aTyr Pharma, Inc.
Q1 2009 Earnings Call Transcript

Published: 29 Apr 2009

[Operator:]

Good day my name is Stacey and I will be your conference operator today. At this time I would like to welcome everyone to the First Quarter 2009 Life Technologies Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Miss Amanda Clardy, Vice President of Investor Relations. Please proceed.

[Amanda Clardy:]

Thank you Stacy and good afternoon everyone. Welcome to Life Technologies First Quarter Sales 2009 Earnings Conference Call. Joining me on the call today are Greg Lucier our Chairman and Chief Executive Officer; Mark Stevenson, our President and Chief Operating Officer; Bernd Brust our Chief Commercial Operations Officer; and David Hoffmeister, our Chief Financial Officer. If you haven’t received a copy of today’s press release you can obtain one from our website at lifetechnologies.com. Before we begin, I would like to call you attention to a few additional items that will be helpful for you during our call. We have now posted a revised 20008 quarterly pro forma income statement on our website that combines Invitrogen and Applied Biosystems financial results down to operating income. This revised pro forma income statement reflects financial results for Applied Biosystems using the same calendar quarters as Invitrogen rather then their previous 445 method. In addition, we have now provided quarterly revenue detail for our new technology divisions within Life Technologies. In 2009 we will be comparing all of our results against this revised pro forma income statement, so I encourage you to retrieve this document at your earliest convenience. Before we begin, I want to remind our listeners that our discussion today will include forward-looking statements including, but not limited to statements about future expectations, integration plans and prospects for the company. We believe these statements are based on reasonable assumptions, but actual results may differ materially from those indicated. It is our intent that these forward-looking statements be protected under the Safe Harbor created by the Private Securities Litigation Reform Act of 1995. Additionally, we will be discussing GAAP and non-GAAP measures. A full reconciliation of non-GAAP measures to GAAP can be found in today’s press release or on our web site. For today’s call we will be referencing a presentation that you can view online. Instructions to access the web cast are also on our website. Additionally we will be posting this presentation following the conference call. Greg will begin today’s call with highlights of the quarter and our 2009 imperatives. Mark Stevenson will follow with an update on divisional performance in the integration. Bernd Brust will then provide some detail around our Go To Market integration and he will be followed by David who will give a more detailed review of the Company’s first quarter operating results and 2009 expectations. With that, I will now hand the call over to Greg Lucier.

[Greg Lucier:]

Thanks Amanda. We couldn’t be more pleased with the results delivered in our first full quarter as a combined company. It is a strong start to the year with that performance driven by good results in both Legacy businesses despite the tough macroeconomic conditions we all face today. In Q1 total company revenue grew 1% to $785 million. Revenue growth without the impact from foreign currency was 5% with consumable and instrument revenue contributing equally. Gross margin was a robust 66.7%. Operating margin improved by an impressive 190 basis points to 26.2%, mostly as a result of synergy realization. Operating income improved 9% or 17% excluding the impact of currency. All of this resulted in non-GAAP earnings per share of $0.72. As you can see from our results, our business remains good despite the current economy. As we said before, our industry in general and our company in particular tends to be relatively resilient in tough economic times, although I will admit no business is recession proof. I believe this performance once again demonstrates the strength of our operating model, the diversity of our technology portfolio and the hard work of our people. It shows how essential our products are to the every day work of our customers. Our products are just about the last thin to be cut because of the criticality of them in our customers ever important work. In order to maintain our competitive edge we are focused on three important objectives this year

[Mark Stevenson:]

Thanks Greg. I would just like to add to Greg’s comments about our employees and extend my thanks to them as well. As you know we now operate with four technology divisions

[Bernd Brust:]

Thanks Mark. As you have now hear it has been a very nice start to the year and of course, beginning any year as strong is always critical and really sets the tone for the rest of the year. Given the context of the general economy, integrating new teams, and just the every day challenges of winning, we are very pleased with the results. Together with the customer care, marketing, and pricing functions, the selling teams have done an amazing job executing upon all of their objectives. My personal gratitude goes out to every individual around the world for staying focused and delivering a great quarter. One of our guiding principles in our integration planning has been to ensure that customers are not negatively affected by the merger, while at the same time making sure that the new benefits, such as broader access to our products, are made available as soon as possible. For this reason we continue to move slowly and deliberately on executing initiatives that have a customer facing aspect. We spent a considerable amount of time planning and training our employees for the implementation of the new Go To Market strategy. InQ1 we ran several pilot programs in selling select AB reagents through both the Invitrogen website and the Invitrogen supply centers. These pilots are going well. We have worked out the kinks that always come up and we are now beginning to put more AB products through these channels. In Q2 we will continue our careful preparation and begin to move into the full tactical implementation of our Go To Market initiatives that are designed to provide even greater value to our customers. As you know, we continue to maintain two platform brands, Applied Biosystems for instruments with linked reagents to optimize workflows and Invitrogen as the premier source of reagents, kits, and services that can be used on a variety of instrument providers’ equipment as well as our own line of smaller bench-top devices. A key component of our Go To Market strategy is to leverage Invitrogen capabilities in commercializing highly technical run rate products through our best in class commercial channels such as our sales teams and e-commerce capabilities. Our award winning invitrogen.com website had approximately three million hits in Q1, an increase of about 20% from last year with record revenue pull through. We are about to launch even more improvements to the website that will simplify product selection and ordering. These new features are part of a series of improvements designed to create a significantly enhanced online retail experience. This channel will continue to be very important as we add more AB reagent products to it and thereby leverage the reach of this channel to simplify how customers find and buy our products. We have also done quite a bit of work on the pricing side. In Q1 we completed our typical list price review process for Invitrogen and also added on a review of the AB reagent portfolio. Now, let me point out that this year, in particular, it is not all about price increases. In fact, during this economic situation our over riding goal is to work very closely with our customers to ensure that the pricing on our products is structured fairly and that we remain competitive with our peers. Before I turn it over to David, I would like to spend a few minutes talking about the work we have done to prepare for the NIH stimulus funding. Our focus is on helping our customers get these funds for break through research. We have been reaching out to customers and when we can we are helping them write grant proposals. We have also accelerated our turn crow around times so that customers grand proposals are not delayed waiting for information they need for submissions. Because of the potential impact of the NIH stimulus funding on our business, we did recently conduct a very detailed analysis of our academic and government customers in the US. We believe a good estimate of the percentage of our business that is funded by the Federal Government is between 15% and 20%. Our customers in this segment have a sizable opportunity for future funding from the stimulus package. However, it is hard to quantify the exact size of this opportunity for our company, as our customers work through the grant application process. Our rough estimate as of now indicates that the revenue opportunity provided by the NIH stimulus funding could be well over $100 million over the next 18 months. Our new quotes volume has seen record levels over the last two months for instruments, including SOLiD and Mass Spec, and to ensure that we are well prepared to take advantage of this opportunity, we have pulled together a cross functional team of fully dedicated people who are tasked with executing on specific strategies that will put us in a position to maximize the revenue opportunity amongst our NIH funded customers. As I mentioned before, our goal is to partner with our customers to first, help them get funding and second, work with them to ensure that our products and services are available to help them accelerate their research. We have some new and creative ideas about how to do this, but for competitive reasons we won’t be sharing specific details around our strategic plans. However, it should be clear that we are focusing on this opportunity as a way to strengthen our existing relationships with customers, and also form new partnerships with them as they take advantage of this exiting opportunity to advance their research. We do not expect the stimulus funds will start to have a material impact on our revenue until the Q4 time frame. With that, I will turn it over to David so that he can walk you through our Q1 financial results. David?

[David Hoffmeister:]

Thank you, Bernd, and good afternoon everyone. I will now take you through the financial details of the first quarter results. Before I begin, let me remind you that we are comparing all of our non-GAAP financial results to the pro forma income statements that we’ve published on our website combining Invitrogen an AB for all of 2008. This quarter we grew revenue to $785 million, an increase of 1% including the impact from currency and 5% without currency. We are clearly pleased with this level of organic growth which was the result of solid performance across most of our business. You will notice that our non-GAP revenue is $9 million higher than our GAAP revenue. This adjustment to GAAP sales is associated with deferred service revenue acquired through the AB transaction. This non-GAAP adjustment provides a better comparison year-over-year, as well as associates revenue with the cost of these ongoing service contracts. Organic growth in the America’s was -1%. As a result of a decline in royalty revenue and weak demand in pharma and biotech, although academic, government, and applied market sales continued positive growth trends. Europe and Asia Pacific had strong organic growth at 12% and 28% respectively and although Japan was flat for the quarter, consumable demand was higher than it’s been in the recent past. Division revenue was $367 million for Molecular Biology, $219 million for Genetic Systems, $192 million for Cell Systems and $7 million for Other. This Other revenue of $7 million is associated with our Mass Spec division, but is not a part of the joint venture and consists of consumable products used on discontinued Mass Spec Systems. Currency this quarter impacted revenue impacted revenue growth by approximately 4 points, net of our hedging. The negative impact to EPS was approximately $0.09 and included foreign currency effects accounted for in revenue, other income, and the Mass Spec joint venture. Moving on to Other line items, non-GAAP gross margin was 66.7%, an increase of 30 basis points from Q1 2008. As compared to last year we had less royalty and settlement revenue, which had a negative impact on gross margin percent. This decline was more than off set by lower royalty costs, synergies from renegotiated sourcing agreements, improved freight recovery, and better pricing optimization. First quarter operating expenses were $318 million, a decrease of $8.6 million over prior year levels, due mostly to the impact of currency and synergies somewhat offset by increases in compensation, benefits, and depreciation. Sequentially operating expenses grew by less than 2% as we kept costs in tight control until we saw how the overall business would be affected by the macroeconomic environment. Operating income was $206 million, an increase of 9% year-over-year including the impact from currency and 17% excluding the currency impact. Operating margin was 26.2% representing 190 basis points of improvement over prior year. This level of operating margin expansion resulted primarily from the realization of integration related synergies. In terms of other income, we had $1.4 million of interest income. Our Mass Spec joint venture contributed $10.4 million of non-GAAP income and this was somewhat offset by $1.7 million of other losses, mostly due to foreign currency. Interest expense for the quarter was $38 million which is slightly lower than we anticipated, but we suggest that going forward you continue to use an estimate of $40 to $42 million a quarter in interest expense as a portion of our debt is still tied to variable rates. In the quarter the non-GAAP tax rate was 29.5% which is slightly higher than our full year forecast. However, we still expect our full year tax rate to be 29.0%. Our diluted share count for the quarter was $175.4 million. Going forward we still believe that a share count between $176 and $179 million shares is a good estimate to use. Our non-GAAP earnings per share were $0.72. GAAP earnings per share were $0.09 which includes $0.49 per share of acquisition related amortization expenses, $0.04 per share of non-cash interest expense associated with the adoption of APB 14-1 and $0.10 per share of business integration costs and other expense. Comparability year-over-year is limited for your GAAP results do to the merger with Applied Biosystems. Moving on to the balance sheet and cash flow, our ending cash and short-term investments were $465 million. This compares to last quarters balance of $448 million. Cash from operating activities was $1.104 million, capital expenditures were $26 million and free cash flow was $78 million. Our free cash flow was higher than expected it the first quarter as a result of higher income and lower capital expenditures. Some of this free cash flow was used to fund a small asset purchase to support our bench-top instrument manufacturing capabilities, as well as restructuring expenses. In addition, we paid off $20 million of debt associated with the Applied Biosystems transaction. Our ending debt was $3.467 billion. This balance is made up of our convertible debt of $1.15 billion and debt taken on for the AB transaction of $2.4 billion. In addition, this balance includes the impact of the retroactive adoption of APB 14-1 which lowered reported debt by approximately $100 million. I will now move on to our outlook for the full year 2009. Before I do, let me say that although we are extremely pleased with the strong start to our year, we feel it is premature to change our guidance after only three months of actual results; therefore, we expect organic growth for the year to be in the low single digits and non-GAAP EPS to be in the range of $2.40 to $2.55. Clearly with the start that we’ve had to the year we now expect to be at the higher end of this range. As is our practice, I will also give you a few items to take into consideration for the coming quarter. Gross margins are expected to be sequentially lower as price is normally strongest in the first quarter. In addition, we expect sales of our bench-top instruments and solid systems to continue to ramp up throughout the year, both of which have lower gross margins. Finally, our 2009 merit increases for employees took effect April 1. Operating expenses will increase sequentially. Many or our marketing and R&D programs got off to a slow start this year as we focused on integration related activities. This coming quarter we will begin spending more in these areas and again, the merit increase takes effect. We expect capital expenditures to ramp up in the remaining quarters and to be in line with our guidance of $175 to $200 million for the year, including $50 million of integration related capital. Free cash flow for the year is expected to be approximately $450 million. As you might recall, our original forecast for free cash flow this year was in a range of $400 to $450 million, but with the additional income generated in the first quarter, we feel we are likely to be at the upper end of this range. As a reminder, this includes an estimated $175 million of 1x cash expenses for the integration. With that, I will now hand the call back over to Amanda to open up the lines for questions.

[Amanda Clardy:]

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

[Operator:]

(Operator Instructions) Your first question comes from Quintin Lai with Robert W. Baird.

[Quintin Lai:]

With respect to the NIH and the stimulus package coming forward, you kind of mentioned increased quota activity and thank you very much for the expectations for the impact to your business of $100 million. Did you see any impact in the quarter of researchers perhaps spending more time grant writing and less time at the bench?

[Greg Lucier:]

We have heard some of that, of course. I would say though that it had really minimal impact on our business for the quarter.

[Quintin Lai:]

Okay and then what have your sources or contacts been saying about potential in the fiscal 2010 budget for the NIH? I mean we’ve seen some positive things come out this afternoon. I guess we’ve seen Arlen Specter who has been a big proponent and now switching over to become a democrat. What impact do you think 2010 could have for the NIH?

[Greg Lucier:]

We think 2010 will see a modest increase in the NIH budget and driven primarily because our current estimate is most of the stimulus spending will take place next year, so I’d say now most of the focus is on the 2011 budget and we expect that, and the current dialogue in Washington is how do we sustain the elevated funding levels that the stimulus will give us in 2010. So that is where we put our energy and our dialogue with legislators and I would say that’s where the current discussion is really centered is 2011 building off of 2010.

[Quintin Lai:]

Do you get the feeling, Greg, that this time around that they’re going to try to avoid kind of that drop down from the last five year doubling project and continue to grow off of a base of, let’s say, 2010 plus stimulus?

[Greg Lucier:]

Quintin, I think the lessons from the past of the doubling and then not sustaining it are really well known in Washington and so that is really, I think, the most refreshing aspect of the dialogue today. Secondly is that there is really an enthusiastic response for the NIH and more broadly just funding innovation at the Federal level. President Obama spoke to the Academy of Sciences and committed to try to get to 3% of the Federal budget for the spending of innovation of which the NIH would be part of it. So I think we’re on a good path. Nothing is assured, but certainly the tenor of the dialogue has changed just in the last few months here and so we feel good where the NIH is going.

[Quintin Lai:]

All right thank you.

[Operator:]

Your next question comes from Tycho Peterson with J.P. Morgan Equity Research.

[Tycho Peterson:]

I was wondering if we can get a little more color on SOLiD with regards to maybe where some of these placements are going. Maybe some break out from genome center, non-genome center geographic color. Then any update to some of the initiatives you talked about at the AGBT in terms of tighter bead packing and progressive mapping and some of these other advancements?

[Mark Stevenson:]

We are seeing good pull through on SOLiD and really adoption in smaller centers as well as the larger genome centers and that is happening here in the US. We also saw good traction in Europe as well as in Asia Pac and Japan is starting a new fiscal year with funding there. So we are actually seeing a quite wide distribution. We focused really this quarter, and we were pleased to announce at AGBT both the introduction of SOLiD 3.0, but also then upgrading our customers during this quarter, which as I mentioned, we had 60% done or more complete by the end of this quarter. Then as the road map we outlined, we believe that by just continuing to progress this technology, so ever more increasing the technology B packing as you point to, will increase the throughput by the end of this year to 100 gigs or more. So we are on that path that will drive a lower cost per run and since this market, as we said, is just getting going, we’re heavily investing to continue to address that to use the advantage around accuracy and then come as well with ease of use workflow systems around that during the year.

[Tycho Peterson:]

Was the growth that you commented on in CE kind of consistent with your expectations or are you seeing kind of an up tick there and how do you think about maybe new instruments cycle there and capillary?

[Mark Stevenson:]

In the field it was consistent that overall we continue to expect that the movement will go in the research market, the next generation sequencing, and the growth will happen in more applied like forensic, pharmaceutical manufacturing, and clinical diagnostic applications. So, we certainly see the room for increased sequencing applications, in those applied markets and consider further offerings on investing in the CE platform to look at further products to really meet the needs of those more regulated and validated customers. We also see a bit of a trend with this interest in sequencing. Just across the range of applications, CE continues at the moment to be the gold standard of validation of those discoveries. So, you still see a continual use of the install base and actually some up tick on further placements in some of the markets of new capacity put in there that we saw during this last quarter. But, overall the trend continues, it is a shift in the research to next generation sequencing and adoption in the applied markets as CE is the gold standard.

[Tycho Peterson:]

Okay and Greg, when you talked about the growth strategies in personalized medicine, molecular diagnostics, how do we think about the evolution of the sale force going forward? I mean, you envisioned building out a big diagnostic sales force. How do you think about partnership versus M&A and that space? I would like your thoughts on building out diagnostics in particular.

[Greg Lucier:]

Tycho, we have been doing a lot of strategic work on diagnostics and it is one of the key deliverables to the board this year. As we’ve done more and more work the new Life Technologies Company today does over $300 million a year in OEM provision of our technology, so we are quite deep already in the space. In terms of the next step of how do we become, perhaps, even more of an end solution provider, those strategies are kind of well though through and in the phase now of picking the path to go. You will see us do some things that will center around more R&D, more creation of focused selling forces, and certainly M&A will be part of that as well. That all really starts to roll our here over the next 12 months.

[Tycho Peterson:]

Great thank you, and congratulations on the quarter.

[Operator:]

Your next question comes from Ross Muken with Deutsche Bank Securities, Inc.

[Ross Muken:]

On the revenue side was there any bit on relative to some of the instrumentation particularly that you were surprised by some of the strains? I mean, these growth numbers are pretty robust relative to just about anything we see in our out of industry; so I am just trying to get a sense versus plan was there anything that particularly in this resilient, obviously Mass Spec is a notable one given the performance there based on some of the new instruments.

[Greg Lucier:]

That is a great question. I would just second your comment about Mass Spec. It was a very good quarter for the Mass Spec business. I think this 5500 platform technology is being very well accepted and is really providing a stimulative affect to our position, perhaps versus others today, in what still is a very difficult market. I don’t want to make any claims other than that. This is a part of our business that has its challenges, but we are very fortunate to have a very good piece of technology out here being sold today. Maybe Bernd you can give some other color commentary on PCR instruments in the like?

[Bernd Brust:]

Sure. On Mass Spec certainly the new platform, also some real strength in Asia we continue to see on the Mass Spec side. On the other platforms real strength, as Mark pointed out earlier in some of the areas for CE sequencing and certainly the PCR instrument base around the world performed above expectations for the business.

[Ross Muken:]

Excellent and David, maybe you could share the thought process on keeping the range on guidance. Obviously this was quite a strong quarter. It doesn’t seem like we’re going to see any incremental weakening in any of the kind of core businesses, at least the top line and the synergy capture has been phenomenal. I know we are going to be in the upper range here, but it seems like with this start to the year it is kind of hard to get to the end of the range.

[David Hoffmeister:]

Thanks Ross. We are very pleased with the first quarter and hope that it continues. But, it is only three months out of 12 and we feel that given the uncertainty in the market environment it is premature to raise it at this point in time.

[Ross Muken:]

Yes, I guess my one question is in the assumption that you have baked into your model. Is there anything that you would point us to that incrementally we should be focused on that you may see some bit of a disruption or is it just kind of a general macro concern and there is nothing specifically driving that conservatism?

[Greg Lucier:]

I would just chime in that like David said, it has really only been three months. This next quarter for us we do a lot of changes to our Go To Market strategy both with how we present ourselves to customers and then some system changes behind it. So, I think we’re just being cautious. So, obviously if we’re able to sustain this performance into the second quarter we will be back to you in 90 days with, at that point, probably, with some revised guidance. That is really the attitude we have right now towards what we’re trying to do.

[Ross Muken:]

I appreciate the candidness Greg; I just know everyone was thinking the same thing. Thank you guys very much.

[Operator:]

Your next question comes from Isaac Ro Leerink with Swann & Co.

[Isaac Ro Leerink:]

Just on gross margins, they look pretty good. Can you maybe help break down for us how the low royalties and foreign exchange might have off set some of the improvements you made via merger synergies? I’m just trying to get a sense of what the normalized gross margin might look like for the rest of the year.

[Greg Lucier:]

I think that as we said, I mean you touched on the point, there were declines in royalty and settlement revenue, but those were offset by gains in pricing, freight optimization, and synergies, as well as renegotiation of some sourcing contracts and reduced royalty expenses. All of those things that we would expect to continue going forward. So, while there may be some increases in expenses next quarter, and we do in fact anticipate that from increases in merit pay, we don’t see that the things that happened to us this quarter were 1x events or any significant changes going forward.

[Isaac Ro Leerink:]

Okay and then just switching over to sequencing, I think in the past you said that you have a very large commitment to that technology and a large portion of the Company’s R&D is going into that technology. Can you give me a sense, maybe, of how your commitment to R&D or sequencing is split up between solid versus perhaps use of technology?

[Mark Stevenson:]

We don’t get to break that out. I mean increasingly we view it as a continuum in the marketplace, but also as we organize our R&D effort. So, we are leveraging the experience across that as we develop chemistries and new systems and you’ll see that in our road map. Really our commitment there is to all the technologies and really we see sequencing at different platforms used across different techniques and so you will see us continue to invest in CE and solid and also we have announced that we always have a single molecule program under development and we’re very optimistic about that future as well.

[Isaac Ro Leerink:]

Okay and then just lastly on sequencing here, obviously bioinformatics is an area where there are a lot of hurdles that we hear a lot about from current users who are generating perhaps more data than they can handle. I am just wondering how we should look at this Geospiza partnership with Amazon and is that something that you think an accelerated adoption of SOLiD and maybe some of these non-genome center locations, or how do we think about helping the informatics part get up to curve?

[Mark Stevenson:]

The way we’ve really thought about is this sequencing technology is really just getting going. In order to be able to used ever more in medical environments and clinical settings we’re really trying to test it and give a community of uses around that. So really, the partnership is about enabling customers to quickly get on, compare that data, and then move onto doing the next experiment. So, you will see collaborations like that. Collaborations like we announced with the TGen in Phoenix and looking at clinical practice as examples of strategic partnerships we’re doing that will help the adoption and grow increasingly in this marketplace in next generation sequencing.

[Isaac Ro Leerink:]

Okay, great. Thanks a bunch.

[Operator:]

Your next question comes from Jon Wood with Banc of America Securities.

[Jon Wood:]

David, can you break out the 1x cash integration costs that were in operating cash flow and the CapEx figures for the quarter?

[Amanda Clardy:]

Jon, we don’t have those off the top of our head, but I can do that with you on the follow up call.

[Jon Wood:]

Okay and then on pricing, can you give us a sense of the net pricing capture of this quarter? I don’t know if you can break it out from a synergy figure or not, but just give us some qualitative sense on the capture there?

[Bernd Brust:]

No, we really don’t share those numbers broken down for the quarter.

[Jon Wood:]

Is the core business in line with historical capture rates in prior years?

[Amanda Clardy:]

Yes, it is.

[Jon Wood:]

Thank you.

[Operator:]

Your next question comes from Derik De Bruin with UBS Investment Research.

[Derik De Bruin:]

In the [inaudible] systems certainly some of the reports in the biotech suggest that some of the biologic drug volumes are down, particularly impacted by the economy. Are you seeing any changes in terms of drug inventories, the demand for manufacturing on you industrial [cila] culture business?

[Mark Stevenson:]

Yes, so typically what we’ve seen is customers in this area have had a slightly reduced demand and that was something we saw at the end of last year, so as we came into planning for this year that was really how we planned it for this year. So the demand, while it continues, we sort of plan for that. It is nothing different to our expectations and as we go through the year we will continue to really see us to a macroeconomic trend of moving towards more biological molecules, but aware that you are going to see some failures and some consolidation in the farmer industry that is anticipated in our plans here.

[Derik De Bruin:]

So you have seen no incremental pull back in requests for orders for your industrial side?

[Mark Stevenson:]

No, it is as we anticipated; a tough environment for the farmer, but no dramatic change to what we have anticipated for the year.

[Derik De Bruin:]

Great, I guess could you talk a little bit about your pull through on reagents for SOLiD system? I mean where are you, how many of your customers are fully ramped, what’s the average of consumable pull through?

[Mark Stevenson:]

This quarter was different as we upgraded a lot of our customers from 2.0 to 3.0. That is a major upgrade that typically takes about two week to do. We still expected our customers to ramp up to 3.0. They will be in the range of somewhere between $175,000 to $200,000.00 per system.

[Derik De Bruin:]

Okay great. I know you took a US price increase in January; you took a European price increase in February; you are going to do Asia this quarter. Have you seen many huge push back in people like us wanting to carry less inventory? I guess just talk about what you’re looking at down through the pricing environment?

[Greg Lucier:]

In general we have been fairly sensitive this year on making sure that we do look at the market and the environment we find ourselves in, but pricing has been in line with our expectations really pretty much around the world. As far as the specific comment around people destocking inventory, our portfolio really, we don’t have that much of stock sitting with our customers. Our products are fairly time sensitive and people order them on a regular basis. So, we haven’t seen really seen any impact on our business as it relates to some of the destocking comments we may have heard in other parts of the industry.

[Derik De Bruin:]

Okay great. Thanks.

[Operator:]

Your next question comes from Doug Schenkel with Cowen and Company, LLC.

[Doug Schenkel:]

Would you be willing to comment on where you are in applying some of the traditionally strong Invitrogen pricing discipline to the ABI businesses?

[Greg Lucier:]

I would just say that in that area we have made some good initial progress, but we’re really just at the beginning of the journey on overall pricing excellence for the combined company.

[Doug Schenkel:]

Okay and then regarding the $9 million in deferred services revenue that you’re recording on a non-GAAP basis, did you receive payment for those services in the quarter and then how should we think about that over the balance of the year?

[Greg Lucier:]

Yes, we received payment and so, as a matter of fact, we received payment when we entered into the service agreements. So, what we’re really doing here is matching the recognition of the revenue as the service agreements expire or we incur the expense to provide those services. I think you can expect about that level of $9 to $10 million in terms of revenue going forward per quarter.

[Doug Schenkel:]

And then within molecular biology would you be willing to quantify how real-time PCR held up in the quarter?

[Mark Stevenson:]

We don’t break out the specifics in real-time PCR, but it continues to be a strong business for us. I mean the real-time PCR just is a gold standard for validation and increasingly into these applied markets and diagnostics. As Bernd said, it was part of the strength of the instrumentation, but just it was strong for us across the board there.

[Doug Schenkel:]

Okay, so last year you did quarter-by-quarter somewhere between close to 6% and as high as 10%. Would it be fair to say that there was no notable change in that range in this quarter?

[Mark Stevenson:]

I don’t think you can compare like by like categories, because they are slightly different categories in that you’ve got, so you really have to look at the overall category. This is a category, in fact the business we said Microbiology Systems is a mid-single digit grower that we expect to grow. It has a big portfolio of products in it, including real-time PCR which is obviously part of the growth engine.

[Doug Schenkel:]

Okay and then I believe, at least at the time of your Q4 call you had talked about, I think it was about $1 billion of the $2.4 billion of then new debt that was swapped into fixed rate. Are there any further changes on that front?

[Greg Lucier:]

No, you are absolutely right. Of the $2.4 billion we swapped $1 billion to fixed in January at about a 2% swap rate.

[Doug Schenkel:]

Okay, thanks again for taking the questions.

[Operator:]

Your next question comes from Marshall Urist with Morgan Stanley.

[Marshall Urist:]

It was a pretty strong number for EU growth. We’ve heard of this from several companies and contrasting to what is going on in the America’s. So, could you talk a little bit about what is driving that? Is it different end markets, or product cycles there, why we’re seeing such a difference?

[Bernd Brust:]

EU growth really kept on the same trajectory we saw pretty much through 2008 and really none of the major funding arenas where we positioned most of our portfolio have changed. In Europe, there is no doubt, there is less of a business for us in the biotech area, it is more academically focused and the funding, as you stated, it is probably strong, certainly through the first quarter.

[Marshall Urist:]

Okay great and can you give us a little bit more granularity on how your Pharma business did? I know you said it was weak, but could you help us to quantify that a little bit more? Was it sort of a low single digit number, or how did that do through the quarter, because it has obviously been a concern for a lot of people.

[Amanda Clardy:]

We don’t break that out specifically, but I think in our prepared remarks we spoke to that pharma and biotech in general, especially large pharma and biotech, which is the majority of our revenue in that area, continues to not be that robust.

[Marshall Urist:]

Okay and then what was the price contribution to constant currency growth in the quarter?

[Amanda Clardy:]

We don’t break it out on a quarterly basis.

[Marshall Urist:]

Okay, great. Thanks.

[Amanda Clardy:]

All right, Stacey that wraps up our Q&A portion of the call. Thank you everyone for joining us. A replay of this web cast will be available on our website for three weeks. Thank you.

[Operator:]

We thank you for your participation in today’s conference. This does conclude our presentation. Have a great day.