you give us some sense as to how that volumes breaks out in US?
- Herm Rosenman:
- Yeah, Mike you wanted to have the…?
- Michael Watts:
- Yeah, firstly, the percentage has increased, and we have alluded to that in the script, our best estimates from our friends at Chiron is around about third of the testing today, for West Nile, is being done at TIGRIS and we were frankly pretty encouraged by that.
- Bruce Cranna:
- Okay.
- Herm Rosenman:
- And here is a clarifying comment by Glen Freiberg who is our Regulatory Affairs, VP.
- Glen Freiberg:
- I understood the question to be a percentage of ULTRIO and TIGRIS? Is that correct?
- Bruce Cranna:
- No, I was trying to, I was purposing my question by, initially I think, when there were issues with ULTRIOs filing. That's where this question come up initially, how much of you’re the US blood business was being done, screening was being done on TIGRIS versus eSAS, I think to recall it was 10%?
- Glen Freiberg:
- No, there was nothing being done at that time, I think, maybe we were referring the kind of the long lead time for ULTRIO, TIGRIS and the fact that, we initially, we expect a lot of ULTRIO testing to be performed on eSAS.
- Bruce Cranna:
- So about a third of the numbers about a third today on TIGRIS?
- Glen Freiberg:
- Well for West Nile Virus. Yes.
- Bruce Cranna:
- Okay, did you guys, did you have any shipments, clinical shipments of TIGRIS in the quarter, on the clinical side?
- Glen Freiberg:
- We did, Bruce, as you know, we don't do the numbers on the number of TIGRIS instruments, we had in clinical shipments.
- Bruce Cranna:
- Okay, that's sort of the, and then last question on PCA3. Can you perhaps, maybe some one give us a sense as to, what kind of the enrolment numbers that you might be looking to put together in '06? And when, I guess, it’s kind of early but when we might see some data and how many live partners you might have putting that together? Thank you.
- Henry Nordhoff:
- I will ask Larry to comment as much as he can because a lot of this is really in discussion right now.
- Larry Mimms:
- Our number of pre-clinical studies ongoing with some of the key researches around the country including research in UCLA, University of Washington, John Hopkins and The Anderson so those pre-clinical studies are ongoing. We are in the process of designing the clinical trials, so I can't really give you in, we obviously need some guidance here and in some further discussions with the FDA but, we are in – we do have a number of pre-clinical studies ongoing.
- Bruce Cranna:
- It is such as no kind of rough idea is to, what that might to be number of patients?
- Larry Mimms:
- I can't give you that number right now.
- Bruce Cranna:
- Okay.
- Larry Mimms:
- It really will depend on the claims that we decide to go after. So I’d like to differ that for another quarter.
- Bruce Cranna:
- Fair enough, thank you.
- Henry Nordhoff:
- Thank you Bruce.
- Operator:
- Our next question comes from Quentin Lai, please state your company name.
- Quentin Lai:
- Robert W. Baird. Again going back to the PCA3 question, you’ve mentioned that the new marker that you just acquired along with AMACR and then PCA3 showed initial results of very good detection, does that change at all the pace of how you are going through the ASR to FDA approval cycle for either one or three probes?
- Henry Nordhoff:
- Initially that we are going to go on a generational approach, Quentin, the first will PCA3 alone standalone. And then we will do some testing, I think, some of the information we have is based on an incredibly small number of samples and it’s hard to go from that, too much larger one. So, we are in the process of validating all of the four markers that we are looking at both alone and in combination and tried to pause at which ones, when it combine will offer the greatest coverage.
- Quentin Lai:
- Thank you, and then any update on your initiatives on HPV testing?
- Henry Nordhoff:
- We are moving along fairly rapidly on HPV, we expect to spend a lot of money this year and advancing it both in getting the other goals and then doing the necessary studies. More and more we hear and all of the executives in the company have to spend a certain minimum number of days in the field talking with customers. It’s rare the ones who go on a visit and don't hear a plea from the customers who are currently using the improved HPV assay, then is to Gen-Probe assay going to be out there, in terms of performance and also in terms of convenience on the TIGRIS instruments. So we take that as a very strong player in call to go as quickly as we can with HPV
- Quentin Lai:
- Thank you.
- Henry Nordhoff:
- Welcome
- Operator:
- Our next question comes from Tycho Peterson, please state your company name.
- Tycho Peterson:
- J.P. Morgan. Following up on the PCA3 questions a moment ago, are you guys expecting anything at that AUA in terms of publications or anything, pending that we should keep an eye on for the next couple of months?
- Henry Nordhoff:
- We will have a couple of presentations at AUA as well as the European Urology Association.
- Tycho Peterson:
- Okay and then regards to the GE collaborations Hank you mentioned but you didn't real give any details of, is anything to update on that front. And also, I guess, you could just comment on, that the level of interest from other industrial markets I know you talked about Food Safety Testing in the past representing us out there?
- Henry Nordhoff:
- We had a meeting, and actually a meeting is ongoing today with our colleagues, counterparts, GE that the big thing was agreeing on the specs of the products and the instrument and that’s done very well, we have agreement on that, it’s embedded by both companies and we are moving ahead and that just happened last month.
- Tycho Peterson:
- Now in terms of you know your conversations on other industrial fronts?
- Henry Nordhoff:
- We have some conversations ongoing to propel us into the food testing market, they look good but nothing concrete so that I can comment on that right now Tycho.
- Tycho Peterson:
- And then, you guys, talked a little about at your Analyst Day about the unit dose assay pouches, can you just remind me, what the timing of that, that product is and what is of?
- Henry Nordhoff:
- Yes this is the so-called the TRUDER, I think we talked about the close units dose assay, probably the first manifestation will be in industrial testing. Lynda, can you provide some color on that?
- Lynda Merrill:
- It will the end, towards the end of '07, before the product will be available.
- Tycho Peterson:
- Okay, thank you.
- Henry Nordhoff:
- You are welcome.
- Operator:
- Our next question comes from Sara Michelmore, please state your company name.
- Sara Michelmore:
- SG Cowen & Co, thanks for taking my question. I guess, on the guidance I just want a little clarification Herm, if I could in terms of the product revenue growth that you are expecting that's 15%, could you give us a sense in terms of what the trajectory would be for the clinical diagnostics versus the blood screening, that’s implied in that number?
- Herm Rosenman:
- Well, you know Sara, we don't break the math but what we have said is that at least in '06, it's more likely that blood screening will grow at a faster rate than diagnostics will.
- Sara Michelmore:
- Okay and, on the sales and marketing guidance that you had in the press release, the way you got it restated sounded like most of the incremental there was going be invested in the oncology group, and I am just wondering what exactly do you plan to undertake in that group. Is that where the clinical trail expense would be or it’s just doubling at some infrastructure behind that oncology program?
- Herm Rosenman:
- As we expect to have a CE Marked PROCLEIX by the end of the year in Europe and so there will be an awful lot of all pre marketing spending in Europe as well as trying to get publication and marketing of the papers that we expect to have published here, Steve Kondor still on the line.
- Steve Kondor:
- Yes, I am Herm.
- Herm Rosenman:
- Steve, any further comments?
- Steve Kondor:
- The only thing, I would add is, we have a tremendous initiatives in place in Europe, we are looking people over there to begin doing the marketing clinical trails and generated the data for the European Urology Association meeting, creating awareness among the urologists about the value of PCA3 and we are doing the same things here in the United States.
- Sara Michelmore:
- So the plan is and to take that product direct in Europe?
- Steve Kondor:
- That’s correct.
- Sara Michelmore:
- Okay, and lastly, is these any update on the Panther system? Thank you.
- Michael Watts:
- We are, I did talk about Panther I think, middle of last year, we think, there is enormous market in the market sector that is not serviced by TIGRIS, that is from 10 to about 150 tests per day and we are evaluating some assays on our prototype instrument as we speak, so progress is being made.
- Sara Michelmore:
- Thank you.
- Henry Nordhoff:
- Thank you Sara.
- Operator:
- Our next question comes from Thomas Wei, please state your company name.
- Thomas Wei:
- Hi Thanks, Piper Jaffray. I had a couple of questions, just one on the color Herm that you gave around the first quarter EPS. Should we interpret from that, that you mean, of a base that's $0.32 in the fourth quarter, we should strip out the $0.04 in one-time impact and it seems that the product sales growth increase will be offset by the cost in that first quarter EPS to be close to $0.28?
- Herm Rosenman:
- Your maths has always been good, Thomas.
- Thomas Wei:
- I have a second math question here, it's just on the revenue guidance. So, if we take the low end of the product sales growth of 14% and I think you said that the bottom end of the of the collaborative research was 14 million and the bottom end of the royalty number was 7, that would total up to 331 not 325. Are you excluding something out of the base ’05 numbers in that calculation?
- A- Herm Rosenman:
- No we gave you a range, right, and that number is within the range.
- Thomas Wei:
- Okay and then just one last question a follow-up on, like you just talked about on taking PCA3 direct into Europe, should we be taking the marketing and selling lines that you right now projected for '06 and assuming the peddle be dramatically accelerated in '07 as you were launching and rolling out PCA3 in Europe?
- Herm Rosenman:
- That’s what we have done with the '06 guidance before we worry about 2007.
- Thomas Wei:
- Like I said conceptually should we be thing of you building at it similar selling and marketing infrastructure in Europe as you have in US?
- A- Herm Rosenman:
- We are in the process of looking for cooperative marketers. We are looking for drug companies with sales forces that do call on urologists so that we can share. I think it’s going to be unlikely that we will have our own sales force in Europe at the same level we have in the US. We are going to try and conserve our spending and for certain pharmaceuticals companies, they would love an opportunity to make a call with a newer product on urologist. So we think that time is not going to be very expensive for us to pay for. Nothing is worked out yet but we are looking at it very, very seriously.
- Thomas Wei:
- Okay thank that's very helpful.
- A- Herm Rosenman:
- You are welcome Thomas.
- Operator:
- Our next question comes from Russel Gilbertson please state your company name.
- Russel Gilbertson:
- Caris & Company. Congratulations on a nice year guys. First question is the installed base for TIGRIS, you said it would double next year, does that include units that are used under investigational use. That’s the base you are growing from?
- Henry Nordhoff:
- Yes, it does.
- Russel Gilbertson:
- Okay and can you just comment on the possibility of the modeling you are changing in terms of your testing and treating for STDs?
- Henry Nordhoff:
- Let me see if Steve is still with us again.
- Steve Kondor:
- Forgive me I am having a hard time hearing the questions coming in I can here you pretty well.
- Henry Nordhoff:
- Let me, Russ correct me if I am wrong. Is there anything happening with STD testing in Western Europe?
- Steve Kondor:
- STD testing in Western Europe is beginning to expand we've been successful placing instruments in particularly Northern Europe and as well in Japan. So those are the two areas where we STD business beginning to take hold. Northern Europe in the UK as an example we are beginning to place some TIGRIS in there and starting to now penetrate into other parts of Northern Europe and Japan. Those are the areas outside the US for STD business is beginning to takeoff.
- Russel Gilbertson:
- Great and one more question for Herm if you would. Do you expect that the tax rate can be similar in '06 to what is standing in '05 and will be flat from quarter to quarter?
- A- Herm Rosenman:
- To answer your question it will be probably be slightly higher because we'll be making more to marginal at the highest marginal rate. And we hope it's not a lot higher because we hope the R&D tax credit is reinstated it has lapsed and happened also last year if you recall it was reinstated I believe in September so it could be a little lumpy, it’s probably not going to be until the third or fourth quarter when it's reinstated. But then it will be a little lumpy but we think we will finish the year at it at the number that we gave which is 37%, non-GAAP and 36% GAAP.
- Russel Gilbertson:
- Thanks.
- Henry Nordhoff:
- Thanks Russ, before the next person comes on just want to say I am little disappointed I know you all read the press release and no one asked me about my day on Monday at the White House shaking hands with our President and accepting the National Medal of Technology award, but I mean if you still want to ask me and you better be happy to take any question.
- Operator:
- Our next question comes from Lee Brown please state your company name.
- Lee Brown:
- Merrill Lynch.
- Henry Nordhoff:
- Hi Lee.
- Lee Brown:
- How's everyone doing out there. And just a quick question there on the National Medal of Technology award.
- Henry Nordhoff:
- It warms my heart.
- Lee Brown:
- We talk about it after the call here. My congratulations, very strong quarter. Wanting to ask you about the stock comp progression obviously with FASB123 being in place looking at last year the sequence that are in terms of stock comp was 18%, 23%, 23%, 36% as a percentage of total comp and how that hit in the quarters? Are we are going to see a similar sequence in terms of stock comp being backend loaded or should we have more of a flat basis, I hate to be surprised by a heavy stock comp here in Q1?.
- A- Herm Rosenman:
- Yeah I don’t think you are going to see it back loaded like that, there's reasons that happened and what you are looking at which is a disclosure but I think it will be, don’t know what future grants will look like. But based on what's been granted so far I don’t think you are going to see that.
- Lee Brown:
- Okay so if we think about the $0.30 to $0.35 it reasonable though it seems it survived that by 4 and plugged that in on a quarterly basis, that’s a fair assumption.
- A- Herm Rosenman:
- I think it is, yes. It's been around every on the quarter on a disclosures basis.
- Lee Brown:
- Okay and then moving on to the R&D spinner with all the activities going on here. Should we assume that the $75 to $80 million of expenses is going to be more of a first half of event, I mean, obviously not all but how are your potion of R&D spent here in the first half as opposed with second half.
- A- Herm Rosenman:
- No you probably noticed that compared to last year we haven’t guided quarter by quarter on R&D. So at least this stage we see a fairly consistent throughout the year.
- Lee Brown:
- Okay and then just clarification on the buyer legal cost where do you expect the proponents of those cost to hit and in what quarter. I believe you said you are going to trial on March, was that right or.
- William Bowen:
- This is Will Bowen. Right now we set for a pre trial conference in one of the cases in June. And I would expect the trial would take place within four months after that. And my best guess right now would be that the heavy expenses would be in Q3, Q4 a trial.
- Lee Brown:
- Q3 to Q4. Any ballpark figures you are going to share on the cost of that?
- William Bowen:
- Not really at this time.
- Lee Brown:
- Fair enough. And lastly in terms of product gross margin and then I'll get off and I believe Sarah was referring this, as the West Nile Virus commercial pricing takes place at least on the 2/3 of that eSAS here and progress is going to eventually with the TIGRIS approval, how should we think as product gross margin ramping to the full year run rate?
- Herm Rosenman:
- Well as you know we also haven’t given any specific guidance on that as sometimes we did in the past. So you know it’s going to ramp in the second half of the year right. Because that's when the commercial pricing and increase cost recovery pricing will take place so I would take it from there.
- Lee Brown:
- Okay thank you very much.
- Henry Nordhoff:
- Operator I think we might have time one or two more questions then we'll have the closing remarks.
- Operator:
- Okay I have two question up, your next question from Benner Ulrich please state your company name.
- Benner Ulrich:
- UBS. Hey guys. Most of my questions have been answered I just had one follow up I think you mentioned in the prepared remarks that Chiron, next year was targeting for additional markets internationally for blood screening. I don’t think you mentioned what those were or quantify what potential opportunity was in terms of contemplate the big guidance but just wondering if you can give some detail on that?
- Herm Rosenman:
- Well you are right. We haven’t and really don’t have all the details from Chiron on that, Benner.
- Benner Ulrich:
- Okay and is that something I guess the timing you wouldn’t necessary know either. I mean is that something that they would, it would be early in the year or more likely in the second half of the year?
- Herm Rosenman:
- It would be probably be phased throughout the year but I wouldn’t expect a huge amount to be showing up. I think that the next big market we are really shooting for is Japan.
- Benner Ulrich:
- Right.
- Herm Rosenman:
- That's because of it’s size and we have been a little bit guarded but we do expect to get some sales we don’t know when, we don’t how much.
- Benner Ulrich:
- Okay, fair enough, thanks guys.
- Herm Rosenman:
- Thanks Ulrich
- Operator:
- And our last question come Thomas Wei please state your company name.
- Thomas Wei:
- Oh, Piper Jaffray thanks for taking a follow up. Just a follow question on that, if it is not really major international countries in where is the TIGRIS, the doubling at the TIGRIS install base coming from. Is that much more on the diagnostic side?
- Herm Rosenman:
- Herm, Thomas. Not actually it is more on the blood screening side. We think Chiron will find homes for all of those TIGRIS instruments in the near future. They haven’t given us a lot of color as they did on their conference call as to which countries but they did say there would be four countries that they are targeting amongst others. And they give us as may recall a 12 month growing forecast that's how we get it in our guidance. The first few months or the first 90 days so that is equivalent to a purchase order after that it not quite as tight but that's how we include it in the guidance.
- Thomas Wei:
- And I think, they are already have partners to those machines in '05?
- Herm Rosenman:
- No the have not purchased and this is again 3 months purchases orders so we have a pretty good grasp on that and then the remaining 9 months of the year also pretty good grasp on but not the same experience.
- Henry Nordhoff:
- Thomas in a way of clarification to Benner's question and my reply was not intended to in anyway minimize the international growth we expect next year. Because we are going to get on awful lot of annualization for the full year in 2006. So those new countries that Chiron picked up in 2005. I just can't think of any very major countries that are coming online this year.
- Thomas Wei:
- All right thanks.
- Henry Nordhoff:
- You're welcome.
- Henry Nordhoff:
- Well thanks for all your questions to warp up Gen-Probe had a strong fourth quarter and full year 2005. We continue to generate growth in both our clinical diagnostics and blood screening businesses. Fourth quarter product sales grew by a robust 33% over the prior year and established a new record for the 13th time in 14 quarters. As a result total revenues grew 28% and earnings per share increased a very strong 39%. As we were churning out the substantial growth we also made important headway and pursue a several short, medium and long-term opportunities. As a result we entered 2006 on a very solid footing. Over the balance of this year we anticipate delivering growth and product sales and earnings per share in line with our long-term goals while also investing heavily on R&D, doubling our install base of TIGRIS system and delivering exceptional profit margins. Thanks you all for your time and attention today and please contact us if you have any follow up questions. Thank you very much.
- Operator:
- That concludes today call, please disconnect.
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