Harvard Bioscience, Inc. (HBIO) Q3 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Third 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, Mr. Tom McNaughton, CFO. Sir, please begin.

Thank you, John, and good morning, everyone. Thank you for joining us to discuss our results for the third quarter of 2012. Chane Graziano, our CEO; and David Green, our President are also on the call today. After the Safe Harbor statement, I'll turn the call over to Chane and David, who will present comments on the company's third quarter core business performance, on the status of our Regenerative Medicine Device business and our outlook for the fourth quarter and the full year 2012. Following those comments, we will open the call for any questions. In our discussion today, we may 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 third quarter results. Please note that during this call, we will discuss non-GAAP financial measures because we believe those measures provide an enhanced understanding of how our businesses are performing. These non-GAAP measures approximate information used by our management to internally evaluate the operating results of the company. For each non-GAAP financial measure discussed, we will have 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 in 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 in the same location on our website. Our website is located at www.harvardbioscience.com. Lastly, all financial information presented in this conference call relates to our continuing operations, unless otherwise stated. I will now turn the call over to Chane.

Thank you, Tom, and good morning, everyone. As I look at the third quarter of 2012, it was very unusual. We started with a strong July, a good August and then a negative surprise in September, leaving us with a disappointing quarter. I do believe the surprise in September was the effect of researchers conserving their budgets due to the uncertainty of the level of future funding in this political economic environment. Despite the uncertain economic environment, I do believe researchers still have budgets to spend, a clear indication of this is the fact that our fourth quarter got off to a good start, with revenues in October tracking normal historical trends. I'm also optimistic that despite the political economic environment, research funding will not suffer any significant cuts. And therefore, when budgets are approved and grants funded, spending for noncapital items will be back to near normal levels. Most of our revenues are generated from the sale of noncapital items. Additionally, the introduction of the new BioDrop microspectrophotometer line and strong demand for amino acid analyzers in the Asia-Pacific region at our Biochrom subsidiary will have a positive impact on our fourth quarter performance. We will also continue to manage expenses tightly in this economic environment. Based on the current trends, for our core Life Science Research Tools business, we expect our revenues for the year to be in the $111 million to $113 million range, and our non-GAAP adjusted diluted earnings per share to be in the $0.39 to $0.40 range. This is the low end of our original guidance for the year. For the fourth quarter, our Life Sciences Research Tools business, we expect our revenues to be in the $28 million to $30 million range and our non-GAAP adjusted diluted earnings per share to be in the $0.11 to $0.12 range. We continue to make significant clinical progress in our Regenerative Medicine Device business. I will now turn the call over to David.

Thank you, Chane, and good morning, everyone. In our Regenerative Medicine Device Business, we are very pleased to report continued clinical progress. Our current patients continue to do well. Mr.Beyene and is alive and well at 16 months post the surgery. He was given only 2 weeks to live prior to the surgery. The 2 Russian patients, who were the first to enroll in the clinical trial, are also doing well at 4 months post surgery. 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 in the future. In addition to the Russian clinical trial, a European clinical trial in tracheal cancer patients, which is expected to enroll approximately 25 patients, 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. This project is a consortium of European companies, hospitals and universities led by Professor Macchiarini. I'm also pleased to report that a sixth patient has been treated. This patient is still in the hospital. The patient was in a very serious condition and was treated on an emergency basis as an attempt to save the patient's life. The patient's current condition has not been disclosed by the hospital. At this point, the technique is still experimental and can only be used on humans, when investigational device regulations have been followed. In addition to the progress on our bioreactor business, we've also made progress on our clinical stem cell therapy injector. Based on our progress to date, we expect to begin marketing a version of the clinical pump that we will be able to sell for research applications this year. Because of the FDA's heightened scrutiny of infusion pumps and also a number of safety-related infusion pump recalls of existing infusion pumps made by other companies in the recent past, our plan is to get experience with the research-use-only version of this pump before we submit the clinical version for regulatory approval. We expect this submission to be in 2013. As we've previously announced, we're reviewing our strategic alternatives of maximizing the value we can create for our stockholders in our Regenerative Medicine Device Business. Based on the 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 and the initiation of a clinical trial are important steps that could create value for our stockholders. Hence, we are pursuing those goals, while we continue to progress a possible financing for the Regenerative Medicine Device Business, which we now refer to as Harvard Apparatus Regenerative Technology, or HART for short. We are seeking additional financing for HART 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. However, we believe we've made good progress in resolving these issues, and we'll make an announcement via the press release at an appropriate time. We'll now open the call up to any questions.

[Operator Instructions] Okay, I do show one question in this queue. We'll go ahead and take that question from Kelly Cardwell from Central Square Management.

Can you just remind us of the milestones or what you need to do to get from here to spinning out the Regenerative Medicine business or whatever kind of transaction you want to do with that?

Yes, Kelly. It's mostly procedural. I think given the clinical milestones we have achieved now in the last year, some of which I mentioned, like the start of a clinical trial, the publication of Beyene's surgery in a journal and the approval by the FDA of the first surgery in the U.S., we feel like we've met enough of the clinical milestones necessary to create a lot of value for our stockholders in the HART business. So the issues that I think face us at this point are not so much on the clinical side, they're more on the procedural side of how do we actually get through the other issues I mentioned around corporate governance, around SEC issues and tax issues in particular. But we do feel that we've made good progress on those issues now. So I feel like we're moving in the right direction.

[Operator Instructions] Okay, we actually do have one more question, if you would like take that question now?

Sure.

Okay, we'll take it from Will Settle from Woodmont.

We can't hear any question here. I don't know if...

On the procedural questions, have you made a determination as to what the most attractive alternative is? It seems like you're pretty conclusive on having worked through those. So I was just wondering if you could share any more perspective on what would make the most sense?

No, we've not made a determination as to what the exact form of a financing event should be. But I do think we've made a lot of progress towards getting over all the barriers that have to be got over in order for us to actually implement it.

[Operator Instructions]

Okay, no questions?

And I'm showing no questions. So I'd like to turn the conference back to Chane Graziano, Chairman and Chief Executive Officer for closing remarks.

Thank you. I want to thank everyone for joining our call today. Despite the economic -- current economic environment, we are very confident about the future of Harvard Bioscience. Thank you again.

Okay. Ladies and gentlemen, this does conclude your conference. You may now disconnect, and have a great day.