Scully Royalty Ltd. (SRL) Q1 2008 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Q1 and Fiscal Year 2008 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I'd now like to turn the conference over to Mr. Joshua Young, Director of Investor Relations. You may begin.

Thank you Heather. Good evening. I'd like to welcome everyone to Millipore's first quarter 2008 earnings conference call. My name is Joshua Young, Director of Investor Relations for Millipore. Joining me speakers on today's call are, Martin Madaus, Chairman, President and CEO, and Charlie Wagner, Chief Financial Officer. In addition to the earnings release we issued earlier today, we'll be referring a slide presentation as part of today's call. The presentation can be viewed by clicking on the webcast link on millipore.com homepage, or by accessing Millipore's Investor Relations website. A PDF copy of the slides will be posted to our website after the call. We'll also be highlighting non-GAAP information. A reconciliation of our non-GAAP... of our GAAP financials to our non-GAAP measures is included in our earnings release and posted on our website. Before we begin, I'll make the usual Safe Harbor statement that during the course of this conference call we'll make projections or forward-looking statements regarding future events or the financial performance of the company that involve risks and uncertainties. The company's actual results may differ materially from the projections described in such statements. Factors that might cause such differences include but are not limited to those discussed in today's earnings release and in our Form 10-K as well as other subsequent SEC filing. Also note that the following information related to current business conditions and our outlook as of today April 30, 2008, consistent with our prior practice we do not intend to update our projections based on new information, future events or other reasons prior to the release of our second quarter, 2008 financial results. Now, I would like to turn the call over to Martin Madaus.

Thanks, Joshua. Let me begin covering the highlights of the first quarter. So overall, the first quarter was challenging, but was not surprising. Excluding changes in foreign currency our Bioprocess Division reported a decline in revenues and continued to be adversely affected from a handful of large U.S. biotech customers. This performance that in contrast to out Bioscience Division which delivered solid performance in the first quarter. During the quarter we adjusted to the temporary slowdown in bioprocess by controlling our overall spending and driving efficiency improvements throughout organization. These effort enables us to drive meaningful earnings and cash flow growth in the first quarter. Our non-GAAP earnings per share grew by 8% and we increased our free cash flow by $40 million over the first quarter of last year. I consider this to be solid performance, when you consider the challenges we are facing in bioprocess and the fact that the first quarter has historically been our weakest quarter of earnings and cash flow performance. Even environment while we are seeing much lower organic revenue growth, we are still managing the business to drive profitability and positive cash flow. When our Bioprocess business returns to a normalized revenue growth rate, something that is inline with its average organic growth rate over the past three years, we expect to see a positive impact on our financial performance. There are no new trends in our bioprocess business to report. Our revenues continue to be adversely affected by the same dynamics that began in the third quarter of 2007 and which we've spoken in detail about at our last two earning calls. We are seeing lower spending from a handful of our large U.S. biotech customers as they continue to actively reduce their raw material and finished drug inventories. As a result, the division performed in line with our expectations in Q1 reported the decline revues. Outside of revenues associated with these accounts, our other biotech customers are generating double-digit revenue growth, and we believe, the division's performance will improve in the second half of the year. I'll talk more about what makes us confident about the second half later in the year... later in the call. Now, let's go to Bioscience, a positive highlight in the quarter was the performance of our Bioscience Division which posted solid results in Q1. The key drivers of the business are the strength in our laboratory water business and a very good growth in our drug discovery business, which is small but fast growing. It's a fast growing part of the entire division. The growth in the drug discovery is benefiting from our expanded service and product offerings, and also a shift... fundamental shift we believe by large pharma customers to outsource R&D activities they've historically done in-house. So, Millipore is well positioned to benefit from these trends in 2008 and also beyond. Another key dynamic in the first quarter was the impact that changes in foreign currency had in our financial statements. The euro appreciating unprecedented 8% versus the dollar in the first quarter. Additionally, we saw a strong appreciation in the yen. As a result, changes in foreign currency added 8 percentage points to our top-line growth in Q1. Now a very little of this revenue increase dropped to our bottom-line since these currency changes also drove a significant increase our cost. The net result of the changes in foreign exchange rates has a positive impact in your earnings per share in Q1, which was about $0.02 above the assumptions embedded in our guidance. So, to summarize the key takeaway, in spite of the challenges we faced in Q1 we generated meaningful earnings and cash flow growth. Our Bioprocess business continued to be adversely affected by a handful of our large U.S. biotech customers that offset healthy growth from other segments of the deviation. Finally, we generated solid performance from our Bioscience Division and we are seeing good trends in the overall bioscience market. The balance we have today in our business portfolio, provides us the flexibility to meet our operational objectives, even while we are in a midst of challenging environment in one of our divisions. By expanding our presence in bioscience, we have gained entry into some of most attractive segments of the life science research market which will help us to better whether inevitable short-term fluctuations of our Bioprocess business. So broader bioscience portfolio helps us to manage our business for the long-term. It gives us room to advance initiatives that will strengthen our organization and competitive position in bioprocess even during turbulent periods, such as what we are experiencing today, and this why I'm confident about the future. So our biotech... as our biotech customers return to more normal purchasing patterns, we'll reap the benefits of these investments through higher growth and market share gains. Let me move now to some of the detail for the first quarter. So the first quarter revenues grew 7% totaling $396 million. Excluding change in the foreign currency, revenues declined 1% in the quarter. On a divisional basis, excluding changes in foreign currency, exchange rates for the Bioscience Division generates 6% growth in the quarter, generated good growth in all geographic regions and we made considerable improvements in our life science business. Additionally, we gain momentum through the quarter as new product and new programs were rolled out, I expect that the positive momentum that we generated in Q1 will continue through 2008 as we add new promotional programs, new capabilities and new products. Now a clear standout of the division continues to be a laboratory water business unit. Lab water generates the most consistent performance of any product line in the Millipore portfolio and our growth in the first quarter benefited from strong performance in North America and also Japan. Additionally, we launched our new Milli-Q Integral product at the Mid Cap conference [ph] in March. Integral is a most significant new product we are launching this year [ph]. Very excited about the orders from the initial customers once the product has received very adaptable system that can be used in a very of different water purification steps. This is a third straight year that lab water has successfully launched a major new product and we expect we'll have a very positive impact on the division's performance. Moving on to drug discovery; in our drug discovery business, we benefit from increasing demand both for product and service offerings from the large biotech and larger pharma customers. And within our service offering we're seeing increasing demand particularly for secondary screening, lead optimization and biomarker validation services. On the product side of our business we're seeing very strong growth of the multiplex immunoassay kit we sell with the Luminex instrument, many of our global pharma customers are looking to outsource activities or seeking products that will help them to improve their productivity. We have a unique position in market because we are able to deliver both on product and services to meet their needs and help them to achieve their productivity improvement. Moving on to life science, the life science business unit. We're encouraged to report good trends in Q1. The extensive training of our worldwide direct sales force is paying off nicely, and it's enhancing sales force productivity. Additionally, we are increasing the number of orders process through our newly launched website and a new feature of the website is the antibody learning center which really improves search capabilities and also merchandising and that in turn helps to drive sales through the web. Also if you visited our website during the quarter you should have seen banners on our homepage antibodies sales campaign which was very successful. In short many of the initiatives that we put in place to accelerate growth in the segments of our business are starting to work. Now, it's still too early to claim victory as we would like to see these recent trends play out over several quarters, but I am very encouraged by both the progress, the performance of our life science business. Next I would like to talk in a few minutes just to talk about two new product initiatives that exemplify our strategy of uniquely optimizing scientific work flows and transforming the Bioscience Division from a niche provider to an innovative life science leader. In March, we announced a new alliance with Guava Technologies, an innovative instrumentation company to bring flow cytometry to the bench tops of cell biologist. So we are in the Biosciences Division talking about cell biology. We think this is a very promising alliance and it illustrates our broader strategy in the cell biology market. We are working with Guava to bring reagent kits, instruments and service together into one easy-to-use solution. This solution is unique in enabling research scientist to focus on their research and not in managing the tools they use to conduct the research. Right now we are in the process of developing a series of new of and innovative reagent kits that help our customers to advance in the range of cell biology applications. By using our solutions scientists will avoid the complications that are normally associated with developing assays on their own and they will receive now solution that is tested, that is validated and backed up by Millipore service. This gives us one company stand beyond solution, and increases speed productivity. So, we have talked before of our providing workflow solution that add value to the customer and differentiate us from competitors. And this is a perfect example of how we are actually doing that. That also exemplifies where we are benefiting from the acquisitions we made and in bioscience with these acquisitions completed, our expanded capabilities in development, production, sales, marketing, service, now allow us to develop comprehensive solutions for these customers. This in turn puts us in position to benefit from attractive fast [ph] end market that before the acquisition we could not touch. We will begin selling products from Guava from the Guava partnership in Q3 and we hope to generate very meaningful incremental sale that will help us in 2008. We're also executing our workflow strategy through our internal R&D efforts. Now, we launched a product called SNAP i.d. at the end of Q1. This product is sold into the protein research or immunodetection market. SNAP i.d. is really innovative and is employed in a likely used technique and protein research called Western blotting. SNAP i.d. helps to reduce one step of the Western blotting workflow from four hours down to 30 minutes, provides basically everything in research and needs to complete the experiments in one box. Like Guava, it's an easy-to-use solution that eliminates many variables and eliminates significant guess work for a scientists. We've taken a common technique that is used by tens of thousand of scientists in making it far more efficient. This product is a true innovation and elevates our strategic relationship with the customer and again provides competitive differentiation. It's really an example how our product synergies that we talked about before works. It's reagents, it's antibodies, membranes, plastic disposables and instrumentation all combined in one system. So, with these two examples you can see the Guava partnership and the SNAP i.d. product launch we are bringing two easy-to-use solutions to customers that make scientist work easier and enable them to conduct their research faster with more confidence. We believe that our strategy to uniquely optimizing scientific workflow is going to be successful, is representative of how we transform the Bioscience Division, again from a niche provider into an innovative life science leader. Now moving on the Bioprocess Division. Excluding changes in foreign currency the division's revenues declined 7% in Q1. The division faced a very difficult year-over-year comparison as it grew 10% organically in the first quarter of 2007. Now we've seen some positive elements since the beginning of the year such as the approval of Avastin for breast cancer and Actemra for rheumatoid arthritis in Japan. These events are good but they will likely not affect our performance in 2008. But they will have a positive long-term impact on our overall business and that's good for us. Short term we are continuing to be affected by inventory reductions at handful of a large U.S. biotech customer and similar to the last few quarters for the rest of our Bioprocess business continues to perform as planned and is generating good performance. As a result, we believe that our Bioprocess Division will generate revenue growth in the back half of 2008. So you might ask what gives us confidence in the second... for the second half of '08 improvement. Let me just remind you that we have been affected by lower spending from a handful of largest biotech customers since the third quarter of last year, which resulted in no growth in the second half 2007. Therefore just mathematically, the year-over-year comparison for these accounts is much easier in the second half 2008. We expect the rest of our biotech business to continue to grow double digits and it has for the past several quarter. And we expect this will result in the division returning to growth beginning in the third quarter. We anticipate that our largest biotech customer will stabilize over the next few quarters, but we are not relying on a significant up-tick in the spending from these customers to deliver our 2008 revenue guidance. Many of you know from following the sector there are numerous biotech companies that are driving robust double-digit sales growth in vaccine [Technical Difficulty] and that is helping right now, is creating solid demand for our products. Currently this positive trend is being offset by dramatic declines in the handful of a large U.S. biotech company. As we get to the second half of the year both in these other accounts will benefit the overall performance of the Bioprocess Division. There are two growth areas of the market that are worth highlighting, which are vaccines, and then disposable manufacturing technologies. Our vaccine business is smaller than our business for additive monoclonal antibodies, but it continues to generate very good performance as biopharmaceutical customers make large investments into vaccine manufacturing to support increasing demand. Every major vaccine manufacturer has efforts on their way to move more of their vaccine portfolio into culture based production from the traditional ag-based manufacturing methods that's frequently used. This creates a greater need for Millipore's product and as a result significant increased our of hold [ph] on the vaccines market. Even we are growing number of vaccines in the pipeline that we see today and the growth vaccines that are currently on the market, we expect our vaccine business to continue to grow as a percentage of the overall Bioprocess Division. Now another value part of division has been performance of disposable manufacturing products. And since expanding our presence in disposable manufacturing products a few years ago with the acquisition of Newport Biosystem, we are now operating of at 100% capacity, and these products are among the fastest growing in the Millipore portfolio. Now, disposable manufacturing solutions bring efficiency, flexibility and speed of biotech customers manufacturing operations [ph]. They make basically the manufacturing process shorter reduced the water and energy clot to manufacture these products. They also reduced the upfront capital investments that companies need to make going forward [ph]. Few reasons that we've done so well in this market is that we are able to provide customers with what we call a fully integrated disposable solution that include disposable bags, distorters [ph], the valves, all validated together, all brought to the customers by one supplier, and that is what customers are demanding and we are in a unique position to meet this need given our leading position in filtration. In order to support the high growth of the business during Q1, we made a capital investment into our new manufacturing capacity at our Danvers, Massachusetts facility, both expanding here. Now before I turn the call over to Charlie, I want to leave you with a few closing thoughts. Down in our large path process accounts made Q1 the challenging quarter but I was happy by the way we responded to these conditions in order to generate good cash flow and earnings growth. We projected the bioprocess division will resume growth in the second half of the year and we remain well positioned to benefit from the growth in the biotech industry over the long term. I am pleased with the progress we are making on our bioscience business. Investment and growth initiative we made in the business in recent years have provided us important talents and improves our ability to drive to higher profitability and cash flow. And we continue to believe that we will generate better financial performance in second half of the year, we remain on track to hit our operational and financial targets in 2008. Now, I'll turn the call over to Charlie.

Thanks Martin. I'll now provide some additional details on Q1, 2008 financial performance beginning with the discussion of our GAAP performance in the quarter. So, as previously mentioned revenues grew 7% over the last year with 8 percentage points of growth coming from changes in foreign exchange rates. Our GAAP operating margin increased to 14.5% up from 10.6% in Q1, 2007 with the most significant driver of the increase being the absence of acquisition and integration related charges during the first quarter of 2008. Our earnings per share were $0.59 a $0.10 increase over Q1 and as a reminder Q1 2007 GAAP results benefited from a $9 million reversal of the tax reserves. On the next slide we show our Q1 2008 non-GAAP operating results. I'd encourage you to review the non-GAAP reconciliation table in the press release for the detail of our adjustments. Martin already provided divisional views of our revenue dynamics, I'll add some color from the geographic perspective. Excluding effects of foreign currency translations, revenues in Americas declined 11% in the first quarter due to the softness in U.S. Biotech accounts. Europe increased 4% and Asia Pacific revenues grew 12% in Q1 2008. Our Q1 2008 non-GAAP gross margin of 53.7% was down 160 basis points on a year-over-year basis largely due to the appreciation of the euro and also partly due to lower volume of manufacturing in our bioprocess division plants. Non-GAAP SG&A expenses represented 28.3% of sales, compared to 28.6% in Q1 '07 an improvement of 30 basis points. Non-GAAP R&D spending represented approximately 6.3% of sales, a decrease of approximately 100 basis points over Q1 2007. We have adjusted to the temporary slowdown in Bioprocess by controlling our overall spending and driving efficiency improvements throughout the organization. This is included delaying some discretionary spending while continuing to fund longer term strategic initiatives in both SG&A and R&D. Our non-GAAP operating margin of 19.1% decreased 30 basis points over the last year first quarter primarily due to the lower gross margins. Our non-GAAP tax rate in Q1 was approximately 26% and EPS was $0.80 an increase of 8% over Q1 2007. Cash flow from operations during the quarter was approximately $40 million which represented an increase of approximately $31 million over the first quarter of last year. Depreciation and amortization was $32.6 million in Q1. Factoring in CapEx spending of $13 million during the first quarter we generated approximately $27 million of free cash flow an increase of $40 million over Q1 of 2007. With that free cash flow we paid down approximately $40 million of debt in Q1 2008 and over the past four quarters we have made payments totaling $213 million towards reducing our debt. Cash flow and debt reduction have been a key priority for the management team and we are effectively executing against this priority. At the end of the first quarter net accounts receivable are approximately $330 million representing 74 days outstanding which were up from 67 days at both the end of '07 and Q1 '07. The increase is almost entirely due to lower collections in Europe resulting from the timing of certain holidays. We expect that this will improve in Q2 and will see a reduction of several days. Inventory at the end of the first quarter was approximately $291 million representing a 138 days of supply which was up 11 days from last years first quarter, but flat sequentially. A significant driver of the year be our increase in inventory levels is related to the appreciation of the euro. So to summarize the first quarter of 2008 came in pretty much as expected lower organic revenue growth as we continued to see reduced spending in handful of our large U.S. biotech customers to offset by solid growth in bioscience. Despite the lower growth, we generate meaningful earnings growth and we increased our free cash flow by approximately $40 million. We anticipated the sales slowdown bioprocess and managed our business accordingly to drive earnings and cash flow during the quarter. Before turning to guidance I want to spend just a few minutes providing some additional detail regarding two factors that continued to impact our reported results. First the dollar is recent weakening against the euro. Because we've significant manufacturing operation in Ireland and France, the stronger euro translates in the higher reported manufacturing cost. Although the stronger euro is hurting our reported gross margin percentage as I mentioned earlier it has a positive impact on reported revenue and a very small positive impact on our bottom-line overall. In addition of the currency changes higher cost related to FAS 123R will continue to have an affect on our financial results this year. For the first quarter FAS 123R expense were $0.06 a share compared to $0.03 per share in Q1 '07 inline with increase share within you on our last earnings call. Now turning to our 2008 guidance due to changes in foreign exchange rates we now expect total revenue growth of approximately 8% to 9% in 2008 with approximately 4 percentage point more of that growth coming from changes in foreign currency. This is an increase from our previous guidance of 6% to 7% of total revenue growth including 2 percentage points of that coming from currency. We expect that the top-line impact from changes in foreign currency will become less pronounced in the second half of the year and our guidance for full-year organic revenue growth of 4% to 5% remains unchanged. We are confirming the remaining guidance we provided when we reported our Q4 result on January 31st. As previously mentioned currency changes provided $0.02 benefit in Q1 relative to our guidance if current rates prevail during the remainder of the year we'll see some additional earnings upside, however, we also had cost that were incorporated in our original outlook and we've many decision yet to make about the level and timing of funding for certain initiative. At this early point of the year we're maintaining our EPS guidance of $3.58 to $3.63 per share and we'll update the guidance as appropriate over the course of the year. We continue to project that our FAS 123R expense will grow from $16 million or $0.20 share in 2007 to $23 million to $24 million or $0.28 to $0.29 share in 2008. Since we anticipate that our handful of our large U.S. biotech accounts will continue to represent a headwind through the second-quarter, we expect that our revenue and earning growth will be more pronounced in the second half of the year. Moving to our cash forecast, we continue to expect that 2008 will be a very strong year of cash flow and will generate $150 million of free cash flow defined as cash flow from operation less capital expenditure. With that let me turn the call back over to Joshua to begin the Q&A.

Heather, please assemble the Q&A roaster. Question And Answer

[Operator Instructions]. Our first question comes the line of Tycho Peterson with JP Morgan.

Hey good afternoon.

HI Tycho.

Maybe just following up on your comment a moment ago, Charlie about the maybe rationalizing R&D a little bit, can you give us a sense as to how you are seeing should we think about the spend over the course of the year. I mean is there broader R&D rationalization after happening here or is it, just kind of a short term anomaly that you are working for a couple of quarters. I guess the question is what's the reasonable run rate for the year?

Yeah, I would say that you can't draw a reasonable run rate conclusion from Q1 couple of factors there. Q1 of last year was an especially high quarter for R&D spend associated with some of the products that are now launching in the Lab Water business so that just affect the comparison little bit. And then also in the Q1 of this year we have managed a little bit of discretionary spending from a timing standpoint. So, you shouldn't necessarily look at Q1 as indicative that way we're committed to continuing to invest in the business to drive innovation. And R&D levels should be relatively consistent with what they have been in the past.

Okay and as we think about some of the strategies, lay down the path around putting... I think you talked about that has a portfolio being kitable at some point and may be just with the commentary made on Guava are there obvious opportunities around that collaboration to poke to other consumables and we know where we think we are in terms of percentage of the portfolio that you've been able successfully drive forward?

Yeah, we've never given a clear indication that portfolio could be kitting [ph]. I mean we're moving towards that but I wouldn't count on have of the bio science portfolio. There is a tendency for customers to adopts kits faster because its easier to use and as we see opportunities to combine it. We'll move more towards kits. There are two examples of kits one is our Illuminex business where averaging is basically and a kit and we're expanding those businesses and are growing well. So that's an indication that kitting is a good strategy and for Guava this is brand new and as we enter Q3 we'll be more specific on how many kits will launch but all these products will be kitted, but I am not going to say its 50% or 40%, its just a general trend in the market and its driven by providing the customer with a solution that's easier to use. That's how you should think about it.

And then just finally on the competitive landscape given that we saw GE pick up a lot I mean can you give us a sense to whether there is an opportunity there in your view to gain some sharing where the obviously that goes a lot maybe?

There is a little bit of overlap with the former Whatman [ph] business and whenever they say there is an acquisition, there is a degree of disruption in the target and so of course that can be exploited but we didn't see Whatman [ph] as a really strong player in the market and really not a core competitor. So, it has a little impact on us.

Okay. Thank you very much.

Our next question comes from the line of Jonathan Groberg with Merrill Lynch.

Hi good evening. Thanks for taking the call.

Hey Jon.

Good evening.

Just following up on your discussion about process you started to launch into why you felt more comfortable at the rebound in the second half but then I just I heard things still this easier comparisons and then you expect stabilize revenues but necessarily an uptake. Is there any progress or is there anything that can be done to work to better forecast or work with your bio-process customers so that you actually get them to commit the certain levels of those spending is that all in the table or something that you could do?

Yeah, this is a very good question and that's exactly what we are doing on an on-going basis trying to get to a much better visibility going down to plant level forecast, shift level forecasting and really understand how we can reduce some of the uncertainty which I know you and your colleagues don't like it. Its unfortunately, you can improve it a bit but there is a level of unpredictability which is a nature of bio-tech that makes customers to adjust forecast or you may get a forecast one quarter but then you then it will be downward adjustment that can impact your revenues in that quarter. So its always difficult to predict it exactly right by the quarter and I always encourage people to look at the underlying long term trends because this is really a long term business and one quarter can be almost meaningless. So we are trying to be as transparent as possible but and we will improve it over time but fundamentally this is a business that can change quarter-to-quarter. It's just the truth.

For having said that are you or as you ended the quarter or are you getting any indications from some of these big US customers that they have may be worked through some of their inventory issues or are getting to a point that you are hearing some communication that makes you feel like more comfortable in the second half of the year.

Well with this there is number change from the previous call and we are counting... we are not counting on major uptake as I said in the second half, we think it will stabilize so in our guidance and our financial forecast we assume that utilization. And increase from the other accounts so as that changes and better news we would update of course everyone but at this point we just assume stabilization and not another major uptake.

But are you starting to see a name and in my question is are you starting to see some sense that it is stabilizing or will stabilizeI am just wondering are you hearing from the ground level any thing that gives you comfort in your forecast that it should stabilize?

Yeah I mean there is an end to it, I mean the major pharmaceuticals we are talking about they are growing and they are not just growing as fast but if there is no change they are doing fine with a few notable exception about overall the categories doing fine and we are seeing really good pipeline activity and we are seeing a lot of activity around our new products being evaluated for we expect into the pipeline. So the industry itself actually I would say has become more I think more promising for the future because of the increase in the pipeline. But the short term our focus is still hasn't changed from few months ago. So I would say it's leveling out.

Okay, and then shifting to the bioscience division. I think second quarter where you talked about label order and drug discovery have you really mention life and you talked about after and you didn't mentioned life sciences are stand out. Is there any kind of where do tell you are in terms of having a sales force that's fully educated enough speed and maybe getting that to be a division that you talk about in terms of been adding more to growth on the bioscience?

When you look the contribution from bioscience its much bigger and hence actually increased over last quarter. So it has become much more meaningful overall for Millipore into much more much larger bio science business that has impact I would say. And ...

Talk something specific about the life science?

Life science is a substantial part or largest part of the bioscience division. And we have good growth overall in reagents and certain substance have done pretty well. And sales was execution is good, but its like an orchestra, you need new product, you need a very good supply, you need a strong website, you need a good sales force and you need global presence. So in all these five or six different elements or levers to drive sales will be made major improvement. So its not 100% yet but its again quarter-over-quarter improvement. And again Q1 '08 was another quarter-over-quarter improvement so we are on track with that business.

Our next question comes from the line of Jon Wood with Bank of America Securities.

Hi, thanks a lot. Lab Water grow materially ahead of the 6% bio science rate in the quarter?

They grew although faster but we don't really break it down quarterly growth rates but they grew... I mentioned it because they grew very well in the quarter.

And then it just I term of the geographic dispersion would you say there was any material difference in the growth rates US, Europe and Asia in Lab Water?

Asia was growing in Lab Water, we would have to look that up, and we don't break this our... at that level of details but Asia overall in bio science has brought well again.

Okay. And then Charlie, what do you have on the guidance in terms of the effects benefit to EPS for the full year now, how does it compared to the initial projection?

We... so we haven't updated the guidance at all as I mentioned there was two sense of benefit in first-quarter relative to what we had given at the be ginning the year obviously if currently rates hold there will be additional benefit over in subsequence quarters during the year as I mentioned is also a variety about other costs and other decisions yet to be made, so if you cannot put that together at this point early in the year we're just not changing the number and if we need to change it later in the year we will.

Understood, so basically the benefit at today's exchanged rates is effectively in your guidance? Correct.

Sure, yeah.

Okay and then wanted to know have you guys been active in revealing strategic acquisitions and if an appropriate opportunity will be present this year, do you think you have the capacity to do a deal?

Absolutely, yeah. All depends on the what the deal is and what the size is, but yeah absolutely.

And you would be comfortable with issuing stock for transaction if you needed to?

I am not willing to discuss the financing strategy for a hypothetical deal. So I would say let's leave that kind of discussion to when we come to actually the transaction.

Okay, thanks a lot.

Thanks, John.

[Operator Instructions] Our next question comes from the line of Tyco Peterson.

Thanks for taking the follow up. Just on the manufacturing side, I mean it sounds like obviously there is excitement about the disposable opportunity going forward, can you give a sense as to how big you think that business could be, may be just in terms of a percentage of the provision if you want over the next year or two, and then also MilliPROBE, if there is any update now that you have begun shipping the initial asset?

Yeah. And as a percentage of the division.

Well. however you want to identify the market opportunity, it would be helpful to know where we are in the adoption curve of the disposables?

We are in the early growth phase as the market is converting more over to these first individual products and now more and more to complete solutions, which are these complete assemblies with filters back connectors and valves and I think we are in the early stage and the market is estimated to be between $300 million an $500 million probably worth and we think that the major players are growing at least 20%. So this is a growth market at far outstrips other markets and the opportunity for us is to combine the various capabilities that we have assembled and provide the solution from one supplier. Today most of the other competitions, actually everyone has to go to multiple suppliers and kind of assemble at customer [ph]. Our goal is to do it from one supplier. So we're coming out this year with a number of new products and assemblies which will quite be competitive and unique. Our goal in this growing market is actually to outpace of the market and grow faster and grow market share because if you remember from previous calls, we are not the market leader in this segment yet, but we will be in a few years. So translating this into revenue will be meaningful. I don't know what percentage, right, from the top of my head, but it's something important for you to track and because we're making investments and we're getting tractions in the market right now. We could actually sell more if we have more capacity right now.

Okay. And then in terms of process motoring, I mean both the MilliPROBE and you talked about some of RFID products --?

Yeah, MilliPROBE is in customer.. few customer trials right now. And as you know, these products are extensively tested before they are fully adopted, but that's pretty much on track. RFID, there is no needs really, that's kind of... I see it more product feature that we add to our line up.

Okay. And then just actually one more on pricing. Can you give us a sense as to whether there is pricing increase on the life science business or more broadly speaking, in biosciences at the beginning of the year?

It varies very much by geography, but overall I'd say there is a slight net price increase that you can obtain in a year overall.

Okay. Thank you.

Our next question comes from the line Derik De Bruin with UBS.

Hi, good afternoon.

Hello

Hi, Derik.

Martin, I was a little surprised to see or try or surprised to see the decline sequentially in interest expense given away $40 million with pay down of debt. Would it just be overall decline in interest rate? I guess, you just gave us some guidance for what you are seeing for interest expense for the full year.

Derik, we haven't given out guidance for interest expense, but could you state the beginning of your question., I didn't quite follow it.

No, I just was... I mean, I looking at what.. the way I calculate it... what you reported for interest expense in the fourth quarter relative to what reported this quarter and you only paid down $40 million in debt. I was just a little bit surprised to see the delta. Just wandering if that's decline in the overall... what you are paying for interest expense?

It's a little bit of rate, but also we paid down a lot in the fourth quarter and it happened later in the fourth quarter.

Okay, that's helpful, great.

The weighted average is much better in the first quarter of this year.

Perfect, that's great. Thanks. And I guess, Martin, I certainly... I am not biotech analyst and certainly acknowledge that you have easier comps in the second half of year by a process. When I look at kind of like the biotech pipeline, I am really hard pressed to see growth from new indications, I mean, from existing drugs. I mean, doesn't look like there is anything meaning potentially to get proved. I guess, when you look at the biotech pipeline, and you look at what's out there, do you see any potential surprises to be upside in terms of new indications, new drugs being approved?

Yeah, there are several drugs in development that if they hit and they deliver on their targets, there will be further growth in the market. And I would say on our first comment, there are several biotech, large biotech drugs that have very good growth rates at this point. When you take the aggregate of, let's say, the top ten biotech drugs, that's unfortunately overshadowed by declines in other major drugs. So, that's why the overall industry in aggregate is down. But if you are focusing on certain molecules and then put vaccines on top, put adoption of disposal manufacturing on top, put new product on top, which in some cases are actually competitive conversations. It actually is pretty descent even in... at time what kind of the major drugs that used to grow in the 20s are only growing single digit. It's actually pretty good. That's why I think it's going to come back to more normal range.

Okay, that's helpful. And since you mentioned vaccines, can you just give us some idea on what chunk of that business you are... and what's the profitability difference between your vaccine business and biologics business?

There is no material differences there, it's basically just different application for a range of products that we use.

The overall amount of vaccine being produced is usually a lot less than the overall amount of molecule antibody drugs.

That's correct, yes. It's kind of a different animal, it's smaller batches, more diverse products. So you need a more flexible production step up, which is again more conducive to disposable solutions. And you need slightly different applications. So you use existing technology, but you develop a different application, that's the main thing. But if you look at the pipeline of the major vaccine companies, there is a whole new level of interest. And vaccines are particularly outside of U.S. vaccines... in Asia, Latin America and various affectively in countries where public health is critical and funded by the government. So it's kind of a nice add-on in those countries where they don't have biotech yet, we see good uptick in vaccines. So, that's hwy it's good. And I would say the other part is with the success of Gardasil and these kind of new generation of the therapeutic vaccines, there is of course a lot of interest in the pipeline to develop similar type drugs for other cancer applications, so that's why there is a renewed interest I think you saw Novartis making announcement on cancer center somewhere in Europe and so it's a fair amount of interest though is coming back so.

Great and then just one final question typically serving every lab that I was in the first thing when we built the new lab it install a molecule through some a Lab Water systems you have given the pick up you have seen the first quarter is are you seeing your new systems in every placement for existing filler [ph] systems or is it actually grow new lab construction plan?

Its both actually in the way the business works is the we have a very large install base and after some time the systems are right for replacement and you sale a new instrument in to your existing base that's one, the [indiscernible] is some what unique because it combines units and makes it much simpler then we go after conversion of centralized systems, so in other words if you have a centralized system that is not really performing to what a lab needs as you install upon a new system, so that would be new business and then we are also growing the application in the clinical diagnostic market quite a bit.

Thank you very much.

Our next question comes from the line of David Chum [ph] with the Lehman Brothers.

Thank you very much thanks for taking my question, thanks for all the color around that geographic growth sincerely had a lot of growth in Europe and in Asia, I was just wondering if you could remind us in general of the, gross and the operating margin differences among bio-science and bio-process?

Okay. We've talked about this before and other call and there is no significant difference in margins... operating margins between the two divisions [Audio Gap]. There are on the regional basis we really don't manage the business level we don't [Audio Gap] we managed globally by divisions so but also there its been no huge differences that I know of, Charlie [ph] would you comment on this.

Yeah. No, its not significant differences by business or by geography. I would say there are some businesses that we have, that have lower profitability such as the art of the business and process and that's one of the reasons and given also the raw material cost increase that many manufacturers have been... have seen. So, while we have de emphasize this product line in the last couple of years and will continue to do so. So, we managed profitably really on a global and divisional level by focusing on certain product lines and families.

Okay, thanks very much.

Our next question comes from the line of Michael Churney [ph] with Deutsche Bank

Hey guys. You spoke a little bit about the vaccines business and some of the factors have seen that is often disposal business. What percent of the overall bio process business are those two pieces?

David ph], that's a part of our downstream processing business we are just 40% of revenue but we don't break out specifically how much is related to vaccines or disposal manufacturing. We have characterized them as small but very fast growing segments of the business right now.

And when you say fast growing you're talking about significantly above the general company average or?

Oh yeah significantly above that and in the double-digit.

Okay I think most of my questions are answered thanks.

Okay.

our next question comes from the line Peter Lawson with Thomas Weisel and Partners.

Hi this is actually Eric [ph] for peter. Thanks for taking my question. I was wondering one if you can provide may be bit more color on what types of products or products segments are driving growth in both Asia and in Europe?

Okay we mentioned let's go by the vision. We mentioned the disposable product lines which are growing very well and again flass [ph] it's a combination of one time use capsules backs and connectors is going well. Our and that includes for example also the novaseptic [ph] business that we try that's helping with growth. We're seeing good growth in drug discovery also in Europe. Latin Asia a smaller market but definitely in Europe. With drug discovery in Asia we're seeing again good growth in that water. And in Japan in particular and I highlighted that and also in Japan we had a good growth in bioprocess as well.

Hey great thank you for that color. And I guess similarly in the U.S. any particular things that stand out for strength in life science segments and how was government funding positively or negatively impacting you there?

In U.S. the stand out I'd say what be again the launch of the new Lab Water systems which helps to drive the growth and drug discovery with our multiplexing system and our by market validation service and then good growth I stem cells the funding has been unchanged from our perspective and [indiscernible] not a big up take not a big down turn so we try to target segments that have them attractive funding that you know give them that where the agent company were less depended on capital approvals.

Great and just one last question as far as the raising price of commodities go, how much does the I guess increasing well price set you and do you have that kind of budgeted at certain type of certain level of well price effecting inside plastic anything or how is that flowing into you guys now?

Well so far we obviously like everyone else is increase in energy cost and raw material based and oil based products, so far thanks to our very efficient and manufacturing and purchasing organization with connecting to offset this kind of increases. We look all the time that efficiency improvements to drive better margins growth but also to offset in cost increase so, so far and also for this year we expect to complete the offset that with efficiency.

Okay, its very helpful, thanks a lot.

That's all the time we have allotted for today's conference call, I would now like to turn the call back to Martin Madaus for closing remarks.

Okay, so thank you everyone for participating at the conference call today. We think that Millipore offers investors the opportunity to own really a leading franchise and exciting life science research market and also biotech market, that can't fluctuate as we talked about today in the term but really offers good long term growth prospect. We hopefully we have the opportunity see many of you at the upcoming Deutsche bank and Banc of America conferences. And we also encourage you to visit us in [indiscernible] Massachusetts at offices. Thank you very much.

Thank you for your participation in today's Millipore Q1 and fiscal year 2008 earnings release conference call. You may now disconnect.