Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
VIVO > SEC Filings for VIVO > Form 10-Q on 10-Feb-2014All Recent SEC Filings

Show all filings for MERIDIAN BIOSCIENCE INC

Form 10-Q for MERIDIAN BIOSCIENCE INC


10-Feb-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Refer to "Forward Looking Statements" following the Table of Contents in front of this Form 10-Q. In the discussion that follows, all dollar amounts are in thousands (both tables and text), except per share data.

Following is a discussion and analysis of the financial statements and other statistical data that management believes will enhance the understanding of Meridian's financial condition, changes in financial condition and results of operations. This discussion should be read in conjunction with the financial statements and notes thereto beginning on page 1.

Results of Operations

Net earnings for the first quarter of fiscal 2014 decreased 12% to $7,426, or $0.18 per diluted share, from net earnings for the first quarter of fiscal 2013 of $8,474, or $0.20 per diluted share. This decrease reflects the combined effects of decreased sales, slightly decreased gross profit margins and modestly increased operating expenses, along with the negative effect of $400 (pre-tax) of medical device tax that did not exist during the first quarter of fiscal 2013 (see discussion in Medical Device Tax below). Consolidated sales decreased 1% to $44,794 for the first quarter of fiscal 2014 compared to the same period of the prior year. Contributing to this decrease were decreased sales in our largest diagnostic focus product family (C. difficile), our respiratory product family and our Life Science segment's immunoassay component business. Serving to partially offset these sales decreases were increased sales in our H. pylori focus product family, as well as our Life Science segment's molecular component business. Included within the first quarter 2014 results were sales of our illumigene® molecular platform of products totaling $8,495, representing a 15% increase over the fiscal 2013 first quarter.

Sales for the Diagnostics segment for the first quarter of fiscal 2014 decreased 2% compared to the first quarter of fiscal 2013, reflecting the following for each of our focus product families: 11% decline in our C. difficile products, 8% growth in our H. pylori products, and 1% growth in our foodborne products. In addition, we experienced a 19% decline in sales of our respiratory products compared to the prior year fiscal first quarter. With 16% growth in its molecular component business being partially offset by a 7% decline in its immunoassay component businesses, sales of our Life Science segment increased by 3% during the first quarter of fiscal 2014 compared to the first quarter of fiscal 2013.

REVENUE OVERVIEW

Below are analyses of the Company's revenue, provided for each of the following:

- By Reportable Segment & Geographic Region

- By Product Platform/Type

- By Disease Family (Diagnostics only)

Revenue Overview- By Reportable Segment & Geographic Region

Our reportable segments are Diagnostics and Life Science. The Diagnostics segment is headquartered in Cincinnati, Ohio, which also serves as the base of manufacturing operations and research and development. The Diagnostics segment sells diagnostic test kits in the U.S. and Canada ("North America"); Europe, Middle East and Africa ("EMEA"); and other countries outside of North America and EMEA (rest of the world, or "ROW"). The Life Science segment consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; Luckenwalde, Germany; and Sydney, Australia, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells and bioresearch reagents domestically and abroad, including a sales and business development location in Singapore. The Life Science segment also includes the contract development and manufacture of cGMP clinical grade proteins and other biologicals for use by biopharmaceutical and biotechnology companies engaged in research for new drugs and vaccines.

Revenues for the Diagnostics segment, in the normal course of business, may be affected from quarter to quarter by buying patterns of major distributors, seasonality and strength of certain diseases, and foreign currency exchange rates. Revenues for the Life Science segment, in the normal course of business, may be affected from quarter to

Page 12


Table of Contents

quarter by the timing and nature of arrangements for contract services work, which may have longer production cycles than bioresearch reagents and bulk antigens and antibodies, as well as buying patterns of major customers, and foreign currency exchange rates. We believe that the overall breadth of our product lines serves to reduce the variability in consolidated revenues.

                                       Three Months Ended December 31,
                                   2013               2012          Inc(Dec)
           Diagnostics -
           North America        $    27,943        $    28,814             (3 )%
           EMEA                       5,373              5,129              5 %
           ROW                        1,521              1,726            (12 )%

           Total Diagnostics         34,837             35,669             (2 )%

           Life Science -
           North America              4,306              4,251              1 %
           EMEA                       3,810              4,126             (8 )%
           ROW                        1,841              1,305             41 %

           Total Life Science         9,957              9,682              3 %

           Consolidated         $    44,794        $    45,351             (1 )%

           % of total sales -
           Diagnostics                   78 %               79 %
           Life Science                  22 %               21 %

           Total                        100 %              100 %

           Ex-North America              28 %               27 %

Revenue Overview- By Product Platform/Type

The revenues generated by each of our reportable segments result primarily from the sale of the following segment-specific categories of products:

Diagnostics

1) Molecular tests that operate on our illumigene platform

2) Immunoassay tests

Life Science

1) Molecular components

2) Immunoassay components

Revenue for each product platform/type, as well as its relative percentage of segment revenue, is shown below.

                                        Three Months Ended December 31,
                                     2013               2012          Inc(Dec)
        Diagnostics -
        Molecular                $      8,495       $      7,394             15 %
        Immunoassay                    26,342             28,275             (7 )%

        Total Diagnostics        $     34,837       $     35,669             (2 )%

        Life Science -
        Molecular components     $      4,870       $      4,196             16 %
        Immunoassay components          5,087              5,486             (7 )%

        Total Life Science       $      9,957       $      9,682              3 %

Page 13


Table of Contents
% of Diagnostics sales - Molecular 24 % 21 % Immunoassay 76 % 79 %

Total Diagnostics 100 % 100 %

% of Life Science sales -
Molecular components 49 % 43 %
Immunoassay components 51 % 57 %

Total Life Science 100 % 100 %

Following is a discussion of the revenues generated by each of these product platforms/types:

Diagnostics Products

illumigene Molecular Platform Products

We have just over 1,200 customer account placements. Of these account placements, over 1,000 accounts have completed evaluations and validations and are regularly purchasing product, with the balance of our account placements being in some stage of product evaluation and/or validation. Of our account placements, we have over 200 accounts that are regularly purchasing, evaluating and/or validating two or more assays.

We continue to invest in new product development for our molecular testing platform, illumigene. This platform now has four commercialized tests, with one additional test expected to be available for sale later in fiscal 2014 and three additional tests in fiscal 2015:

1. illumigene® C. difficile - commercialized in August 2010

2. illumigene® Group B Streptococcus (Group B Strep or GBS) - commercialized in December 2011

3. illumigene® Group A Streptococcus (Group A Strep) - commercialized in September 2012

4. illumigene® Mycoplasma (M. pneumonia; walking pneumonia) - commercialized in June 2013

5. illumigene® Bordetella pertussis (whooping cough) - expected fiscal 2014

6. illumigene® Chlamydia trachomatis - expected fiscal 2015

7. illumigene® Neisseria gonorrhea - expected fiscal 2015

8. illumigene® Herpes Simplex Virus I & II - expected fiscal 2015

Additional illumigene tests in early-stage research or development include enteric parasites such as Giardia, foodborne pathogens such as E. coli, and bloodborne pathogens such as malaria.

We believe that the diagnostic testing market is continuing to move away from culture and immunoassay testing to molecular testing for diseases where there is a favorable cost/benefit position for the total cost of healthcare. While this market is competitive, with molecular companies such as Cepheid and Becton Dickinson and new entrants such as Quidel, Great Basin, Nanosphere, and others, we believe we are well positioned to capitalize on the migration to molecular testing. Our simple, easy-to-use, illumigene platform, with its expanding menu, requires no expensive equipment purchase and little to no maintenance cost. These features, along with its small footprint and the performance of the illumigene assays, make illumigene an attractive molecular platform to any size hospital.

Immunoassay Products

Sales of our Diagnostic segment's immunoassay products decreased 7% in the first quarter of fiscal 2014. This current quarter decrease results primarily from the decline in sales of our C. difficile and respiratory products, partially offset by the revenue growth of our H. pylori products, as described below.

Life Science Products

During the first quarter of fiscal 2014, sales of our Life Science segment increased 3%, with sales of our molecular component business increasing 16% over the comparable fiscal 2013 quarter and sales of our immunoassay component business decreasing 7%. Our molecular component business continues to benefit from new product launches and advancements - most notably SensiFAST™ and MyTaq™ PCR components. The first quarter sales level of our bulk immunoassay component business reflects the effect of certain customer shipments being delayed until the fiscal 2014 second quarter.

Page 14


Table of Contents

Diagnostic Revenue Overview- By Disease Family

Sales from our focus families (C. difficile, foodborne and H. pylori) comprised 60% of our Diagnostics segment's revenue during each of the first quarter of fiscal 2014 and 2013. Following is a discussion of the revenues generated by each product family:

C. difficile Products

During the fiscal 2014 first quarter our C. difficile product family sales totaled $8,600, representing a decline of 11% from the first quarter of fiscal 2013. Due to factors including reduced hospital admissions and declining C. difficile incidence rates in hospitals putting further pressure on an already competitive market, sales decreases were experienced in both our illumigene C. difficile product, which represents approximately 75% of total C. difficile revenues, and our immunoassay C. difficile product. While the C. difficile market continues to be highly competitive, we are the only company that can offer a full range of high performing, FDA cleared, C. difficile testing formats, including toxin, GDH and molecular tests.

Foodborne Products

With first quarter fiscal 2014 sales totaling $5,700, or 1% growth over the fiscal 2013 first quarter, we continue to see demand for our foodborne products, all of which are immunoassay products. Despite these sales results reflecting the negative impact of buying patterns for these products, laboratories continue to realize the benefits of increased sensitivity and faster turnaround time with our fully CDC compliant rapid immunoassay tests for Enterohemorrhagic E. coli (EHEC) and Campylobacter, compared to traditional culture methods. While historically the primary competition for our foodborne products has been laboratory culture methods, during 2012 one of our competitors, Alere, cleared through the FDA a shiga toxin test that competes with our EHEC test. We believe that our products have two principal advantages versus culture methods: (i) test accuracy; and (ii) improved work flow, resulting in a significantly shortened time to test result (20 minutes vs. 24-48 hours for culture).

H. pylori Products

During the fiscal 2014 first quarter, sales of our H. pylori products, all of which are immunoassay products, grew 8% to $6,500. This increase continues to reflect the benefits of our partnerships with managed care companies in promoting the health and economic benefits of a test and treat strategy, and the ongoing effects of such strategy moving physician behavior away from serology-based testing toward direct antigen testing. A significant amount of the H. pylori product sales are to reference labs, whose buying patterns may not be consistent period to period.

Respiratory Products

Total respiratory sales for our Diagnostics segment decreased 19% to $4,800 during the fiscal 2014 first quarter. Contributing to this volume were decreased sales of influenza products, reflecting the relative late start of this year's influenza season, compared to last year's. Partially offsetting the impact of lower influenza product sales was growth in our illumigene Group A Strep and illumigene Mycoplasma products, which received FDA approval in September 2012 and June 2013, respectively.

Foreign Currency

During the first quarter of fiscal 2014, currency exchange rates had a $150 favorable impact on revenue; $200 favorable within the Diagnostics segment and $50 unfavorable in the Life Science segment.

Significant Customers

Two U.S. distributors accounted for 38% and 47% of our Diagnostics segment's total sales for first quarter of fiscal 2014 and 2013, respectively. These sales represented 29% and 37% of consolidated sales for the fiscal 2014 and 2013 first quarters, respectively.

Within our Life Science segment, two diagnostic manufacturing customers accounted for 10% and 18% of the segment's total sales for the first quarter of fiscal 2014 and 2013, respectively.

Page 15


Table of Contents

Medical Device Tax

On January 1, 2013, the medical device tax established as part of the U.S. healthcare reform legislation became effective, and as a result, the Company made its first required tax deposit near the end of January 2013. During the first quarter of fiscal 2014, the Company recorded approximately $400 of medical device tax expense, which is reflected as a component of cost of sales in the accompanying Condensed Consolidated Statements of Operations.

Gross Profit



                                       Three Months Ended December 31,
                                      2013            2012         Change
             Gross Profit          $   28,007       $ 28,796             (3 )%
             Gross Profit Margin           63 %           64 %      -1point

The overall slight gross profit margin decrease for the three months ended December 31, 2013 primarily results from the combined effects of (i) mix of sales from the Company's segments; (ii) mix of products sold; and (iii) the medical device tax, which did not exist during the first quarter of fiscal 2013 (see discussion in Medical Device Tax above).

Our overall operations consist of the sale of diagnostic test kits for various disease states and in alternative test formats, as well as bioresearch reagents, bulk antigens and antibodies, PCR/qPCR reagents, nucleotides, competent cells, proficiency panels, and contract research and development, and contract manufacturing services. Product sales mix shifts, in the normal course of business, can cause the consolidated gross profit margin to fluctuate by several points.

Operating Expenses



                                                         Three Months Ended December 31, 2013
                                   Research &            Selling &             General &              Total Operating
                                  Development            Marketing           Administrative              Expenses
2013 Expenses                    $        2,517         $     5,693         $          7,495         $          15,705

% of Sales                                    6 %                13 %                     17 %                      35 %
Fiscal 2014 Increases
(Decreases):
Diagnostics                                 281                 219                      247                       747
Life Science                                 55                  66                     (192 )                     (71 )

2014 Expenses                    $        2,853         $     5,978         $          7,550         $          16,381

% of Sales                                    6 %                13 %                     17 %                      37 %
% Increase (Decrease)                        13 %                 5 %                      1 %                       4 %

Overall, total operating expense increased during the first quarter of fiscal 2014 relative to the comparable prior fiscal year quarter and as a percentage of consolidated sales. The increase results in large part from the combined effects of our (i) ongoing efforts to control spending in each of our segments while investing the necessary resources in our strategic areas of growth, including increased investment in Research & Development for our molecular platform products; and (ii) overall decreased incentive compensation expense in light of the decline in corporate-wide operating profits. We expect to continue to have higher levels of Research & Development spending during the remainder of fiscal 2014 related to clinical trials for our illumigene Chlamydia trachomatis and Neisseria gonorrhea products.

Page 16


Table of Contents

Operating expenses for the Diagnostics segment increased $747 for the first quarter of fiscal 2014 compared to the fiscal 2013 first quarter. These overall increases result largely from the combined effects of the following:

Research & Development

Overall increase in spending on new product development activities, related primarily to the previously noted products for our illumigene molecular platform, as well as immunoassay products in development.

Selling & Marketing

Addition of field sales force personnel, including the filling of open territorial positions, since the prior year quarter, resulting in an approximate $200 increase in personnel-related expenses.

General & Administrative

An approximate $500 increase in stock-based compensation during the first quarter of fiscal 2014, along with other less significant general operating expense increases, partially offset by a decrease in bonus and profit sharing expenses as a result of the previously noted year-to-date decline in corporate-wide operating profits.

Operating expenses for the Life Science segment decreased $71 for the first quarter of fiscal 2014 compared to the fiscal 2013 first quarter. This activity reflects in large part the decreased bonus expenses resulting from the decline in corporate-wide operating profits.

Operating Income

Operating income decreased 11% to $11,626 for the first quarter of fiscal 2014, as a result of the factors discussed above.

Income Taxes

The effective rate for income taxes was 35% for the first quarter of fiscal 2014, and 36% for the first quarter of fiscal 2013. For the fiscal year ending September 30, 2014, we expect the effective tax rate to approximate 34%-35%.

In September 2013, the Internal Revenue Service issued Treasury Decision 9636, which enacted final tax regulations regarding the capitalization and expensing of amounts paid to acquire, produce, or improve tangible property. The regulations also include guidance regarding the retirement of depreciable property. The regulations are required to be effective in taxable years beginning on or after January 1, 2014, although taxpayers may choose to apply them in taxable years beginning on or after January 1, 2012. The Company is currently assessing the impact of the final regulations on its financial statements.

Liquidity and Capital Resources

Comparative Cash Flow Analysis

Our cash flow and financing requirements are determined by analyses of operating and capital spending budgets, consideration of acquisition plans, and consideration of common share dividends. We have historically maintained a credit facility to augment working capital requirements and to respond quickly to acquisition opportunities. Our investment portfolio presently consists of overnight repurchase agreements.

We have an investment policy that guides the holdings of our investment portfolio. Our objectives in managing the investment portfolio are to
(i) preserve capital; (ii) provide sufficient liquidity to meet working capital requirements and fund strategic objectives such as acquisitions; and
(iii) capture a market rate of return commensurate with market conditions and our policy's investment eligibility criteria. As we look forward, we will continue to manage the holdings of our investment portfolio with preservation of capital being the primary objective.

We do not expect current conditions in the financial markets, or overall economic conditions, to have a significant impact on our liquidity needs, financial condition, or results of operations, although no assurances can be made in this regard. We intend to continue to fund our working capital requirements and dividends from current cash flows from operating activities and cash on hand. If needed, we also have an additional source of liquidity through our

Page 17


Table of Contents

$30,000 bank credit facility. Approximately $3,100 of our accounts receivable at December 31, 2013 is due from Italian hospital customers whose funding ultimately comes from the Italian government, which is down from approximately $3,500 at September 30, 2013. Our liquidity needs may change if overall economic conditions worsen and/or liquidity and credit within the financial markets remains tight for an extended period of time, and such conditions impact the collectibility of our customer accounts receivable or impact credit terms with our vendors, or disrupt the supply of raw materials and services.

Net cash provided by operating activities decreased 42% for the first quarter of fiscal 2014 to $9,345, reflecting the 12% decrease in net earnings, along with the effects of the payment of incentive bonus payments related to fiscal 2013, the timing of federal income tax payments, and the timing of payments from and to customers and suppliers, respectively. Net cash flows from operating activities and cash on hand are anticipated to be adequate to fund working capital requirements, capital expenditures and dividends during the next 12 months.

Capital Resources

We have a $30,000 credit facility with a commercial bank that expires on September 15, 2015. As of January 31, 2014, there were no borrowings outstanding on this facility and we had 100% borrowing capacity available to us. We have had no borrowings outstanding under this facility during the first three months of fiscal 2014 or during the full year of fiscal 2013.

Our capital expenditures are estimated to range between approximately $7,500 to $9,000 for fiscal 2014, with the actual amount depending upon actual operating results and the phasing of certain projects. Such expenditures may be funded with cash and equivalents on hand, operating cash flows, and/or availability under the $30,000 credit facility discussed above. This range of capital expenditures includes approximately $4,000 related to an expansion of our molecular diagnostic manufacturing capacity in Cincinnati, Ohio.

We do not utilize any special-purpose financing vehicles or have any undisclosed off-balance sheet arrangements.

  Add VIVO to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for VIVO - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.