Harvard Bioscience, Inc. (HBIO) Q2 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Second Quarter 2012 Harvard Bioscience Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Tom McNaughton, CFO. Sir, please begin.

Thank you, Stephanie, and good morning, everyone. Thank you for joining us to discuss our results for the second quarter of 2012. Chane Graziano, our CEO; and David Green, our President are also on the call today. After reading the safe harbor statement, I'll turn the call over to Chane and David, who will present comments on the company's second quarter core business performance, on the status of our Regenerative Medicine Device business and our outlook for the third quarter and the full year 2012. Following those comments, we'll open the call for any questions. In our discussion today, we will make statements that constitute forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from those projected due to risks and uncertainties, including those detailed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, and our other public filings. Any forward-looking statements, including those related to our future results, represent our estimates as of today and should not be relied upon as representing our estimates of any subsequent day. Further information regarding forward-looking statements and risk factors is included in the press release issued earlier today reporting our second quarter results. Please note that during this call, we will use -- we will discuss non-GAAP financial measures because we believe that those measures provide an enhanced understanding of how our businesses are performing. These non-GAAP measures approximate information used by our management team to internally evaluate the operating results of the company. For each non-GAAP financial measure discussed, we've made available as part of our press release or on our website in the Investor Relations section, a reconciliation of the most directly comparable GAAP financial measure. Additionally, any material, financial or other statistical information presented on the call, which is not included in our press release will be archived and available on the Investor Relations section of our website. Look on the Investor Relations section of our website, and then click on the Investor Presentations or Website icon as appropriate. A replay of this call will also be archived at the same location on our website. Our website is located at www.harvardbioscience.com. Lastly, all financial information presented on this conference call relates to our continuing operations unless otherwise stated. I'll now turn the call over to Chane. Chane?

Thank you, Tom, and good morning, everyone. Despite a relatively soft global economy, we ended second quarter 2012 in our core Life Science Research Tools business with revenues of $28.5 million and non-GAAP adjusted diluted earnings per share of $0.10, in line with our expectations and our guidance for the quarter. We also continue to show improvements in our gross profit margins primarily driven by the introduction of new pumps at Harvard Apparatus, a new spectrophotometer with Biochrom and operational improvements at Hoefer, Coulbourn and Panlab. In our Regenerative Medicine business, we achieved a major milestone with our participation in the initiation of the clinical trial for regenerated tracheal transplants funded under a $5 million mega grant from the Russian government. And the first 2 patients enrolled in the trial have already been treated. Looking forward to the balance of the year, we are maintaining our 2012 guidance for our core Life Science Research Tools business at $115 million to $120 million for revenues and $0.39 to $0.32 for non-GAAP adjusted diluted earnings per share. We also continue to expect our Regenerative Medicine Device business' operating expenses to be in the $0.13 per diluted share this year. We expect revenues for our core Life Science Research Tools business in third quarter to be in the $27 million to $28 million range and non-GAAP adjusted diluted earnings per share to be in the $0.09 and $0.10 range. In our Regenerative Medicine Device business, we expect third quarter operating expenses to be in the $0.03 to $0.04 per diluted share. I will now turn the call over to David.

Thank you, Chane and good morning, everyone. In our Regenerative Medicine business, we're very pleased to report 2 major clinical milestones. The first major milestone is that Mr. Andemariam Beyene, the recipient of the world's first synthetic organ transplant, has celebrated the 1-year anniversary of his life-saving surgery. Prior to the surgery, he was given only 2 weeks to live, as the tracheal cancer had almost completely blocked his windpipe. As Professor Paolo Macchiarini, who led the surgery, remarked, he has an excellent quality of life. Mr. Beyene recovered sufficiently that he could finish his master's degree in geophysics, and now has a job. His wife and 2 young children have joined him in Iceland from their native Eritrea. The second major milestone is the initiation of a clinical trial for regenerated tracheal transplants. We have already treated the first 2 patients enrolled in this trial. Both patients had their airways replaced with synthetic ones in surgeries in late June this year. Both patients are alive and well and have been discharged from the hospital with no major complications. This clinical trial is funded under a $5 million mega grant from the Russian government and is taking place in Krasnodar in Russia. The Krasnodar Hospital is one of Russia's top hospitals, having performed over 200 organ transplants in the last 2 years. We expect further tracheal transplant surgeries to take place later this year. In addition to these 2 clinical milestones, I'm also pleased to announce a major research milestone. Harvard Bioscience has been awarded approximately $400,000 under a 5-year, $5 million European Union grant. The grant, technically known, as BIOtrachea, biomaterials for tracheal replacement in age-related cancers via a humanly engineered airway, is aimed at both developing better bioreactors and completing a European clinical trial in regenerated airway transplantation for cancer patients. This trial is expected to enroll approximately 25 patients and is expected to start about 18 months from now. Before this formal trial begins, individual patients will continue to be treated on a compassionate case-by-case basis in the same way that Mr. Beyene was treated. The project is a consortium of European companies, hospitals and universities, led by Professor Macchiarini. At this point, his technique is still experimental and can only be used on humans when investigational device regulations have been followed. In addition to our progress on our bioreactor business, we've also made progress on our clinical stem cell therapy injector. We expect to submit this product for regulatory review this year. Based on our progress to date, we expect to get our first revenue this year from a version of the clinical pump that will be able to be sell -- that we will be able to sell for research applications before we get regulatory approval for clinical use. As we've previously announced, we're reviewing our strategic alternatives for maximizing the value we can create for our stockholders in our Regenerative Medicine Device business. Based on feedback we received from potential investors after the announcement of Mr. Beyene's surgery, we feel that both the publication of the results in a journal, now accomplished, and the first surgery in the USA, now approved for humanitarian use by the FDA, could be important steps in the near term that could create value for our stockholders. Hence, we are pursuing these goals, while we continue to progress a possible financing for the Regenerative Medicine Device business. We're seeking additional financing for Regenerative Medicine because we believe there are opportunities to significantly increase the addressable market size in the regenerative medicine field. Evaluating the best funding option has involved addressing complex tax, corporate governance and securities laws issues that have taken longer than we originally anticipated. We continue to progress to a resolution on our approach to funding the R&D business, and we'll make an announcement via press release at an appropriate time. We'll now open the call up to any questions.

[Operator Instructions]

If there are no questions...

I'm showing no questions at this time.

All right. Based on the strength we're seeing in our core Life Sciences Research Tools business and the progress being made in Regenerative Medicine Device business, I'm very optimistic that 2012 will be a good year for Harvard Bioscience. I want to thank everyone for joining our call today. That concludes our call. Thank you.

Ladies and gentlemen, that does concludes today's conference. You may all disconnect, and have a wonderful day.