Tuesday, February 3, 2009

Haemonetics Corporation F3Q09 - Edited

Christopher Lindop

The core business remains strong with 12% growth, excluding currency and the TEG acquisition and year-to-date reported revenue growth for the entire business including TEG is 18%. Revenue growth in the quarter came from plasma, diagnostics, and blood banks. Year-to-date all product lines are contributing with solid growth. As we have said many times, we have multiple growth drivers, so let me share more insight.
First I will discuss plasma, our largest business with year-to-date revenues of $150 million. Plasma disposables continue to grow exceptionally well at 30% in the quarter and 31% year-to-date. This growth is driven by market expansion and new contracts. We saw increases in all geographies including Japan as demand for IPIG and albumin outpaced global supplies of plasma. In the US Haemonetics also benefited from a new contract with Octapharma which we announced in Q1 of fiscal ’09. In Japan we saw stronger unit growth combined with a year-over-year price improvement related to a plasma safety enhancement released in Q1 of this year.
It is important to note that plasma-derived drugs are not considered elective treatments and as such are not impacted by current economic trends. Fractionators continue to make investments in their business and industry analysts report that collections are expected to grow about 12% over the next year to meet ongoing drug demands. So as we have shared previously, while we expect plasma growth to moderate from the current extremely high growth rates, we currently expect double-digit revenue growth in the plasma business for the next 24 months.
Blood banks, which are mainly platelet collection disposables, are our second biggest business with $108 million in revenues year-to-date. Blood bank disposables grew 10% in the quarter and 8% year-to-date. The platelet market is growing nominally in developed markets, but we have identified areas for growth in emerging markets, specifically Eastern Europe and parts of Asia. In addition, as you may recall, this year we are benefiting from the market share gains through a contract with Canadian Blood Services. We saw the comparative benefit of the CBS contract through our past quarter. We are pleased that our blood bank business continues to contribute to overall revenue growth as we continue to gain market share in the developed markets and expand markets globally.
Moving to red cells, the red cell disposables business, which has revenues of $37 million year-to-date, grew 5% in the quarter and 7% year-to-date. While more than our original expectations for growth in this product line, our outlook has us growing it between 8% to 10% for the full year.

Brian Concannon
Thanks Chris and good morning everyone. Chris just mentioned two key points: global economic factors and market extremes. Some of you are asking how Haemonetics will be impacted by the turmoil in the global economy, the predicted downturn in elective surgeries and lower capital spending at hospitals. So, let me try to address these questions, but first, let me give you the bottom line.
We expect any negative impact in fiscal ’10 to be modest. Haemonetics is the global leader in blood management solutions, so at the heart of our business is blood and transfusions are a critical part of every health system around the world. Try to run a hospital without blood. It is impossible. Let me share one example.
Recently a leading hospital network, which accounts for about 5% of inpatient admissions in the US, released some key statistics. The company said that for the nine months ended September 2008 blood costs represented 6% of its total expenses. In this period, while its inpatient census grew at about 2% blood costs were rising at nearly 18% year-over-year. This statistic was compared to pharmaceutical costs, which rose at about 1% per year, and med-surg supplies which grew roughly at 5%.
So we know that there are large for profit organizations incurring significant blood costs affecting their income statements. Inevitably, healthcare providers will have to better manage blood costs and they have only two choices, stop surgeries or control the costs of blood. Which is a better financial decision?

Now let me cut this another way. More than 30% of our business is plasma collections and as Chris shared earlier this is a growing market with ongoing demand for plasma derived drugs. Industry analysts see that demand continuing. 35% of our business is platelets and red cell collections and 15% of our business is cardiovascular surgical blood salvage and diagnostics. The fact is, if you need a transfusion as part of you cancer treatment, or if you need heart surgery these are not elective procedures.
The one area where we could have exposure in the changing economic climate is elective surgeries and specifically orthopedic surgical blood salvage. But here our total exposure is just around $35 million annually. Less than 6% of total corporate sales come from our OrthoPAT. The OrthoPAT device can save the hospital costs and the orthopedic surgical blood salvage market is less than 10% penetrated. Downward pressure on large joint procedure reimbursement, a 25% decline in 10 years, combined with increased implant prices is putting pressure on healthcare provider’s profitability. What does all of this mean?
In order for hospitals to make money on a procedure the cost of the surgeon, the nurses, the OR, and yes, the blood products have to be managed. If we can save hospitals money on blood costs in our under penetrated market than some elective surgery issues can be resolved.
Now when you consider that a recent study by the Englewood Hospital in New Jersey estimates the total cost of delivering a unit of blood for transfusion is approximately $1,100.00, the value of avoiding or minimizing transfusion becomes clear. Even in the declining procedure market there is significant opportunity for OrthoPAT growth for market penetration by helping hospitals to control total blood costs.
Let me remind you of Atlantic Health, the health system we spoke about last quarter. Atlantic Health implemented Haemonetics blood management systems and saved about $1 million in blood related costs.
My final point is we place devices and generate revenues from the sale of disposables that save the hospital money every time they are used. With this business model, we avoid the inevitable pressures of tightening capital budgets. We are not in the capital equipment business.
In closing, nearly all of Haemonetics revenue comes from products, systems, and services that healthcare providers need despite a downturn in the economy and pressures on healthcare systems. Our strategy addresses a growing need. We believe we are uniquely positioned in these troubled times as the blood management company. We are the only company which can help customers control blood costs throughout the total blood supply chain from the donor to the patient.

Brad Nutter
I would also mention Dan, that we have seen great balanced growth in all geographies. North America is up 21%, Asia is up 21%, Europe is up 17%, Japan 11%, although we, as Chris indicated, some of that currency. The fact is, this is the first time in a long time that we have seen all of our geographies all growing double digits, so that is a tremendously strong aspect of our business when you consider that more than 50% of our sales are outside of the United States. We like that balanced growth. North America has done that for four years in a row, but it is nice to see both Asia and Europe do it two years in a row.
Source: seekingalpha

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