Question-and-Answer Session
Operator
Thank you sir. [Operator’s instructions.]
One moment while we compile a list of questions. Our first question will come from the line of Ross Muken of Deutsche Bank, please proceed.
Ross Muken – Deutsche Bank
Good morning everyone.
Mark P. Stevenson – Executive Vice President
Hey Ross.
Dennis L. Winger – Senior Vice President and Chief Financial Officer
So Mark I am trying to understand the sequencing business. You made two comments relative to the performance and I was just trying to clarify versus other things you have said. So you mentioned that the funding environment was relatively weak or slightly weaker than expected. I think that was sort of the gist of it and that the results showed some weakness there because of the impending launch of SOLiD. Can you sort of characterize what you think the total funding picture is right now, sort of the inclusive of next gen sequencing not just for the capillary market. And also talk to is that partially driven by Japan and what is really driving that weakness in Japan as you are the second player in two days to really discuss that as being a market, a bit of unexpected weakness?
Mark P. Stevenson – Executive Vice President
Okay Ross there is a lot in that question, so let me try and take some of. I mean the academic involvement that I told you relates a little bit to the tightness of NIH funding just a reality of who is getting gross funding. What we are seeing with next generation sequencing is actually stimulating tremendous amount of funds for sequencing but for new applications. For experiments that people couldn’t do before such as some of the digital gene expression looking at some of the analysis of transcripts that experiments just weren’t being done before. Some of the, going back and doing many genomes at a time.
And so that’s where we are seeing the funding or is getting funded out of academic funding but also sort of donors to academic funding coming in and trying to get translational mix and funding. So that’s the environment that we are seeing. We further this transition going on because of these many moving factors between, what’s getting funded for CE and what’s getting funded for next generation sequencing. We continue to see the use of CE as you see by the growth in our DNA sequencing consumables. But people are setting up and funding new projects in the academic funding.
With regard to Japan, the overall market in Japan continues. As you know Ross, two years there, there’s not a lot of visibility in Japan sometimes to what really goes on. It’s a pretty opaque market. So it’s hard sometimes to exactly co-relate between what the Japanese Government maybe saying is happening in academic funding, what actually flows. So that was my general comment on Japan. I will let Laura maybe comment specifically because my comment on Japan was not my spectrometry, so she can make a couple of comments on that.
Laura Lauman – Division President, Proteomics and Small Molecule Division
Thanks Mark. Yes I do believe in Japan across several markets, particularly in NASDAQ but it’s primarily in the industrial area market there is we are seeing some weakness. So I think that’s what Mark’s comment was relating to particularly in Pharma, Cardio mix. It’s truly across the board in multiple areas there. There continues to be some weakness in Japan.
Ross Muken – Deutsche Bank
I just wanted to make sure that there was no change in the stand specially, on the academic side to any potential weak CE driven by the success of your next gen product. I think I understand that correct that’s not what you were trying to express.
Mark P. Stevenson – Executive Vice President
No that wasn’t. You are correct Ross.
Ross Muken – Deutsche Bank
Okay and just one quick other house keeping item for Dennis. Could you just walk through the actual step by step impact of the ASR on your share count we should think about modeling that? Because I just want to make sure that I am thinking about the impact correct on a sort of quarter by quarter basis. I understand how it works this quarter given the benefit. Are we going to start to see the benefit next quarter on the average diluted share count in the EPS calculation is that right?
Dennis L. Winger – Senior Vice President and Chief Financial Officer
Yes you will see more of the benefit in the later quarters. There are two impacts, obviously there is a reduction on interest income because the cash balances are lower results in an increase in interest expenses we borrowed money to buy these shares. So that’s a negative impact on the P&L. Positive impact obviously is a reduced number of shares and you have to weight those shares over the course of the year, the impact will be greater in Q3 and 4 than it is in Q2.
Ross Muken – Deutsche Bank
Okay so the actual, so you don’t get to see the immediate impact of the ASR in Q2 is the question, right that’s correct?
Dennis L. Winger – Senior Vice President and Chief Financial Officer
No that’s not what I said, what I said is the impact will be greater in Q3 and Q4.
Ross Muken – Deutsche Bank
Yes that’s okay I just wanted to make sure I understood that. Alright, perfect.
Tony L. White – Chairman, President and CEO, Applera Corporation
Make sure I understand it; the average share count in Q2 will reflect the fact that we got the shares?
Dennis L. Winger – Senior Vice President and Chief Financial Officer
It will but we won’t have the shares till the fourth quarter.
Tony L. White – Chairman, President and CEO, Applera Corporation
Fourth quarter right. So that’s right Ross it’s a question of average share count for the quarter and as we are getting them in, I think that’s where the balance it gets a little stronger in the quarter we have got a whole quarter of it.
Ross Muken – Deutsche Bank
Okay I really appreciate that clarification.
Tony L. White – Chairman, President and CEO, Applera Corporation
And as I understand it once Morgan Stanley completes covering because they borrowed the shares that they have to go and get those. Once they complete those then we can initiate the balance is that right?
Dennis L. Winger – Senior Vice President and Chief Financial Officer
Yes it will be several months before ?
Tony L. White – Chairman, President and CEO, Applera Corporation
Right so we can’t go back into market till they are done.
Ross Muken – Deutsche Bank
Okay perfect thank you.
Operator
[Operator’s instructions] Our next question will come from the line of Quintin Lai of Robert W Baird.
Quintin Lai – Robert W. Baird
Hi good morning. In your press release you put out a comment that said you estimate the next gen sequencing could be $450 million annually by 2011. As you were building--
Quintin Lai – Robert W. Baird
Hello?
Tony L. White – Chairman, President and CEO, Applera Corporation
I don’t know what that’s all about, keep going.
Quintin Lai – Robert W. Baird
Okay. So do you still believe that $450 million is added to CE or how do you see that growing in relation to the general CE business?
Mark P. Stevenson – Executive Vice President
Yes Quintin this is Mark here. It is a complicated scenario to model out this transition. So we have been trying to give as much guidance as we can and quite frankly as I am sure you are seeing as well in the market it’s a very dynamic situation going on. So we are giving the best guidance we can to model this out. We do impact; expect some cannibilsation of the CE business. So we have projected that. The research segment will continue to show some declines. We think there will be some growth continuing in the commercial segments and we include in that the forensic segment where we show the kit sales in the real time and applied genomics category. When we had a sort of look out and we net it in that 2011 picture we failed the net opportunity at the moment is about a $160 million so netting those two out.
Quintin Lai – Robert W. Baird
Okay super, thank you very much. And then Dennis with respect to the gross margin expectation for the full year you put out 55.8% here in Q1, you have got 55.3% for the full year. Is that just accommodating for the launch of SOLiD lower gross margins for an early stage launch?
Mark P. Stevenson – Executive Vice President
SOLiD is certainly part of that, not really no. There is not lower gross margins because of the launch its SOLiD. The gross margin rates are effective a lot of sectors, royalty being one of them is royalties being one of them as you noted we did have some good royalty payments this quarter you don’t always get those quarter after quarter. That’s probably the largest factor.
Quintin Lai – Robert W. Baird
So do you anticipate the SOLiD machines then I guess will be immediately profitable as you launch in the second half of fiscal 08?
Mark P. Stevenson – Executive Vice President
With all of our spends are all these profitable as a gross, perhaps the margins a little. Ones that are never make it to market so it’s kind of down.
Tony L. White – Chairman, President and CEO, Applera Corporation
Yes we are trying to make money on SOLiD.
Quintin Lai – Robert W. Baird
All right thank you very much.
Operator
Our next question comes from the line of Paul Knight of Tom Weisel partners. Please proceed.
Paul Knight – Thomas Weisel Partners
Hi Tony, could you talk about real time PCR and compare that the over all segment growth there but how did real time PCR versus how did Ambion do or Mark?
Tony L. White – Chairman, President and CEO, Applera Corporation
Mark
Mark P. Stevenson – Executive Vice President
Yes Paul I can give you little more color on what’s going on so, in that real time PCR and flags market category we have got a lot of different product line designed to my comments. We have been focused on applications specific product lines. So for example my interest is in micro RNAs and then that pulls together Ambion’s sample prep kit, it pulls together 384 micro fluidic card. It pulls together our 7900 instruments and the analyst system supports that we offer from our flag by systems.
Kind of trying to think about it as a complete system. These are very dynamic and competitive marketing real time PCR instrumentation as I have referred to before. We have addressed that by introducing 2 new products step 1 and step 1 plus that give us lower price points into the market place and so those compete very well.
We also continue to integrate Ambion work flows into other sample and prep analysis product lines that come out both in out forensic kits which you will see in some of the other applied market categories that are in that segment.
So there is s range of things going on that contribute to the very healthy growth in that segment.
Paul Knight – Thomas Weisel Partners
How many probes are on the website now for RTPCR?
Mark P. Stevenson – Executive Vice President
Oh that’s the question I am not sure I am prepared. I think there are what, 2 million plus mix [inaudible] gene on snip outs and then on gene expression or at least the whole gene or at least the 30000 and there is all the micro RNA. So we stopped counting to be honest, we used to issue them and count them, we have been more focused on making sure the turn around for our customers are quick because there is more and more discoveries the role of non coding RNAs, be it micro RNA, with using Ambion RNA they knock down making assays for all of those. Exxon’s that are involved in people to discover a new area. So we have kind of stopped counting the number of assays and focused on sort of customer service in turn around times to support our business growth.
Paul Knight – Thomas Weisel Partners
Okay thank you.
Operator
Our next question will come from a line of John Groberg of Merrill Lynch. Please proceed.
Jonathan Groberg – Merrill Lynch
Hey good morning. Thanks for taking the call. Congratulations on a good quarter. My first question is for Mark. Mark as you look out on the real time PCR as a which is, I think the strongest quarter been strong and as you look out 2010 beyond how do you manage for that? What are your plans given the pending patent expirations that are coming down the pipe [inaudible] the royalties that?
Mark P. Stevenson – Executive Vice President
Well firstly we got to take into account what we have built here when we talk about the enzyme capability, when we talk about Ambion is a capability in ABI that we are leveraging into many new products, introductions and launches.
So lot of the growth that you are seeing and when we look out, we feel good about the growth that we have coming in that category and we leveraging that capability you see into different application be it in a research market place, be it in applied markets and that’s where we look out in the next couple of years.
Clearly we look at the IP portfolio and that’s out there and we have it on our minds but that’s in the market place we have licensed now the majority of the company supplying systems into the market place, so we don’t expect to change in the competitive position but we obviously look out and take that into consideration our longer three five year planning horizon.
Tony L. White – Chairman, President and CEO, Applera Corporation
Can I just add to that, we have got this question lot when the basic PCR patterns were expiring and around of this you have always got life cycles for all your technologies and the trick is to replace those things when they run a course to, you know we invest in R&D and they invest in our new technologies and that will be part of the normal life cycle, mange the process that we go through all the time. The real time PCR’s can around for a long time but it will change. Hopefully different characteristics won’t follow.
Jonathan Groberg – Merrill Lynch
Okay thanks and then on the, maybe working up on that. On the NASDAQ, is there any sense at all about market share shifts and I am just wondering in general you have been very strong obviously in small molecule, seems to be a big movement towards cardiomics[ph] how do you feel you are competing in the cardiomics[ph] space?
Laura Lauman – Division President, Proteomics and Small Molecule Division
Yes, I think, I mean overall the fundamentals of this business is very solid. We have strong positions across multiple technologies, across multiple markets and part of our strategy is continuing to expand into new areas. Particularly, just introduced a new flash coin system utilized in the discovery area for really graphic screening, of potential new drug compounds. We worked very closely with the key Pharma leaders in the industry globally, to develop this product and it’s been very well received in the market. We have also just introduced a new system for forensic toxicology and that has gotten very strong response from our customer base, allows them to very rapidly analyze drugs of abuse, performance enhancing drugs in minutes versus the time it used to take before. So overall again I think the fundamental for the business is strong, it’s strong across all market segments with our push into new application areas and also our continuing focus on innovation. So I feel very solid about the business.
Jonathan Groberg – Merrill Lynch
You don’t feel as I mean, maybe putting words into your mouth but I guess the question was around market share shifts. I know in any given quarter there can be movement but do you feel overall as though you are holding your own relative to what you are seeing in the market?
Laura Lauman – Division President, Proteomics and Small Molecule Division
Well I think, sorry to interrupt you, I think you have alluded to we have had extremely strong growth for a long period of time and I think our position in the market remains very solid.
Tony L. White – Chairman, President and CEO, Applera Corporation
I think fiscal would show that we have actually worst cases hold share usually regain share and nothing has changed. So?
Jonathan Groberg – Merrill Lynch
And Tony the last question for you. Just from a strategic point of view you talked about the overall review that Morgan and Stanley is doing largely, if I may assume, from a financial, from a shareholder point of view. But if you just step back strategically and you look at your business, you see any benefits of the ABI, the instrument side and research side being a part of a larger company at this point? Do you think that would do anything? Again strategically speaking is that something that would add a new value to the portfolio product?
Tony L. White – Chairman, President and CEO, Applera Corporation
I don’t guess I understand your question. ABI being a part of larger company or Caleb, I didn’t understand your question.
Jonathan Groberg – Merrill Lynch
I am just wondering you talked about, wanted it from a strategic perspective is there any? You talked about the rationale before having the ABI together was largely financial now. They’re turning cash full possible. I am just wondering if you look at it strategically do you think that ABI would benefit from being a part of a larger company and large organization or do you think its better and its kind of at the right side that it is or growing in new markets?
Tony L. White – Chairman, President and CEO, Applera Corporation
Well I mean that’s a pretty hypothetical question and I am not going to put the company up for sale here this morning so. That’s such a big question, part of a bigger one. I’m being, I am sure there are always benefits in a variety of different business combinations that might be out there. There are also probably offsetting things. I can tell you there is, I don’t have any burning agenda here that says that makes any sense to us but I really don’t. Your question is so hypothetical I really don’t know how to comment on it.
Jonathan Groberg – Merrill Lynch
Strategically if people talk about changes in markets and dynamics and some might even thing we need to scale or--
Tony L. White – Chairman, President and CEO, Applera Corporation
Scale what? We are pretty much the biggest company in the field right here. In terms of being relatively peer play in life sciences and tools so being part of a bigger one I don’t?
Jonathan Groberg – Merrill Lynch
[Inaudible] market shift and what’s going on? I think you kind of answered the question.
Tony L. White – Chairman, President and CEO, Applera Corporation
Thank you. I tried to I just don’t think I have any examples in mind.
Operator
Our next question will come from the line of Doug Schenkel of Cowen and Company, please proceed.
Doug Schenkel – Cowen and Company
Hey good morning. You guys put out what I thought was actually a pretty good gross margin number and it definitely sounds as though the consumable mix was a bit higher than you expected. Is there any way for you to provide a little bit of detail on how much of the gross margin performance is attributable to, possibly weaker than expected instrument sales versus positive drivers, such as better end time costs maybe quicker than expected consumable flow through, especially in applied market consumables and if its more of a latter factor but towards the performance. Is it fair to assume that this is going to continue quarterly throughout the year?
Tony L. White – Chairman, President and CEO, Applera Corporation
I think our gross margin expansion is not a function of the mix between instruments and consumables so that’s a popular notion that I think is carried over from the diagnostics world. We are from a sort of typically give it away or placed. Usually we have pretty good gross margins across the field. The only time mix really affects us, is when we have a strong mass spec quarter, because we had a joint venture with somebody and that actually from a mix point of view hurts our overall gross margins, because we bring it through at a lower rate.
Our gross margin expansion has been planned; we have been talking about this working on it for a long time. And we have got a number of elements in there on the cost side that have been contributing to it. We have also been strengthening our product positions across a variety of areas in the consumables area and that’s been good. So I think all those things that you mentioned are contributors but I don’t think it’s the specific difference between the mix between overall consumables and instruments and frankly consumables were stronger than we thought they were going to be this quarter. They were pretty much right in line with what we expected, what we planned for.
Doug Schenkel – Cowen and Company
Okay that’s helpful. Is it fair to assume that some of the higher growth areas of consumables, meaning like a supplied markets and ambience simply, are those a little bit higher margin than the corporate average?
Dennis L. Winger – Senior Vice President and Chief Financial Officer
We don’t go into detail on the market.
Tony L. White – Chairman, President and CEO, Applera Corporation
That’s a slippery slope.
Doug Schenkel – Cowen and Company
Okay understood. One question on the solid roll out. The checks I have done so far have suggested that in the early going you guys have done a really good job. The selling the utility of the instrument based on a few metrics including, as you mentioned in your prepared remarks throughput and the advantages of your Matepair [ph] library. One area where I’ve heard you guys maybe had a bit of a disadvantage related to your competition out of the box at least is just in the sample perhaps being relatively more cumbersome. So the extent you agree with that, are there steps that you think can be taken to simplify sample profits. And so is that something that can occur in a fairly short time frame?
Mark P. Stevenson – Executive Vice President
Yes I agree to both of your comments and your proposals. We think as we have said the key metrics of the throughput and data accuracy that were toughness, the project and services and support. And are pleased to hear that when we hear from our customers then that’s where we are winning in the market and the customers are stopping and thinking about what they are about to do next.
With regard to the sample preparation, one of the things we have done is mapped out what we expect improvements to be over the next year or so. We have been sharing that with our customers. We see ways to simplify the sample prep to water made beds. We have done this in many technologies before. ABI has a lot of experience in doing this, and introducing the product and relentlessly improving it and going through. So we saw the technologies we go through the next couple of years, we are going to alternate some of those steps and eliminate some of those steps as we go forward here.
Tony L. White – Chairman, President and CEO, Applera Corporation
In the mean time I did have a customer last week tell me that, didn’t mind spending a little more time on the front end if they got several times more data on the back end from the same exercise. The efficiency still favors us in the total workflow, by a wide margin. So while Mark said we will make that, improvements to that. I think if you look at the overall work flow we still haven’t made it.
Doug Schenkel – Cowen and Company
Do you think the first section of that workflow; I guess advantage or just how to put the workflow as it’s looked at, it’s proceeded to be different between say a large, a large lab versus kind of a less traditional customer in the sequencing space?
Mark P. Stevenson – Executive Vice President
No I think in the end the customer’s, the small labs the reason they’re buying it is the reason is to be able to compete with the large genome centers and do experiments that they just couldn’t do before.
So the throughput of that system and the cost for that project when they get up and gearing is going to be the driver. Also as you mentioned the Matepair [ph] Libraries a lot of these customers are running to take the Matepairs in long hours and particularly the distance between the Matepairs, which is a key advantage if you’re going to do some resequencing work. The customers actually have the systems now that we’re shipping in October saying to us, that’s a key advantage that is worth having whether its small or large customers.
Remember its only today we’re introducing commercial systems. S o customers are yet to get experience fully of this throughput.
Doug Schenkel – Cowen and Company
Great thank you very much for taking my question.
Operator
Our next question comes from the line of john Sullivan of Lorraine Swan, please proceed.
John Sullivan – Lorraine Swan
Hey guys good morning. Couple of quick questions, a follow up to earlier questions in mass spectrometry first. Laura can you check briefly about the regulated mass specs setting and is there any change in the mass spec technology or tools that are, is there any change in preference by customers that are using mass spec to generate data for regular choice of missions?
Laura Lauman – Division President, Proteomics and Small Molecule Division
Not understanding your question, when you say the regulative, can you be more specific?
John Sullivan – Lorraine Swan
Yes, just let us see clinical, clinical mass spec where data is being generated for submissions to the FTA, around new drug candidates.
Laura Lauman – Division President, Proteomics and Small Molecule Division
Okay like BMP case, clinical trials and--
John Sullivan – Lorraine Swan
Yes.
Laura Lauman – Division President, Proteomics and Small Molecule Division
No there’s no change there. That’s still a very robust strong market and there’s a lot of activity in terms of the numbers samples needed and the throughput needed. But now that’s a very strong market overall and for us in particular.
John Sullivan – Lorraine Swan
Okay thanks very much. And then a strategic question for Mark I suppose? Do you see tools and inconsumables for cellular analysis as an opportunity for AB? And if you do, how do you plan to participate to a greater extent?
Mark P. Stevenson – Executive Vice President
Yes we do see some opportunities there and we’ve just been working through the right way for us to develop and grow in to that market. I mean one of the areas we’ve been focused on and we started to see some announcements on us, is looking around the cellular analysis in stem cells and characterizing it at a molecular level using TaqMan chemistry, the bakers of the through potency of the stem cell. And that’s one of the entry points we think AB can enter in to this market and then look at additional opportunities in characterizing stem cells, single cancer cells in that area. So that’s where AB is looking at and you’ve seen some announcements around stem cells to start with.
John Sullivan – Lorraine Swan
Thanks very much.
Operator
Our next question will come from the line of Dan Leonard of First Analysis, please proceed.
Dan Leonard – First Analysis Corp
A couple of book keeping questions for Dennis. Dennis on the accelerated share repurchase, at current stock prices it looks like you should be able to give us 17 million plus shares from your $600 million. Is that accurate or is there a bigger spread there that I’m appreciating?
Dennis L. Winger – Senior Vice President and Chief Financial Officer
Well I don’t know. I don’t know how the stock price is going to be over the next 46 months so I don’t know how many shares we’re going to get in? I can get the stock price of today and calculate it for the nearest year, sure. But we’re not going to buy these shares all today. We’re going to buy them over the next 3, 4 months. Morgan Stanley is, and that will impact the number of shares we get.
Dan Leonard – First Analysis Corp
Okay at that timeframe is helpful. And then also, the $270 million plus in your balance sheet, does that represent the minimum cash balance, you’re comfortable with? Beyond that you’ll use debt? Is that the correct way to read?
Dennis L. Winger – Senior Vice President and Chief Financial Officer
No, not necessarily. Some of that, more than 50% of that cash is actually off shore. Its there is could be used for off shore expansion or for off shore acquisitions. To bring it back to the U.S. would have tax consequences and it’s not our current plan to bring it back. The U.S. cash balances are slightly less than a $100 million, still like that much lower than that level.
Dan Leonard – First Analysis Corp
Okay thank you.
Dennis L. Winger – Senior Vice President and Chief Financial Officer
You’re welcome.
Operator
Our next question will come from the line of Derik De Bruin with UBS, please proceed.
Derik De Bruin – UBS
I thought you had forgotten me there for a minute.
Dennis L. Winger – Senior Vice President and Chief Financial Officer
How do we forget you?
Derik De Bruin – UBS
Yes I know. It’s been 7 years how can you forgive me?
Dennis L. Winger – Senior Vice President and Chief Financial Officer
It isn’t Derek that we don’t try.
Derik De Bruin – UBS
So over the last, looking historically so over the last 7 years, you guys have done a good job of lowering your R&D as a percentage of sales. You basically now are improving gross margin. What is there in terms of SG&A leverage?
Tony L. White – Chairman, President and CEO, Applera Corporation
That’s a great question I hate to admit it since it came from you but and it’s one way struggle with and it’s running. If you ever take a few basis points around 28% of sales rate that it suitably I think it would be better. But I am going on 12 years now where I haven’t been able to make through that in a meaningful way and still fund the opportunities that we think we have to fund for growth out in front of the business.
For example, we think there are growth opportunities in Asia Pacific area and may be now even developing in Latin America that. So frankly you have to, if you follow our philosophy you have to lay the track first. You have to get the infrastructure place, you have to get competent people on the ground, you have to, before you start selling platform systems you have to get your body to provide service to the customer, application support to the customer. We can’t just add mail this stuff around the world.
And so there’s always demand on our core expenses to reduce them to pay for these non-initiatives and keep it line with revenue growth.
We have had a major project underway here inside the division now for sometime, looking at infrastructure cost and at least we can further reduce those. But mainly to opt and we are having some successful with that, some considerable success but it’s to make sure that these new investment opportunities are all incremental to the overall expense line and to keep things flat.
So to my disappointment and I guess to some point I don’t think I have experienced any great opportunities for big leverage there. As long, as long as we see these new opportunities develop that require fund investment, kind of wish it was different and there might be chances to get more leverage in the future but right now that seems to been the case.
Derik De Bruin – UBS
Okay, that’s the great answer, thanks. Dennis could you just give us a little bit more in terms of the expectations I guess for the net-interest expense or interest income? What are you paying on your debt and just give us some general guidance on that?
Dennis L. Winger – Senior Vice President and Chief Financial Officer
Yes I can show it to you. The current rate on the debt, which it’s a flowing rate, but it’s currently about 5.8%-5.9% and its $275 of our million outstanding so that’s what it is. Current earnings on our cash is around 5%.
Derik De Bruin – UBS
And you mentioned that you were discontinuing the gene expressional rate platform. I guess you could just give us how big of a revenue chunk was that? I would assume not much of your discontinued. Can you just give us I guess, do you need an array platform, do you need something in that area to basically go out?
Tony L. White – Chairman, President and CEO, Applera Corporation
I am going to let Mark the answer the second half of that but the, this platform was not a material portion of our revenue, quite small. I don’t have the exact figures in front of me but it was quite small.
Mark P. Stevenson – Executive Vice President
And just to answer the second part we concluded. We didn’t need that, with the introduction in next generation sequencing. The 1700 at times, a niche in the market and there are some happy customers using out. We’ve decided to stop selling the readable, continue to sell the arrays for a while. But we actually look to the future in sort of what people doing that discovery area before we they go onto later validation with TaqMan. We can do increasingly on using digital gene expression and actually do some of the applications better way we can get to law a transcript level more sensitive analysis. Particularly in some of the areas like microRNAs we’re not able to see those microRNAs on an array basis at form. We can see them on TaqMan and then we can see them on next generation sequencing. So we concluded strategically we would fill that with a solid platform.
Derik De Bruin – UBS
Okay and when you look at the TaqMan platform and there’s competition coming out from people that have been micro politic platform that you’re multiplexing. I guess could you just talk about what developments you see in your real time PCR business in terms of new instrumentation? I mean you have things to be competitive answer for the second platform?
Mark P. Stevenson – Executive Vice President
We believe we do. We’re not ready to share it fully yet. You know we don’t have a policy to share all the new products as its coming out. But we continue to look at, how do we leverage essentially it goes by the question earlier. This huge content we have in this capability for the TaqMan assays, they’re very, very fast. We have a great asset there in that consumable trail. And also the customers who’re using that; how do we look at different formats, form factors; you see it using in different flake well formats and micro plates, and coding rates. The different form factors that we’re looking at and you will see us continue to develop that and show things as we go through the year.
Derik De Bruin – UBS
Thank you very much.
Operator
Our final question will come from the line of Tycho Peterson of J.P Morgan. Please proceed.
Tycho Peterson – J.P Morgan
Yes hi, can you hear me? Thank you. Given that in some of the discussions today revolved around Agin Core [ph] and Ambion, I am just wondering with the focus on cash being on share buybacks how you deeliminate this environment?
Dennis L. Winger – Senior Vice President and Chief Financial Officer
I think, its Mark CK and I’ll take a portion of it. The level indebtedness right now is not only high. We certainly have substantial capital rating capability if there were an acquisition opportunity you wanted to pursue. And I don’t see that changing. We can only get the shares in so fast because of restrictions on how quickly we can buy them in the market. We obviously executed the transaction with Morgan Stanley we get the big slug of front that we will, when that opportunity is completed, we will continue that. But we’ll also be generating some standard cash flow during that period of time. So we have intentionally designed this program such that we would have sufficient capital or resources, pursue an acquisition if we wanted to. Mark do you want to tell how [inaudible] adds to that?
Mark P. Stevenson – Executive Vice President
Yes, I think strategically we regard both those examples, Ambion and Angi Core great example. So in the Angi Core case, we saw the market coming, we went out and surveyed14 different technologies. We poured a pretty early stage company and technology we look back to what we did in 8 form posted in June. And then in 15 months we have done a great job in R&D and commercializing that, improving the performance, making it robust, innovating along the way as I said improving where results reach to the point today. So we feel pretty good about that and the capability that we now have. We wanted to repeat for the right the opportunity. Similarly with Ambion what we’ve now done is integrated with both, the back office wit our ELP systems; but also the sales. The way we are doing right that is very specific applications work closes as you see. From sample prayer, I think you were the back end. So strategically it’s been a great fit for us and growing very well and both of those I think is good examples and interested as we continue to look strategically for similar continuities for us.
Tony L. White – Chairman, President and CEO, Applera Corporation
And we have the capability to do one of those right now if we needed to.
Tycho Peterson – J.P Morgan
Okay. Mark if I could probe a little bit more on your comment from the sample prep around solid? It’s encouraging because the emulsion PCR is not going to be necessarily cumbersome or an overly cumbersome step for some of the smaller labs. If we kind of think about where those sample prep times could get down to, is it fair to ask you to kind of speculate where they can do over the next year to 2? I mean can they get down to 1.5 2 days or below?
Mark P. Stevenson – Executive Vice President
Yes we’re intending to focus rather than on that time on the throughput and the data. Because I think there is lot of debate on, sort of the time but in reality what the costumer is asking is for is, okay how much data? What is the project and experimental I’m going to get done in that time and how mapable? There are a lot of back end borrowing from Matics [ph] challenges. So we focused on also just the software and the running time and the back end side. So, it really depends on the length of the run and in terms of what you’re trying to do. And so, that’s where we focused.
Certainly as we go forward you’ll see improvements in all aspects of it and how we support the back end of the buyer and informatics, the two flow cells we’ve introduced now doubles the capacity, there’s on screen monitoring, the computer on the system saves a lot of time for some competitive systems that take time to pull the data off the system.
So there’s a number of things you got to look at not just the sample prep when you look at sort of end to end running time here.
Tycho Peterson – J.P Morgan
And are you getting you know fairly good feedback on the informatics side, this is something that seems to be just within the industry. An area that people are increasingly focused on. And obviously it’s very early on in the adoption cycle but, how do we think about the informatics, are there hurdles or challenges over the next year?
Mark P. Stevenson – Executive Vice President
Yes, we got great feedback from the decision we made to go open source with this and we shared with the community and have been. We had a soft jamboree here in Foster City in July. All these software programmers came in and really enjoyed writing code on data analysis for the software. So, that’s what’s really helping us as we put the systems out in the community. Already we’re out there and customers have been writing software to help finalize the data which is a key issue considering you’re generating so much amount of data and to make sure it’s really mapable data back to the reference notes.
Tycho Peterson – J.P Morgan
Okay. In terms of just the logistics of the ramp, I mean are you planning to add reps or how do you think about maybe SG&A head side additions?
Mark P. Stevenson – Executive Vice President
Yes we think we got the right sales organization and support and service already in the field. A lot of experienced people so, we don’t imagine. It’s more just a dedication to people than an additional resource as we need to write here.
Tony L. White – Chairman, President and CEO, Applera Corporation
The dollars will be re-deployed for these kinds of things not incremental.
Tycho Peterson – J.P Morgan
Okay and then finally one for Laura if she is still on. On the mass spec business we’ve seen pretty strong growth within the industry on HPLC and I know historically that you have products there but it hasn’t been a huge focus area. Are your thoughts, have they changed at all around HPLC, is there any thought that you may like to expand that portfolio or how do you view that opportunity?
Laura Lauman – Division President, Proteomics and Small Molecule Division
Yes Tycho. We’ve certainly given that careful consideration. That’s not something, that’s not our strategy, that’s part of our business. From the standpoint that we’ve been, and I think you’re aware of this, we’ve always been open LC and we will control and directly interface and integrate our multiple LC providers. And so the customer gets to choose which LC that they would like to put on the front end of our mass spec and that’s been a very successful strategy for us and will continue to be so.
Tycho Peterson – J.P Morgan
Okay great, thank you very much.
Operator
I would now like to turn the call back to Mr. Dworkin for this little portion of today’s call.
Peter Dworkin – Vice President, Investor Relations and Corporate Communications
Yes thank you. Moving to the second half of our call today, Tony White will make introductory remarks about Celera and then Celera President Kathy Ordoñez will review the Celera business. Also on the call today for the Q&A portion are other Celera and Berkeley HeartLab executives as David Speechly, Senior Director for Investor Relations for Celera.
And very quickly for those who may have just joined us this morning, please note that during the call we will be making forward-looking statements about the Company’s businesses. These statements are subject to the risks and uncertainties relating to our businesses and corporate structure. These are referred to in the releases issued this morning and in our filings with the SEC. Tony?
Tony L. White – Chairman, President and CEO, Applera Corporation
Thank you Peter, and good morning everyone again. I’m encouraged with the progress the business has made. As Celera has been moving towards profitability, we have looked at options that would reduce Celera’s reliance on other parties in the achievement of its business goals and performance, and allow it to improve its market presence and expand its product lines.
The two acquisitions that we recently announced represent progress for Celera in this respect as the business now assumes greater control of its own destiny. The acquisition of Berkeley HeartLab provides Celera with direct access to the diagnostic marketplace and to the physicians and patients it serves. And providing the much needed commercial infrastructure to bring its new cardiovascular genetic tests to the American market through a strong team of people dedicated to the cardiovascular disease secondary prevention market with expertise in sales, marketing, reimbursement and cardiovascular disease management.
Similarly, the acquisition of Atria Genetics is expected to contribute to Celera’s objective of providing high margin products with accretive value in a market that is complementary to ours. Atria has a line of HLA testing products that are used for identifying potential donors in the matching process for bone marrow transplantation.
As our new genetic discoveries translate into potential new genetic tests and are combined with new capabilities and opportunities around these two acquisitions, we’re confident that our growth and development will continue throughout this fiscal year.
As I mentioned earlier in the call, in August, we announced that the Applera Board of Directors has retained Morgan Stanley to explore possible alternatives to the Company’s basing tracking stock structure.
And while a final decision has not been made related to this complex analysis, efforts to-date indicate a preference towards dissolving the current structure and creating separate publicly traded companies for Applied Biosystems and Celera. And we intend to update shareholders as the analysis is completed and the decision is finalized.
The analysis is complex because Morgan Stanley is analyzing and reporting to the Board on all structural alternatives, together with the anticipated consequences of each. The Board will process that analysis into a final decision based on the best interests of all shareholders.
The process for unwinding a tracking stock into two separate stocks typically takes something on the order of a year or more, but our goal is to finalize and execute any decision by our fiscal year-end, which is June 30, 2008.
No assurances can be given that the Board will ultimately authorize such a transaction or that, if authorized; such a transaction will be consummated. I’ll now hand it over to Kathy Ordoñez who will discuss Celera in more detail. Kathy?
Kathy Ordoñez – Senior Vice President of Applera Corporation; President of Celera Genomics Group
Thank you Tony and good morning everyone. This has been a very productive period for us with a number of positive developments, including the acquisition of Berkeley HeartLab, or BHL, and the acquisition of Atria Genetics.
Our scientists continued to publish their discoveries in peer-reviewed journals and our pharmacogenomics program gained traction with an oncology collaboration with Merck. We’re pleased to record profitable results for the first time in Celera’s history due, in part, to the achievement of a drug development license milestone by Merck and the resale of a small molecule drug development program.
Our key activities this past quarter reflect two core strategic objectives: first to continue our delivery of products and services that support personalized disease management, and second, to position Celera to have more autonomy and direct access to customers outside the alliance with Abbott. Earlier this month, we completed the acquisition of BHL, which exemplifies execution on these strategic objectives. This transaction allows us to leverage our assets and the breadth of our product mix toward long-term growth and the creation of shareholder value. It provides value to Celera in a number of ways, not only in terms of market access, commercial infrastructure and accretion to earnings, but also by providing opportunities for Celera to more rapidly commercialize new tests and technologies, and to gain economies of scale and improve its margins as a consequence of the vertical integration with BHL’s laboratory service business.
Additionally, some of BHL’s test offerings may form the foundation for future Celera IVD products. BHL’s business model is based on personalizing cardiovascular disease management. Their field-based clinical educators work in concert with the physicians they serve to use results derived from BHL’s tests to develop and monitor the effectiveness of personalized treatment regimens for exercise, diet, stress reduction and therapy compliance for the patients they serve.
We currently have 5 cardiovascular tests in development with the most near-term a molecular test designed to optimize statin therapy in those individuals carrying a certain gene variant that conveys elevated risk for a cardiac event. Some of these data have either been accepted while others are under review for publication, and we anticipate the presentation and publication of these data at key cardiovascular meetings and in peer-reviewed journals this quarter. This genetic test for ?statin benefit? is expected to be commercialized by BHL during the second half of fiscal 2008. Another cardiovascular test slated for commercialization in the coming months identifies certain individuals who would most benefit from aspirin therapy.
Last week, we published data in Genetics in Medicine on the identification of a Genetic Risk Score, or GRS, for Coronary Heart Disease, which is an important conceptual first step in the demonstration of its clinical utility. This new test along with other GRS tests in development for stroke and thrombosis are targeted for commercialization during fiscal 2009.
While the acquisition of Atria gives us direct access to the important niche market area of tissue typing in transplantation and the bone marrow registry markets, it also provides a means of potentially expanding the development of new personalized disease management products and services for the immunogenetics and autoimmunity fields.
This past quarter, Celera received FDA clearance on its test for cystic fibrosis that is performed on an Applied Biosystems DNA sequencing analyzer. We have a next generation CF test moving forward in development and are working with customers to determine the priority of commercialization for these two product offerings. I’d like to take a moment to discuss end-user sales of products that are part of the alliance with Abbott, which is an important component of our business.
For the first quarter of fiscal 2008, total end-user alliance sales were $24.9 million compared to $25.3 million in the prior year quarter. This was a challenging quarter for products within the alliance and the corresponding end-user sales. There were somewhat difficult year-over-year comparisons linked to the variability of orders and a large order in Russia in the prior year quarter, coupled with reduced cystic fibrosis ASR sales as a result of inventory reduction and, we believe, reduced reagent utilization due to test re-optimization, by a major customer in the U.S. this last quarter.
Another contributor to the decline in end-user revenues this quarter versus the prior year quarter was the removal of the HCV genotyping ASRs due to an injunction against the sales of these products by Abbott, which was issued in the Innogenetics litigation. However, we were encouraged with the sustained penetration of the m2000 system in its existing markets in this last quarter, and this system continues to contribute to end-user sales. As part of their third quarter 2007 earnings last week, Abbott reported that they ?have placed nearly 400 systems and continue to expand their presence, including the recent approval in China?.
The growth in the installed base highlights the favorable adoption and market acceptance of the system since its launch over 2 years ago. In Europe, the Middle East and Africa, we believe the Abbott-Celera alliance now has m2000 placements in approximately 30 percent of our target market of around 1,000 laboratories. This excludes those laboratories that are predominantly offering home-brew assays, are focused on blood screening applications, or are too small or remote to add substantial revenue generation potential. Increased sales of fragile X and ASRs for factor V, factor II and MTHFR also contributed to end-user sales from new products in the alliance during the quarter.
We were also encouraged by the progress that Merck described recently concerning the advancement of the orally available, highly selective inhibitor of the cathepsin K enzyme into a Phase III clinical trial as a potential treatment for osteoporosis. We’re pleased to have made a contribution to Merck’s program for this important disease indication. If this candidate, or others developed under the cathepsin K collaboration are advanced further toward commercialization, Celera will potentially receive additional milestone payments and royalties on net sales from Merck.
Overall, we had a successful first quarter as we continued to build a firm foundation upon which to expand our product and services portfolio. The current fiscal year holds much promise as we plan to integrate BHL and Atria into the business and continue to expand revenues and move the business into profitability on a non-GAAP basis in the second half of the fiscal year. In line with this and as previously articulated, we rebalanced our R&D investments by shifting funding from discovery to development, and we curtailed our proteomics-based target discovery and validation activities, while we continue to fund diagnostic proteomics-based work.
With all the developments over the past quarter, Celera is better focused and prepared to deliver on the promise of personalized disease management through its diagnostic test and service offerings, with a strong business profile for the future. Now, Dennis Winger will make a few comments regarding the financial results for Celera and our financial outlook for fiscal 2008.
Dennis L. Winger – Senior Vice President and Chief Financial Officer
Thank you, Kathy. In the first quarter of fiscal 2008, Celera reported a net profit of $700,000, or $0.01 per share, due to factors outlined in today’s press release, compared to a net loss of $7.1 million, or $0.09 per share, for the first quarter of fiscal 2007. The first quarter share of a damage award in continuing litigation between Abbott Laboratories, Celera’s alliance, and Innogenetics took place in the prior quarter.
Reported revenues for the first quarter of fiscal 2008 increased $5.9 million to $16.1 million, compared to $10.2 million for the first quarter of fiscal 2007. The first quarter fiscal 2008 results included $7.4 million of net revenues related to certain licensing payments, the achievement by Merck of a drug development milestone, and the resale of a small molecule program. Also contributing to the increase in reported revenues were higher royalties. The increase in reported revenues was partially offset by a lower equalization payment from Abbott compared to the prior year period.
In the recent quarter, R&D expenses decreased by $2.5 million compared to the same quarter last year, primarily due to reduced spending in proteomics discovery efforts. SG&A expenses increased by approximately $900,000 in the last quarter compared to the prior year quarter, due to increased expenses related to the review of Applera’s corporate structure.
Celera ended the recent quarter with cash and short-term investments of approximately $548 million, down about $13 million in the quarter. The level of cash and short-term investments at the end of the first quarter of fiscal 2008 was impacted by the timing of the collection of licensing and milestone payments recorded in the quarter, as well as the equalization payment from Abbott received at the beginning of the second quarter of fiscal 2008.
The guidance that we can provide for Celera for fiscal 2008 is as follows. Total reported revenues are anticipated to be a $135 million to a $145 million. Reported R&D expenses are anticipated to be a $45 million to $50 million, and SG&A expenses are anticipated to be $70 million - $75 million.
Celera anticipates that it will be profitable on a non-GAAP basis for the second half of fiscal 2008. Amortization of intangibles relating to the Berkeley Heart Lab and Atria Genetics acquisitions and restructuring charges, which are excluded from the of non-GAAP earnings per share, are expected to be between
$0.07 and $0.09 per share for the remainder of the fiscal year.
The total impact of FAS 123R, which is stock based compensation in fiscal 2008, is expected to be approximately $7 million, with an EPS impact of approximately $0.06. For fiscal 2008 Celera expects to spend approximate $220 million to $230 million on the acquisitions of both Heart Lab and 3 A Genetic including all transaction costs. For our currently anticipated to commit over $320 million to $330 million in cash and sugar test investments. The group believes it’s outlook and financial performance could be affected by a number of factors and other risks and uncertainties outlined in today’s press and in our filings with the SEC. Fee timer [ph] reflects manager current outlook so it does not have any untoward intention to occupy the level and plans to revisit the outlook for it’s business shown in one big quarter from financial results are announced.
We will now be happy to take your questions, Silvara [ph].
Question and Answer
Operator
[Operator Instructions]. Our first question will come from the line of Peter Larsen of Thomas Weisel Partners. Please proceed
Peter Larsen - Thomas Weisel Partners
All you could add some more color on the guidance, the change you have given in the guidance. Does that reflect any change in expectation for the corn molecular business or is it just the delta coming from Berkley and Attrea [ph]?
Kathy Ordonez – Senior Vice President
First of all the guidance that Denis described reflects the combination of the three businesses, the Attrea, BHL and the original Celera business, where there has not been a substantial change in expectations.
Peter Larsen - Thomas Weisel Partners
Okay. Thank you and then one of you can talk through any of the? is there anything left in the legacy pipeline of drugs at Celera that could be sold in the next year or so?
Kathy Ordonez – Senior Vice President
Well it’s a complex question, let me answer it this way. As you know we have a number of small molecule assets that were partnered last spring and summer during 2006 and those assets are moving forward and we don’t expect to have additional partnering of small molecule assets. On the other hand we have a number of cancer targets that we have validated on to our prodiomics effort and we have an ongoing program to continue to partner those assets.
Peter Larsen - Thomas Weisel Partners
Okay, thank you and then on the M-2000. I wonder if you could just add color on? because any slow down in Europe or the U.S. in placements of the boxes?
Kathy Ordonez – Senior Vice President
They start dated the average review with us a few week ago, the progress in Europe continues to be very strong. Placements have sort of reached a steady state? rate of development and they are gaining market share very nicely there. The up take of real time technology here in the United States overall has been a little bit slower than we expected. The time to close the count is taking longer here in the United States than it has been the situation outside the United States. On the other hand Abbot has reported that where they have gone head to head versus the Roche crowbar taskman system, they are wining accounts more than they are losing accounts so they are doing very well in terms of gaining market share from a competitive perspective.
Peter Larsen - Thomas Weisel Partners
Okay, that’s good to hear and then just finally on the staffing benefit test? Is that can expose to there to more FDA IVDA like risk or? how you are thinking about that, going forward?
Kathy Ordonez – Senior Vice President
Well our initial plans for the staff and benefit test is to bring it up to the laboratory developed test at Berkeley Heart lab. We targeting to do that during the third quarter of the current fiscal year on a limited basis initially and then expand that once to get some market feedback. This is a test for simple flip and so based on our understanding of the current IVDMI guidelines, it would be subject to that sort of registration process. On the other hand I should say that it has always been Celera’s view that as a test like this becomes standard affair. It should undergo FDA review and since we would intend? we do intend to make this test available as an IVD kit ultimately and hyphens it to other laboratories. Our expectation is that we would as we gain more experience with the test, take it into clinical trials and put it in front of the FDA.
Peter Larsen - Thomas Weisel Partners
Okay thank you so much Kathy. I will get back in the phone.
Operator
Our next question will come from the line of Bill Cork of Piper Jaffray. Please proceed
Unidentified Analyst
Hi guys, Dave Clair here for Bill. Congratulations on a nice quarter. I appreciate the breakout of the Applera Alliance revenue in the press release. I was hoping you could give us a little bit more cover on profitability trends for the alliance and you have also mentioned lower equalization payment. Can you give us a sense of the magnitude of the change year-over-year?
Kathy Ordonez – Senior Vice President
John S. the VP finance will address that question.
John S. Ostaszewski – Vice President and Treasurer
Yes the equalization pan on the quarter was about $2.1 million so that’s down a little bit mostly due to the relative level of expenses between the two companies in the quarter.
Unidentified Company Representative
Look, we are not in a position to talk about the profitability of the alliance under our agreement with Abbot, so no deal, Dave.
Unidentified Analyst
Okay, you mentioned that Berkley was growing solid double-digits with EBIT margins higher than 17%. Can you talk about your expectations going forward for the business and any color you want to give on kind of historical gross margin, SG&A, R&D would be greatly appreciated?
Unidentified Company Representative
I am going to jump in here. We are not going to be breaking out that business top level will be title [ph] so I don’t know what we have. I've always gone with that but I just want to make sure the group here understands we cannot do this.
Kathy Ordonez – Senior Vice President
One other anomaly and looking at the combined business of course is that our strategy to commercialize the Celera new genetic tests through Berkeley Heart lab and so the resultant financials are actually the combination of the two businesses.
Unidentified Company Representative
We will be disclosing in our SEC filings some historical financial measurement. Berkley Heart was still in the process of preparing it but you will see that in our illuminative financial disclosures, historical financials and Berkley Heart can be SEC binds that we will file.
Unidentified Company Representative
But going forward there’s a number of things that is going to vary from that. One is the level of investment we are going to make in expanding that business. We haven’t disclosed that and probably won’t. As Kathy mentioned the integration of some of our other tests into that revenue stream will make a difference. Bringing in house manufacturing on some of the tests that got might also be something that will affect the financials of it so... so I just caution you that the historical financials are not going to be a great indicator but a lot of the details that you’re looking at.
Kathy Ordonez – Senior Vice President
But a critical issue is that a critical comment I should make is that we remain very, very optimistic about the future potential for this business which was a driving factor in the acquisition along with the fact that we now have a clear certified laboratory to commercialize our new genetic test.
Unidentified Company Representative
Yes and I guess what I’m trying to say is that we're going to invest about grow our product portfolio within that framework and also grow that framework.
Unidentified Analyst
Okay. Great I appreciate that. And then on a $0.07 to $0.09 acquisition and restructuring charges. Is that?can we expect the bulk of that in kind of the second quarter or is it going to be spread out or? ?
Unidentified Company Representative
The bulk of that is amortization expenses and that will take place, it takes place a flat amount over each quarter going forward. That will be an ongoing charge for the, for Celera going? the restructuring charges which is not the bulk of that will take place in probably in both quarters actually.
Unidentified Analyst
Okay. And how about the M2000 I know you mentioned that there is like a 400 installed base and and any kind of clarity on a U.S. O U.S. put there?
Kathy Ordonez – Senior Vice President
Abbot has not broken that out but of course based on the time in the market and the comment that I made that the overall uptake of real time technology here in the U.S. is slower than it had been in Europe. The bulk of instruments are in the European marketplace.
Unidentified Analyst
Okay. Thank you.
Operator
Our next question will come from the line of Bruce Kreamer of Leerink Swann. Please proceed.
Bruce Kreamer - Leerink Swann
Hi good afternoon. Kathy I’m sorry I missed that? will you, you won’t be breaking out BHL revenue specifically going forward. Is that right?
Kathy Ordoñez - Senior Vice President,
That’s not our expect. We do not expect to break out Berkley Heart lab revenues going forward and part of the reason for that has to do with the crossover in reagent revenues coming from new tests that are sourced from Celera. So there we’ll actually, as soon as possible actually, be a blurring between revenues between Berkley Heart lab and Celera.
Bruce Kreamer - Leerink Swann
So I know you typically don’t like to comment on end user sales levels going forward but when you do break it out in the forward quarters well? so should we assume that Berkley will drop into that end user number? Then is that the obvious conclusion.
Kathy Ordoñez - Senior Vice President
No the way we're planning to report revenues going forward is the aggregate reported revenue figure for Celera including Berkley heart lab and then separately from that we will report end user revenues through the alliance so that you can see the development of the alliance activities separately.
Bruce Kreamer - Leerink Swann
I see. And then just quickly on Attrea this again is a sort of visual question. I know its small but so no impact on that, that alliance sales number but higher equalization payments is that how I would think about it?
Kathy Ordoñez - Senior Vice President
Well the Attrea product sales are currently captured as part of the alliance end user revenues. However our share of value from those Attrea sales will now increase and the associated reported revenues for Celera will increase as a result of this acquisition.
Bruce Kreamer - Leerink Swann
And then, just I guess thinking about the quarter from 30,000 feet. I guess I would describe the end user revenues as a weak side. Would it be fair to characterize your performance in the quarter as, if you would agree there is a weakness, is really on the alliance product and of the things not the other parts of the portfolio?
Kathy Ordoñez - Senior Vice President
Well that’s correct, I mean lets look at the overall performance in the quarter in total. Alliance end user sales were light and they were light of relative to a year ago the same quarter partly because of a very large shipment of M2000 related materials to Russia. On top of that as we pointed out in the comments that I made we had reduced cystic fibriosis sales are due to an inventory reduction and we believe possibly a re-optimization of the utilization of reagents by one major customer. So we were disappointed in the overall end user alliance sale despite the fact we are pleased with the uptake of the M2000 system. Now on the other hand we were profitable for the quarter and that was driven in part by two small molecule payments. One associated with the Cossesten K program with Mercke and secondly the resale of another small molecule program which I think underscores the quality of the science at Celera and that we were able to get back this program and very rapidly turn it around and sell it to another party because of the quality of the science. So it was an unusual quarter and those results speak for themselves.
Bruce Kreamer - Leerink Swann
And as you mentioned CF I’m just curious on your opinion. Do you think having a clear test going forward means that that sales line. You could actually see some acceleration? See up revenues?
Kathy Ordoñez - Senior Vice President
If I look at the marketplace in general, there are two others CF’s products that have been cleared by FDA and the clearance of those products have not materially impacted the market dynamics so unfortunately I have to say the answer to your question is probably no. We suppliers go through a tremendous amount of work and expense to take our product through FDA and as we sit today it doesn’t seem to have a material impact on their success in the market place.
Bruce Kreamer - Leerink Swann
Okay. I know this is a lot of questions just kind of on the? I guess the details but I am also curious about Siemens and real time PCR. Any guidance at all as to how we should model the $ 24 million over ten quarters with it. Should we presume its smooth or is that just not a good assumption ?
Unidentified Company Representative
Well, it’s relatively smooth. Yes
Bruce Kreamer - Leerink Swann
Okay. And then just philosophically I’m struggling a little bit with thinking about giving this license obviously to another infectious disease competitor. I guess what can you talk a little about that, how do you feel about that arrangement and the fact and that Siemens obviously could be a further competitor of yours going forward.
Unidentified Company Representative
So that is a very good question, because its an issue that we struggled with and thought about a great deal at Fulera and alternately we recognize that these real time instrument patents are due to expire in 2011 and 2012 and so the ability to get value from them will be diminished substantially by that time and so it comes down to a difficult business decision of essentially enabling a competitor while we have a very substantial head start and strong up take with the M2000 but trying to do that in a way that we can maximize the value that we take from this IP portfolio.
Bruce Kreamer - Leerink Swann
Okay and one last from me just to be clear the R&D and SG&A guidance in the press release those dollar amounts are inclusive of Faz123?
Unidentified Company Representative
That’s correct, they are. Yes.
Bruce Kreamer - Leerink Swann
Alright, thank you.
Operator
Our next question will come from the line of Derik De Bruin, of UBS.
Unidentified Company Representative
Derik, you are back.
Derik De Bruin - UBS
I’m back yes. Kathy or Denis is there any particular seasonality to the Berkeley HeartLab [inaudible]?
Kathy Ordoñez - Senior Vice President
I’d like Frank Ruderman, President of Berkeley HeartLab to answer that question for us.
Frank Ruderman - Berkeley HeartLab
Yes, typically there is. There is a slow down in the summer months which would be July, August, may be a little bit of June because of vacations and typically there’s a little bit of more aggressive growth in the fall in the October, November, December primarily because of the insurance deductible and patients having meet the deductibles and trying to use up certain insurance benefits during that period and we typically see that the first quarter of the year I have to reorient my thinking because of the change in FY but the Solera Q3 would typically look in terms of samples like the previous quarter it would look like the Solera Q2.
Derik De Bruin - UBS
That’s very helpful. Thank you very much. I know you don’t want to give any comments on margins or something like that, but could you give us without specific numbers but I mean could you just point us into some sort of general direction like the cost of sales?
Unidentified Company Representative
Well with the cost of sales, Derik, I think there’s a chance you could calculate it actually with the margins.
Derik De Bruin - UBS
I was trying to be cute, I hear you.
Unidentified Company Representative
FYI, that’s a great financial mind there, Derik. Get right to the bottom of that.
So no unfortunately we are not going to be able to give you that information. They did say we will disclose some and we haven’t got some historical financial information on Berkeley in our SEC filings.
Unidentified Company Representative
But I should pointed out you know as I did earlier that number is going to be changing you know. We have some ideas about how to make that margin actually improve so stay tuned.
Kathy Ordoñez - Senior Vice President
But not to imply that’s a negative margin. It’s just actually a very dynamic situation as we put the two businesses together and go through the vertical integration that I described and so I think Derik you are going to be able to get a good sense of the profile of the business as we report the combined Solera results over the coming quarters.
Unidentified Company Representative
I just want to extrapolate the historical for too long.
Derik De Bruin - UBS
I wasn’t planning on doing that. It has a big impact in terms of the level of profitability that’s all. So up on those lines I mean you know are you also going to provide some color on the tax situation?
Unidentified Company Representative
I’m sorry the take on Berkeley Heart?
Derik De Bruin - UBS
I mean you are obviously your tax rates are going up as well on this as well. I mean, does Green Berkeley HeartLabs give you some color on how it’s going to change the overall tax situation?
Unidentified Company Representative
We have given some guidance on the tax rate but Berkeley Hearts not going to have any impact on the tax rates.
Derik De Bruin - UBS
All right. Kathy as you look at some of the developments over the last week you saw that the D code is introducing its own audio test and you’ve seen help in getting approval for their test and recommendations. Can you talk about where your products are and how they stack up against the competition there?
Kathy Ordoñez - Senior Vice President
Yes, we believe that we have a much broader cardiovascular portfolio than any one else which is part of the reason for the strategy of the acquisition with Berkeley HeartLab we are very advanced with the stat and benefit test. We have moved that to the front of the queue simply because we are so excited about it. We have other tests that look at the risk profile for early on set cardiovascular disease which we understand is the space that D code is looking at.
We have multiple markers there and we feel that we are going to be in a very competitive position. On the breast cancer front, on the other hand, I have to say that genomic health is substantially ahead of us. They have done a very, very good job in commercializing their gene expression test for breast cancer and the recommendation that we saw this week to my understanding is the endorsement of the use of gene expression profiling methods in breast cancer management so it points to the GHI tests we think that alternately this will pertain to additional tests as well. On the other hand we are making very good progress with our breast cancer test and John Sinskey, our VP of Research, could you give us a quick update on where that stands in terms of utilization?
Unidentified Company Representative
Thanks Kathy, you know our last communication with Life Core, they indicated to us that they are completing the validation and transfer of that technology into molecular oncology laboratory.
Kathy Ordoñez - Senior Vice President
And we have a, what I consider to be an excellent publication under peer review. It has been under peer review for a lot longer than we would have liked but that’s the way sometimes these review processes go and we have additional laboratories that are seeking access to this test method as well and so our hope is that we will have multiple offerings of this test available not only here in the United States but in Europe and Japan as well and its our belief at Solera that this test does require review by FDA through the IDMBA process alternately and we are working with Lab Core and we will work with other licensees to support that activity. I have not seen that with genomic health. I’m not sure what they are planning to do in that regard.
Unidentified Analyst
Okay. That’s very helpful. And could you just talk a little bit about the, what’s going as far as the tests coming. Some changes going on?
Kathy Ordoñez - Senior Vice President
Stacy [inaudible], could you answer that question?
Unidentified Company Representative
Yes sure. As you know we licensed a test of Special Pay which is now part of Quest. The uptake with the test has been light, but however we are advancing our findings in two parallel paths. First there are a number of studies that are ongoing that further demonstrate the clinical utility and our understanding of the biology of our discoveries. Some of those will be presented at the upcoming AASOB meeting in November. And in parallel with that we are in discussions for commercialization with several labs in the U.S. and outside, major reference lab in the Unites States, in Europe and in Japan as well. Towards broader commercialization.
Kevin was talking about the agreement that you have with Specialty that would? it wasn’t an exclusive agreement.
Kathy Ordoñez - Senior Vice President
No, it was not.
Unidentified Company Representative
Kathy, I have to say, I am little bit disappointed in terms of seeing the growth of the core diagnostic business, I guess, you know, it certainly seems to be taking a little bit longer to get all these things up and running and moving. I guess, how confident are you in your ability to relegate guidance that would be at about $55 million this year for the core business. How confident are you in you ability to deliver that given what you’ve seen right now, I mean you’ve heard there’s been slowing and delays and things.
Kathy Ordoñez - Senior Vice President
Well, Denis described our re-faded guidance that incorporates those results. But as I said earlier, we do not expect a material deviation from our original guidance. We had, as you point out, Derek, and I said earlier, we had a weak quarter as it pertains to end user sales, particularly on a comparative basis because of the loss of the HCB geno typing due to the injunction, the Russian tender sales, which by the way the Russian tender has been renewed so we are expecting positive results from the Russian tender, so sales are very lumpy on a quarter to quarter basis. And then the situation with the inventory reduction. So it was a disappointing quarter from end user sales perspective, but the organic growth of the business, particularly the end 2000 we remained very confident about.
Unidentified Company Representative
Thank you.
Operator
Our next question will come from the line of Amit Nagpal of [inaudible]. Please proceed.
Amit Nagpal - Unidentified Analyst
Hi, can you hear me?
Unidentified Company Representative
Yeah we can hear you. Thank you.
My question, you mention that the uptake of real-time technology in the U.S. has been slower than expected. Can you give us some perspective on what the primary source of push back is from the customers and help us understand why the sales lead time is longer in the U.S. versus Europe where has been a pretty rapid uptake. That’s my first question. My second question is can you comment on where you stand on expanding the test menu for M2000 in the United Sates, particularly gonorrhea?
Kathy Ordoñez - Senior Vice President
The overall uptake of real time technology, not just the end 2000 had been slower here in the United Sates on an account by account basis than in Europe and It appears to be just a dynamic of the approval process in the independent clinical laboratories and in hospitals. The decisions in Europe are often driven on a more scientific basis whereas the decisions here in the United Sates tend to be a little bit more financially driven. And requiring sign offs from many different levels, committees et cetera. So I think it’s just the nature of the dynamics in the two markets. Relative to your question to chlamydia and gonorrhea, menu availability on the M2000. The expectation is that that product will hopefully will be cleared by FDA, and available by the end of this fiscal year.
Unidentified Company Representative
So by the end of this fiscal year. Can you comment on where the pricing for chlamydia and gonorrhea has been committed or where the clinical trial stands, and can you also update us on the hepatitis B regulatory status?
Kathy Ordoñez - Senior Vice President
I am reluctant to talk about the status of the 510K because I don’t know what Abit has said about that publicly. But they have confirmed that they are expecting the 510K clearance on the CTNG test by the end of the fiscal year. Other tests, are available as analyzed specifically agents for hepatitis B virus and hepatitis C virus. Currently now in the United States and now all five tests, HIV, HCB, HBB, viral load, chlamydia and gonorrhea are available Europe and in countries that recognize the CE mark.
Unidentified Analyst
Maybe it’s a higher level question, Kathy, and just in terms of trying to understand, sounds like there is a bureaucratic process that just makes the sales lead time longer. And that’s understandable. Can you just help us understand, are there other sources of push back on M2000 relative to Takman? Will the expansion of the approved test menu really drive adoption? What are the things that, you’ve mentioned that you’re optimistic. Help us understand the specific points that lead to that optimism.
Kathy Ordoñez - Senior Vice President
From my personal perspective, Roche has an advantage in that they are the incumbent in most of these sales, they have leading market share as it pertains to the viral assays. So it’s a question of going into the account and displacing Roche. In most cases the Abbot system has prevailed. And in fact on the HIV assay, which is the primary assay here in the United States, the lead assay.
More and more customers are now recognizing the importance of being able to detect the rarer sub types of the HIV virus. Abbot is doing a very good job of getting the message out to the HIV treating positions about that putting pressure on the laboratories to consider that as part of the decision process. And as more papers are published comparing results from the two systems we continue to be encourage that scientifically and in terms of workflow, customers prefer the M2000 over the Takman system. But in very situation we are dealing with the the Roche incumbency, and the fact that Roche is the leading provider of products to the IBD market.
Unidentified Company Representative
All right thanks a lot.
This concludes the question and answer portion of today’s conference. I will turn it back to Mr. Dworkin for any closing remarks. Sir?
Peter Dworkin – Vice President, Investor Relations and Corporate Communications
Thank you all in the audience for participating in the call today. Reminder that management remarks will be posted within the hour on our website and the audio replay will be available later today using the numbers listed in today’s press release. Thank you.
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