Q3 2019 Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the context Corporation Q3 2019 earnings calls.
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Now I'll like to turn the conference over to your host.
Most of all CFO , Sir you may begin.
Thank you lunch good afternoon, everyone and thanks for joining us today with me on today's call is given there's all ski our CEO President and chairman.
Before we begin I would like to remind you about few things.
Today's call, we'd be recorded and we'd be available on the investors section of our website.
Today's call will contain forward looking statements that are based on management's beliefs and assumptions.
Information available as of today, because calls we may not actually achieve the plans intentions or expectations disclosed in our forward looking statements.
Forward looking statements involve known and unknown risks uncertainties assumptions and other factors that may cause our actual results performance.
Archie remains to be materially different from any future results what form one sort of achievements expressed or implied by the forward looking statements.
The risks and uncertainties about we face I've described in our most recent filings with the Securities and Exchange Commission.
During today's conference call, we will discuss some financial measures thought a month presented in accordance with U.S. generally accepted accounting principles of non-GAAP financial measures.
In the personally I'm in the appendix off what presentation, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to compared to GAAP measures. We believe that these non-GAAP financial measures provide investors with television media to Peter comparisons of operations.
These financial measures a marked recognized under the GAAP and should not be considered in isolation or as a substitute for to make sure. It all financial performance prepared in accordance with go.
With that I will turn the call over to Kevin. Thank you very much a mall. We're gonna go through three okay top items here first like to talk about the Q3 highlights and then how we are stacking up versus or 202019 goals.
And then finally like to discuss the incredible momentum, we havent neurology and all the upcoming PPH summit that will further.
Amplify our momentum.
Start with Q3 results were pretty excited to report that we had very strong broke 41% on a GAAP basis. There was a one time collaboration revenue last year.
Im Abbott does in fact, when you remove that onetime revenue our growth was 62%, which is a very formidable level of growth, but most most importantly, when you look inside the C.
How we grew a bit further bodes well for our future.
We also had if you remove the onetime affected the collaboration revenue, which was a very high gross margin. We once again have significantly ramped up our gross margin by over 500 Bips. So we're really excited about the continued momentum on both revenue top line in our bottom line.
Gross margin improvement.
One key factor that I think came up a lot in or last quarter conference call was the H. Dx and expectations in Q2 that we would probably have a fairly significant instrument Miss and then Q2 you might remember we had a very strong Q2, and we further pointed out at that time that we have a lot of diversity of instruments, we feel.
Meant that we're going to be able to continue driving instrument growth and I think what you're going to find is that we had once again I think each time, we've launched products. We were ahead of schedule. So we were actually able to launch the HD X in Q3, and there was a significant momentum build and you can see in a moment just how strongly.
Our growth occurred in instruments. We also completed the acquisition and closed the room on acquisition of NFL by far the the leading biomarker for neuro health that we can see around the world that can be viewed in the blood. We also raised more growth capital I think weve raised nearly 120 million.
Year to date, so we're really excited about having a very strong balance sheet for growth Optionality.
We also had just continued involvement with all of our key thought leaders around the world in an extra rooms, which is a conference focused on multiple sclerosis. We just dominated the meeting there was 50 publications all coming from quantify usage of the Samoa technology and the NFL. This is a clear.
Surely unparalleled level of growth of publications and validation. So I think several these were from the largest farmers in the world on phase three trials, which again we.
Did project. This forward about a year ago that we thought that we would be able to create these kinds of momentum for NFL that's occurring.
Most importantly in most exciting for me is this next item, which is that John to plug the auto who is an 18 year veteran from Biogen, who did a lot of the game changing NFL work and do a lot of work even for the Siemens agreement that was put in place about a year and a half ago between Biogen in Siemens for serum NFL.
She decided to join US a few weeks ago. So we're really excited to have her on board, it's going to help us further accelerate our ability to try to go for.
Medical and clinical validation of NFL with the FDA.
And then finally, we completed just this week actually a major deal with NFL with Siemens first of the big three too.
Our team up with us to utilize our NFL coming from Newmont acquisition, just literally two months earlier and we also announced a technique supply agreement for our antibodies. So you can see right out of the gate. We planned on this being primarily a defensive investment but as we also pointed out there would be opportunities for offense clearly we're landing strongly on the offensive.
Sides next slide I think is a pretty important one.
Goes into the growth.
Take down and when you look at Q3, you can see once again across all three categories of our revenue we had very strong momentum.
But when you look at year to date I think the thing that is probably most compelling and represents a long term major growth catalyst is that our instrument growth has been 70% year to date that is a an upcharge from the previous we had about three years in a row, where we were stagnant on instrument growth and we launched a lot of new instrument platforms and.
Form factors and that is a significant and move on instrument growth and obviously the consumables continue to keep growing.
And then on the left hand side too I just wanted to point out that gross margin move, which again is somewhat unparalleled unprecedented to be driving a year to date almost 600 bips of gross margin improvement.
Next slide just goes back to the longer term vision. We said we would disrupt this industry with this technology and fit you probably have been watching publications coming down around tuberculosis and.
Obviously on the NFL for neuron neuronal health. So everywhere you look you see publications coming out a lot of division that we've had for five solid years now is to use digital biomarkers to see disease earlier in its disease Cascade and then to see it noninvasively and Thats a sea change in the way the healthcare system could be.
Practice, because if you can see these diseases long before symptoms that makes them much more treatable and someday, we think preventable. So this slide is our vision and we're primarily focused on nor neurology and oncology is our primary targets because those are the diseases that are most lethal and our discovered today very low.
Late stage via symptoms and by the time, you discover them many times, it's too late to doing about it.
So its next slides shows that the way in which we're capturing that slide that we just talked about is through what we call sensitivity, it's the ability to see into blood and to see at a level of sensitivity that no one else in the world can see and by doing so we're able to get on to proteins at baseline healthy levels in any movement from baseline.
Represents the disease Cascades trigger this is.
We've been talking about this for several years. This is a very disruptive capability and the the powering precision health summit was founded around that principle that sensitivity can transform the health care.
System and our view here with these pie charts as a show you that we're starting in neurology and we're evolving into oncology with the launch of the SPX, but ultimately we've always said that we would go back into diagnostics in a one year ago. We did get all the rights back from deal for you to enable us to unleash unlocked value in diagnose.
Six up until then we could not because it was an exclusive that field, where you had so we're pretty excited now that not only do we have this momentum in neurology now and moving into oncology, but we now have the rights to unleash and create value longer term and what we consider to be the biggest market opportunity and Siemens.
Move to do a license with us on NFL represents kind of our first major agreement in this IBT landscape since we got the rights back from.
Fiomi or use we're pretty excited that we're now stratifying as soon as a nonexclusive deal again, showing the the leverage capability of our technology, meaning that we still have the rights to license that NFL technology to other large diagnostic houses now going back into the research piece of our business I would like to.
Illustrate that we are continuing to grow.
Asia, and Europe faster than North America, where we've had our traditional largest installed base and we launched a lot of form factors that we felt would play right into that part of the world smaller Benchtop lower price point.
And then you look at the customer growth Youre going to see that academia has been growing almost a 100%. This year and this is product growth and this is an important point because this is where our publications come from a lot of companies don't realize how important publications are to fueling the growth of business and so a lot of our form factor designs were going right. After acted.
For me to help with those publications because farm and while they create a lot of value a lot of profitability in a lot of growth for us in our primary users. Many of the academics are on their scientific advisory boards at those pharma customers in our guiding them into how to utilize these biomarkers for drug development. So we see this is a very forward looking way to go.
Grow the longer term value creation of the company. So academia growth has been pretty significant and our overall revenue year to date from products is about 50 50 split between academia and pharma.
And then when you look into disease categories. You can see that the neurology is still a very significant piece of our value creation and that's our focus and we know oncology is got a much bigger longer term opportunity with all the liquid biopsy excitement that there is with many of the company's ended landscape and we know that many of these companies are looking for blood based markers even.
Companies like exact sciences, who built an incredible franchise based on measuring free DNA and stool have talked a lot about the needs. Some they migrate to a blood based system and we think that thats further validating a lot of our capability by having the most incredible capability to see sensitivity in blue.
So this next slide is our strategic roadmap, we start with publications in the power and precision Health summit, which is coming up again in November and Barcelona is away, we insight and create a lot of inspiration for these publications you can see that they continue to ramp very positively in the number of biomarkers been running our systems continue to ramp as well.
And we do have a homebrew approach where customers can design their own protein assay with our technology and that actually creates a pipeline for future growth the accelerators, where we run services and actually create demand for our instruments you get paid for its our highest gross margin business right. Now that continues to grow very nicely you can see now we've.
81 phase 123 trials in those facilities and Thats a significant ramp.
And the instrument category, you can see where our growth actually back in 2016 was negative and then 5% and then 48 and then now you can see we've ramped up very productively for future growth of consumables on the right hand side and I think that there was questions in the last two quarters and we tried to illustrate that when we saw this huge ramp.
Up of our consumables year to date in 2019 versus previous years, we knew we were going to be growing to 40, 50% level, but this significant step up was partly due to a major trial that was being run by novartis than we did explain that Dan and when we're trying to illustrate this with the the shaded area here.
But overall when you look at that consumable growth. We've also been upgrading our instruments in the field in so we knew that 2019 was going to be a more productive utilization just because we've been improving these instruments coupled with the onetime effects. So you can see is a very strong steady growth in acceleration of growth in Arkansas.
Doubles, which again is a great Testament to the technology actually being used.
Slide just illustrates again, we've got three sources of revenue were on slide 10 instruments. We've got now three of them H. Dx SRX and SPX and then assay kits. We've got plates in the beat based and then finally, the accelerator services. Our three revenue sources and again, we're really proud on the next slide that we were able to launch early the HTS.
Switches and unparalleled ultra sensitivity machine that is leveraging close to 10 years' worth of experience and the productivity improvements coupled with its flexibility and temperature control, we think such set a whole new standard for delivering disruption in a check and technological form factor that is reliable and this is.
Key and we began shipping in Q3 and this trade in program, we're doing everything we chance accelerate that the more HD ones, we can get out of the market and replace them with H. Dx is we know its GXS is going to create a lot more consumption of of of the consumables and so we're doing everything we can with with a lot of.
Prudent investments to try to get that.
That installed base changeover could help could put some pressure on gross margins for awhile, but we think thats us very intelligent investment to kind of keep this of engine going for transitioning our installed base and we know the early access with several of our customers on the H. Dx in Q1 in Q2 was very favorable so we're really excited.
The next slide is just to repeat that we've shown each time, what does it we're focusing our investment funds on to kind of get better at and you could see we're continuing to focus on multiplexing menu expansion and the overall economics of our technology and sensitivity will always be our focus and the next slide slide 13 shows all the structure.
Goals that we laid out for this year, starting with Neurology, then oncology and then strategically moving into diagnostics and the potential that we have longer term for diagnostics and then our financial performance as well as going for 100 ex improvement and sensitivity to go after the next generation of proteins that we already have been able to identify and it's reasonable spine.
Fluid across all five of these categories you can see weren't green we've had another incredible year year to date on and hitting every one of these key goals for the year next slide just repeat the fact that a lot of the secret sauce of our technology in the way we've deployed at and research is to help drugs get approved by seeing disease.
Earlier, you're able to then get a drug under a lower dose and less toxicity to be effective more so than if you catch the disease too late and this is leading to a 300% increase in probability of a drug being approved if it gets a phase one approval if they use biomarkers and you can see on the radiance IVC ROI.
Our all diving on this in just one Cerro alone has had over 650 clinical trials.
For drugs. The next slide shows all the logos that accompanies.
Really most of this has been over the last 24 months that have now sees the technology and trying to utilize it to help both progress drug development and drug approvals as well as better understand how biomarkers are affected by different drugs.
And the FDA is actually issued guidance to support this in there now supporting bio markers as being a better way to get drugs approved then to reverse symptoms in the area of all Simers you'd probably watch the Biogen announcement, where they lost a lot of value several months ago. When they said if you add you can imagine.
Beta amyloid anti beta amyloid drug was being pulled because data was not sufficient but when you looked at a broader set of data included earlier.
Disease and mild cognitive impairment you start to see that they're now very bullish on that opportunity and so we think it further validates there one of our largest customers the importance of utilizing these technologies in the drug development processes next slide just illustrates that there's a lot of abundant markers that you may not need our technology for but.
By using our technology, you can increase the overall quality and lessen the false pauses in false negatives and you can also from a very small sample get an answer and then you can multiplex and so our overall goal is to move from the less cited this which is our research based over to the right side, where we are actually.
Running this four trials to get drugs approved and then ultimately we think there was a clinical opportunity where the dollars are largest and so thats, where tatiana is going to be helping us as well as the different investments, we're making around trying to get our biomarker starting with NFL clinically validated. The next slide just shows you how much excitement there.
Isn't that pharmaceutical industry for the NFL, There's 46 active clinical trials and you can see that we're really honed in on three areas were NFL can play a role it's primarily right now multiple sclerosis, but ultimately it's going to also be in TB Theres two active trials right now were NFL, our co primary endpoints.
For drugs for concussion and then also all dimers, we think ultimately is going to be interesting opportunity for Nurown, all health and the impact of all simers on neurons in the brain. The next slides shows that there were several phase three trials that extra rooms, and the actual specifics of the drugs that were utilizing NFL the slide 19.
Just isn't a repeat slide that shows you did 100% of the publications that are done in blood are based on the room on antibody pair that we now own and I've just license to both Siemens and technique and in addition.
No Im sorry, we license at the Siemens and we're supplying it to technique and we did supply Siemens as well in Q3, but on the right side you can see that we actually for several years look for antibody appears to have the specificity of a mine and we could not find it. So we're really excited to leverage this around the world to help.
Patients with mental conditions around the world with the technology and already talked about the Siemens which has the next slide and that route patent announcement, but it is interesting to note that theres a million patients with MMS just in the us and there's a recommendation that someday.
They will be testing twice a year for NFL to determine whether the drug is working so thats already just with M.S. could be a pretty formidable market and that's why the Siemens and others are teaming up with them with very attractive economics because of what we have as a proprietary antibody pair that proprietary pairs allowed us very attractive ex.
Clinics in the way we're.
Navigating in negotiating these agreements and Siemens is an incredible positive partner, we're really excited about that that build out next slide to show someday, we think that will be routine testing done for looking for Alzheimer's long before dementia, you might have solved a game changing seminal trial that showed that they could see NFL elevation six.
18 years before dementia, and all Cymer patients and so we're pretty excited how these types of early cohort biomarkers can play a role some day in modeling screening, but then managing whether the drug is working now if you really want to learn a lot about this this next slide and my final slide is around the powering precision health summit.
And we are inviting investors already know of several key investors that have decided to make the track over to Barcelona as well as some analysts we had last year I think 18 speakers. This year, we've got over 40 speakers and we've got two different concurrent tracks one on neurology and one on oncology, we expect almost three times the attendance.
That we had last year. So this is pretty formidable and a pretty exciting that we now have an advisory board for PPH made up of industry experts that are guiding the agenda and you could see all the sponsors on the left that are making this free of charge for most of our attendees. So this is the way in which we create a lot of momentum very rapidly for.
The opportunity to utilize our technologies.
So with that I'd like to turn it over to mall for a little bit deeper dive into the financial small.
Thanks, Kevin I'm going to provide some additional financial details about Q3, 20, Ninee performance and we'll be referring to slide two entity.
As Kevin noted revenue in Q. The off 2019 was 14.9 million compared to 10.6 million in Q3 2018.
We should act was up 41% revenue growth.
Excluding the impact of 1.2 million the revenue recognized.
28 being in connection with that permission from licensing agreement non-GAAP revenue growth for Q3 was 62%.
Product revenue grew from 6 million to 10.7 million an increase of 80%. This was driven by 82% growth in instruments and 79% growth in consumables.
Service revenue grew from 3 million to 4.2 million an increase of 39%.
To date doldrums revenues of 40.8 million of 53% increase on a non-GAAP basis year to date revenue growth was 61%.
As stated previously we had not providing revenue guidance shipment of its Dx ahead of our Q4 expectations and stronger adoption momentum, let to greater Q3 revenue than we anticipated.
As stated in previous quarters, our goal is to deliver meaningful growth each quarter, while continuing to build backlog for future quarters.
Gross margin Q3, 2019 was 47.1%.
And includes the unfavorable impact all volume 7 million relating to whom on acquisitions related.
Purchase accounting adjustments, which on a non cash adjustments, we expect similar corporately Mon acquisition related purchase accounting adjustments going forward subject to movement in acquired inventory.
But idea Q3 cost margin was 52.8%.
And was favorably impacted by the 1.3 million the revenue recognized in connection with the third munition the license.
Our non-GAAP gross margin excludes the impact of non cash acquisition related purchase accounting adjustments.
And the license agreement termination and provides investors with that Ellen beat it would be a comparison of fictions non-GAAP gross margin in Q3 2019 was 51.8% once this 46.2% in Q3 2018.
The 560 basis points increase over prior year was due to volume leverage and productivity gains in our consumables manufacturing.
We believe we have a significant opportunity for gross margin expansion into future beyond about Two Q3 q when do you mind being performance.
As we scale out all the business introduce product costs and continue to drive the mix to more consumable revenue.
I'm excited to report that Ladens fought the HP one instrument are outpacing our expectations.
While this may create neodymium unfavorable impact on gross margins it either very compelling investment to drive future consumable growth and excitement at all about technology.
Operating expenses totaled 17.3 million in Q3, 2019, and included 1 million in transaction cost and integration expenses associated with whom on acquisition. The balance sheet is in good shape as of September thirtyth with approximately 113 million in unrestricted cash during two three.
2019, our cash balance increased by 41 point Threemillion driven by 64.5 million in net proceeds from August follow on offering partially offset that by 14.5 million use of cash to close the room on acquisition plus our BNL loss Ics.
Moving 3.1 million off noncash items, such as stock options depreciation amortization and working capital in August of 1.9 million, primarily driven by accounts receivable due to revenue growth weighted average shares outstanding for EPS totaled 26.6 million for Q.
Btwenty 19 period at the end of Q3 2019 shares outstanding were 28 million.
Overall, we are pleased with up to three performance and are committed to delivering solid 2019 results inline with expectations.
Now turning back to Kevin.
Thanks Mall, we are sitting with a very interesting opportunity ahead of us we've got an incredibly experienced leadership and management team as well as a lot of employees that have been working with us for many many years many of them now coming from the pharma biotech industry, we redirected the business into.
Research to eliminate the regulatory and reimbursement risk of diagnostics and that has enabled us to really for the eighth straight quarter now that we've been public we've been able to significantly grow our business and that growth has accelerated as investors have actually started to help us with our growth.
By coming to PPH summits, and further referencing and linking us up with pharma biotechs that they own positions and they would like for those companies to get their drugs approved. So we have created we think a very interesting opportunity where we're very early on in the penetration level less than 10%.
For neuro neurology alone and we're really just beginning in a in a market that is three times the size oncology. So the first step in this in our minds was defining a market that was not fraught with a lot of risks and we think we've created a market opportunity for the next several years, it's not fraught with those risks and we've.
In executing we think fairly flawlessly and even ahead of schedule on most of the key CPI is that we are focused on sold the experienced group that is honed in on this is very motivated and passionate at some of the best employees that I've ever worked with in my career many of them have been with us for many years and other companies, but I'd.
Say that there was a chemistry that's been created here that is truly igniting and going after something that we think could change the world and Thats. The way health. This practice, particularly if we could put cancer and all simers NMS and Aoxin, our rearview mirrors, so with that what we'd like to do is opening up for acute Q and AG.
Ladies and gentlemen.
Question at this time. Please press Star then the number 1 million touched on telephone.
Question, that's being answered we'll use to move yourself from the Q press the pound key.
First question comes from the line is still from Cowen. Your line is now open.
Hi, Kevin this is to be Namby on for Doug tranquil.
Given now that Oman diagnostics has been part of context for seven months, how you're thinking about the opportunity for revenue synergies have you been able to crawl sensing the lobbyists instruments to legacy Oman customized.
I'd study how has Oman, driven you tracked relative to your expectation.
Yes, great Great question, we Didnt buy mine for the short term revenue opportunity, we merged with through more on based on what we considered to be a very long term significant opportunity in diagnostics, but most importantly, we bought mine because we were.
We're buying most of what antibody production they were making for our own kits for NFL and we wanted to protect this incredible evolution of the NFL franchise within quantum works today over 33% over a third of our revenue is linked in some way too.
NFL and so making sure we protected that supply for the existing revenue growth was the primary reason for this this this move now with that said.
We didnt anticipate there being much revenue beyond what we bought from them, but we have had some pretty productive developments that we were able to land and in Q3 that did give us a little bit of revenue.
Beyond the revenue that comes with our Samoa kits. So we don't actually granular wise and show those revenue levels.
All could actually maybe speak a little bit cleaner to this but I would say that we do think going forward there will be opportunities to grow.
On revenue beyond what we expected because of the cross selling opportunity. So going forward, it's still pretty small part of our company in a part of our business and again, primarily what this has done is created significant gross margin improvement by backward integrating into the supply of the NFL.
For the existing some mola franchise, that's where a lot of the gain is and I think we committed to a couple hundred basis points of improvement on an annual basis from that backward integration, but we are beginning to see revenue.
Well, that's that's profitable multi I just talked about that I mean, one revenues by itself are very small.
For Q3 full months revenues were 400000, but again as Kevin mentioned, a big chunk of it is things that we've created as part of business development activities for two months asset.
And again in large scheme of things that are very small.
In terms of gross margin expansion as Kevin suggested we really have gross margin expansion impact of integrating Oman.
We've always said about 200 basis points.
But please note that we had in when you when we acquired Oman, and it'll take us sometime to bleep that inventory.
Through Q3, so you'll start to see that impact.
From Q4.
How did that is really helpful and if I could ask the second question can you provide more detail on the Siemens and if and license and supply agreement. It does not appear that Siemens is using onto the system to develop NFL clinical assays that right.
Yes, so are there.
Mhm.
Go ahead.
So are there opportunities to place you a system that Siemens and Italy, and then more broadly other types of IBT deal and you should expect you to push too.
Yes, those are three good questions and to start Siemens does have a fairly formidable installed base of about 10000 instruments and Siemens as well as Roche and Abbott have primarily in the area of a license in immuno assay is they primarily been single Plex.
As a closed as opposed to multiplex and so we clearly.
Want to get as fast and Ivy de validation and clinical validation of NFL using our antibody repairs as possible we think it's.
Bodes well for the world, but also bodes well for quanta Carrick shareholders because.
Net investment can be very significant to break through with an IBT approval and Siemens having this large installed base. Our goal here would be to hope that they could achieve.
Some level of sensitivity on that existing installed base based on the way we've engineered the antibody pairs for both specificity and sensitivity. So our goal here is the worked with them to try to have them get validated and clinically relevant.
An ivy de kit for NFL onto that installed base. We also believe that the other diagnostic houses would be well served to advance their own positions relative to NFL and we would certainly be opened two additional contracts because again. This is non exclusive and we think that.
This is going to be a good thing for quanta terex as well as for the World now I would also point out that one of the key things about sensitivity is that were on the bleeding edge of whats necessary, we're getting ready to run with collaborators in Europe a 20000.
Population study between ages, seven and 70 on our Samoa technology looking at NFL and blood and having our sensitivity is necessary, we believe to get good clinical discrimination for the seven year old because what happens is the younger you are the less.
And to have died and so we know that theres a curve that as you get older you're in a row animal health gets worse and you do with age have neurons that die in your NFL levels, then did elevated and we've already seen this through some seminal game changing publications from Yens, Kulicke and David Leper, who both.
We'll be presenting new data at hiring precision health summit in Barcelona on August and sorry on November 19th. This is a very important part and there were actually running this trial. This cohort trial of 20000 to understand this elevation, we actually think Phil NFL was not specific.
To various diseases any type of way that your neurons die it could be through concussions it could be through all dimers. It could be through mess it could be through AOL can be through Parkinson's all of those different neurodegenerative diseases as well as the traumatic brain injury can damage neurons and killed neurons that.
Elevate your NFL levels the challenges as it NFL isn't specific to tell you which of those diseases or is it traumatic brain injury. That's created the elevated NFL. So we believe someday it will be a panel where they'll have other markers that will be specific to the various diseases that would be run with NFL now.
Here's where to challenge comes in is as you multiplex you lose sensitivity and that's where we think some day are some lower level of sensitivity is going to play a role to allow the complete panel and the algorithms for the complete panel now we wouldn't say that that's what you should be buying our stock based on today, because that's what we would call.
Diagnostic opportunities that we are starting to invest and very carefully but theres plenty of return in this research area, because we're so embryonic and that growth model that growth mode for research. There's plenty of returns in our mind in research, where we don't have the regulatory reimbursement risk, but while.
Getting the benefit of the research mold and looking at multiplexing in the research, it's going to set us up through the different opportunity in a different avenues for panels. Some day for neurology and for neuro health. So yes, we do think that theres going to be an opportunity with the engineered antibodies that we have for.
Siemens to be successful for some level of use cases with the installed base, but to get the broad use cases that are ultimately going to be available with sensitivity and multiplexing you will need our technology, we believe to achieve that and Thats why we want to continue collaborating with the diagnostic houses that.
We know have the interest and long term sensitivity for panels. So hopefully that gave you. Some some of the insights you were looking for.
Absolutely. Thank you so much.
Our pleasure.
Your next question comes from the line of Songy from BTG.
And your line is open.
Thank you thanks for taking my questions congratulations on the quarter.
So firstly.
It's nice to see that the trading.
Trade is outpacing your expectation just curious what's driving that you talked about you have been programs in place.
With.
With his sheri you uncovered.
Certain value proposition for the.
Value proposition.
For the customers that that you are unaware of if there are trading area.
Faster rate and as you look out over the next two three years what percentage of your current HT 81 install base do you think would.
Please note with the with the Nexgen platform.
Yeah, Great question Sanjit and thanks for the congratulatory comment we basically have always been very conservative and Thats part of we think the value of of our management team. We've always tried to be very.
Great expectations that we know we're not going to surprise negatively.
So in this case I think we knew that the H. Dx had incredible game changing capability not just in significantly increasing the reliability, but also in temperature control.
And even enabling magnetic bead loading that ultimately will help us further enhance the sensitivity of the instrument. So what we have found I think is that as we've started to articulate. These benefits, we really have been getting a lot more interest and I think the fact that we ran this.
Use case with several of our.
Top users to test out the H. Dx It gave us data that further validated just how game changing the H. Dx was and I think that as we start to teach the industry just how formidable of an improvement. This represents many customers at times don't use our technology all.
All the time and they were cautious using it and fear that they might have some kind of an issue that they could manage and that would lead to losing samples and one of the things were really honed in on with our user base with the H. Dx is never let me just lose samples that's really a key focus not to say that they walt but to date we've had incurred.
Credible results and not having these samples be lost and that creates a confidence then and that word spreads quickly and I think that with powering precision health summit coming next week and being oversubscribed and with so many customers wanting to hear first tan from all these users and we've got so many users now better going to be presenting.
We think we're at a critical inflection point of opportunity were the H. Dx. We think we'll continue to cause a lot of interest and excitement and we think it's an everyone's interest for this investment if there's a slight impact on gross margins by having the trade ins. We actually think that this is a very.
Estimate for creating consumable pull through later on in plus great references for the way we sells through a lot of reference selling so I know what percent will ultimately convert of the installed base to the H. Dx.
I think it's all going to be something that we have to test for a while here before we'll make any kind of projections, we would love to see the more we can get the HD went out in the mortgage GXS end. It helps us in many different ways, we've been holding our customers hands with a lot of technical support personnel because the.
The one at times needed extra support we think the H. Dx is actually not going to require as much support so in one way, we're going to improve the overall intensity of the support that we have to provide but then more importantly, if the instrument delivers the kind of usage cases, it's going to bring through more consumables. So everywhere you look we think that.
As a smart investment to get the trade ins and hey, if half our installed base by the end of 2020 is converted over to the HD X. I will tell you right now that we would be delighted it would be one of the smartest things we could get we could strike force. We are hopeful for those kinds of change outs, but again, we don't want to see.
Set up expectations and have you feel like we're not getting the conversion that you would like we think that at this point, we know it's happening at a much quicker pace than we anticipated and Thats, what we really think it's good for everyone involved.
Great that's very helpful.
It's also great to see such strong growth in the academic setting I was curious.
Most of whether youre, placing we're displacing some of the conventional technologies that are being used or do you think your your technology platform is additive to kind of research or they're looking for.
Well I think signs you as the powering precision health summits further spread the word around the sensitivity in the way sensitivity can be translated into incredible benefits for the customer we've already talked about less invasive early detection of disease, but the ability to get an answer from a very small sample.
Could you some day have a sample as small as a blood fingerprint that you could then dilute up and use and Samoa to get an answer from such a small sample. Those are the types of things that we know we've got use cases in fact last year at PPH. There were a lot of presentations on using blood spots and poultry.
In our out a small fraction off of a cardboard bloodsport, which today every child is born which I know alma proud grandfather, So I know it this is like but they have a he'll prick and they will create blood spots for every child boring and then later on if you could just simply.
Punch out a little small circular whole insel, a vial and then put solution at it and dilute up that blood spot auto side, you could transform the way you trance for and ship samples right and so these are the kinds of things that people Didnt really think about when they thought about sensitivity.
It is game changing because if you can start to get answers from dry blood spots you changed the whole logistics of of the way samples can be moved around the world. So you'll see at par in precision health will be presentations on a lotta scientists using dry blood spots and then in addition, we find matrix effects that can get in the way even for.
NFL if you look carefully at the latest publications, you'll see that several of our key.
Neurologist that are running these four CMS patients routinely now in Europe . They are actually diluting threefold to eliminate matrix effects and they're able to discriminate at the low end to the of the of the NFL levels better by this dilution so sensitivity to allow dilution is also creating we think again.
Aging opportunity. So all of these pieces, we think lead to the opportunity to really transform the h. Dx technology into the next generation of opportunity.
Great. Thank you and then lastly from me on your consumable revenue side.
We.
Continues to see strong growth there just curious.
I mean, if it's still early but do you think that with the.
Launch of the Hds and also just continued strong growth in your consumable business.
Any thoughts in terms of how you're thinking about thinking level pull through for your platform is it still kind of I think in the past you talked about a third and.
And the revenue on an annualized basis, but could we see that tiger move up higher.
Going forward is funny, we went back and we did an analysis after the last.
Quarterly call around all that specific metric and we have been way outperforming that metric of a third of the revenue and there was some level of onetime effect of that large novartis trial that we've now try to make sure everyone completely.
The understands and we said it in the past, but we want to kind of further reinforce that but even without that when you remove that we're outpacing that 33% rule of the investment and so you know 40% is something that I think has become a whole new norm for us and we believe that as we.
At the age Dx, even though it's a higher priced instrument, we think that maintaining the pull through of that 40% is going to be the type of goal that we're going to be striving for even at a higher price point for the for the Hds instrument. So we're going to keep driving a lot of different.
Programs to keep our consumable.
Today for instance, and yesterday, we have a thing called the Samoa success.
Which is a key component of working with all of our users and user group meetings to talk about all the advances that we've made on these technologies.
These advances will further allow utilization so everywhere. We look we're seeing very positive momentum. The one thing that we are going to keep an eye on in 2020 is as we trade and an HD one for an age Dx there will be maybe a three month period, there will have to do that trade.
In in and Mitt will that have any specific a level of impact for any one customer. We know we're going to be able to continue driving the one third despite even that kind of phenomenon.
The question is can we even keep going at the 40%, but we aren't going to be mindful that the transition and trade and we'll have a small effect as we are timing those those transitions.
Great. Thank you so much.
Our pleasure.
Your next question comes from the line of money from Canaccord Genuity. Your line is now.
Hi, this is matching switching on to Mark.
Hey, Matt So hey, so now that we will not as integration.
See other opportunities for M&A, if so what types of deals.
And can you talk about any particular areas of investment you plan to target with the recent financing.
Yes, great Great question Max worldwide.
We're not in any way, stating, we're becoming an M&A kind a driver here, but theres no question. We've got a platform here that is going to disrupt healthcare and as we start to view.
The tenant goals of opportunity that this kind of disruption can create whether it be in research where you might have other complimentary product lines that go into the same landscape, where you're selling into and you could leverage you're you're you're kind of sales channels or if you look at the technology in research and the.
Fact that today were honed in on proteins and we know proteins are disrupting but theres a complimentary piece here in which is DNA and our name or not really doing today, a lot DNA and R&D, but it's incredibly complimentary to a complete understanding of the old mix of the body and so we know that there are today a lot of DNA.
They are in a opportunities that are complimentary to our protein now for us those represent opportunities for M&A leverage in synergy, but thats not currently our focus because we've got so much organic growth opportunity. What we're really looking towards is what can we do to accelerate the penetration of our CFO .
Technology base, and so things like Asia were honing in on advances and trying to accelerate our position in China and Asia, because it's very very small right now, but yet theres. So much dementia issues going on across China, right now and we know that Theres Shoebridge research projects to try to get neuro health.
Both under understood and Asia, and we're not even tapped into that yet so we want to make sure that we'd start to tap into Asia. We also have watched very carefully the evolution of our services business and some of the large deals at least a companion diagnostics, which is the gateway for us to get into clinical diagnostics and by.
Bringing catchy audit line from Biogen, we're really going to be honing in on what ways. We can advance the the overall strategic model of these deals that lead to companion diagnostic which creates significant follow through utilization of consumables. So to the extent, we can cut across with FDA clinical.
Second we think it creates a much more lucrative research market opportunity for rescuing drugs, even in the area of neuro and you just watch companies that have failed across the board and all Simers disease and now you see Biogen talking very bullishly around Kent.
Can you kind of add to Canada, Mab that is creating I think the whole new resurgence of opportunity for earlier mild cognitive impairment cohorts and even maybe before mild cognitive impairment. So we want to look at the research.
Clinical trials sector, which we think is very robust as well as Asia as two strategic areas that we could advance our current platform and then secondarily start to look at complementary technologies to what we have with our platform such as DNA are in a such as.
Other products that can be channeled into the same.
Discovery opportunities that in research development opportunities that we're currently and so hopefully that gives you a sense, we're not focused on M&A, but we have as you know a very prestigious board of.
Leaders that have been very successful with M&A over the years and so we are trying to make sure that we are looking for ways to accelerate this this opportunity that starting to see a reach that's much broader than most people thought when we started to build into research.
Great and I think you'd six seven SPX orders last quarter, you guys highlighted SPX orders look in Q3.
And our most SPX placements to customers and our new decline terex or.
Just in customers at might already have any view on Earth system. When you. When you go into a customer to convert Nee chuan or your your EPS also pitching SPX.
Yes. So originally Max we said that we would try to place 10 instruments and 2019 of SPX, because it's a brand new product in a whole new market segment and our view was that this platform is something that is got and trenched cause.
Petition primarily.
I would say companies like technique and MSD and Luminex currently play very productively and the oncology field. So penetrating a segment where you have entrenched competition is very different than when you are disrupting like we've been doing in neurology and beyond that we're only 10% less than 10% penetrated neurology.
This HD ex opportune end up being up a pretty formidable opportunity for us that we could see our weight clear to accelerating the launch of the H. Dx. So I do think our Salesforce continues to focus productively on the SPX. We don't actually will guide to these numbers are are actually.
The state Granularly, what we've done and I think we did talk about the fact that there were seven orders right out of the gate just to give everyone. A sense that this is a very productive opportunity for us one that we already know that for the year, we're feeling very comfortable that we're going to hit our expectations, but in general I would say that we still see this.
Area as one of the the bigger areas of opportunity and it's not just on college yell at call it oncology and inflammation because if you look at inflammation. It really is the immune system and its the cytokine and many of the cancer drugs are immunotherapies and Thats really where were honing in and the.
Next is going to have a.
Incredible opportunity and one of things that we also found is that in our accelerator services were getting a lot of new orders and a lot of momentum that we probably didnt expect for this planar SPX technology. So in a way, it's kind of a leading edge way for us to validate and create demand so lot of the growth that were.
I see it in our accelerator is actually coming from us launching the SPX as it products are pretty excited about that opportunity because we know that always precedes the placement of of instruments. So for 2020, we remain very bullish on.
Augmenting our neurology sales with oncology slash inflammation sales with the SPX.
Great and then last one from me. So congratulations said Dr plus the on the new role can you just touch on why now is the right time to make the higher.
Occasions for the role in light. Thank you.
Hi, Thanks.
Yes, Max yourself, you're asking very good questions and I've been very.
Very close with the Biogen team, including.
Ill sandrock their chief Medical Officer, who just also discussed promoted is now running all of R&D. In fact, the last hiring precision health summit that we had in United States. He was on the panel and you might remember some of the comments. He made that got picked up by Bloomberg around how he felt our technology could absolutely disrupt all simers longer term, but what were.
CN happened here is this stuff is accelerating quicker than most of us thought and for taps you ought to be willing to come to us we thought that was and itself a big achievement, but I think what we've found since she's been here for just maybe a month as she so driven and so passionate by the culture that we have.
I have here and the ability to affect the world more so almost in a position where we effect all the pharmas and all the biotechs then in just one company. So we have this incredible relationship with Biogen and I think they are actually very happy to see that she's on our team productively, helping further advance.
M.S. as well as by.
All simers and all of these categories that now she can spread across all the pharma. We think this is the time because of the onslaught and the kind of tsunami wave of MMS publications for NFL and owning Remodulin and then getting our diagnostic rights back Theres three different events that have occurred there that's like the moon.
Lining up you get the rights back a year ago from Bill Mary You. You then acquire room on that has this incredible specificity for the NFL.
Antibody pair and then you on top of all I'd have this tsunami wave of publications showing the clinical validity of this technology. So when you add all that up we felt like this was the moment to try to bring that capability on on our team and attach on is the delight to work with and we're just so excited with the re.
That she has she'll be at par in precision health as well as all of the pharma biotechs. So it's a it's a great moment, we think to go for clinical validation with the NFL.
Working with our customers and Theres a lot of data sets out there with customers that we could we think leverage and exploit as part of our campaign to get NFL to help the world.
With neuronal health by the way by long term goal is everyone in the world should know what their NFL level is because if in fact, you start to have some neurodegeneration or you're playing soccer you've just seen all the new reports of women and soccer obviously, all the reports last night on NBC, you around cheerleaders and the number of concussions and.
The amount of trauma, that's being created just an every sport around I would really want to know what my NFL levels of every child at some point in so some day, where we're going to work towards that vision that everyone ought to know the NFL levels, because if something's getting in the way of your Nurown on health and you're above the curve.
Were you should be for your age what's going on and should you get yourself out of Harm's way. So we think that someday there is a very significant opportunity for help screens as well as.
You know drug interactions with NFL to advance the world in Neuro health.
Great. That's it for me congrats on the next quarter.
Yes, thanks for the par in precision health.
Sponsorship too.
We really appreciate that should that to cowen as well very much appreciate that.
Your next question comes from the line Puny from SVB nearing your line is now open.
Yes, Hi, Kevin.
Thanks for the question. So first one is is on consumable on I think of its touched on briefly before but I just wanted to get a sense from you in terms of the trials that are currently ongoing what's the expectation.
For.
Furthermore, trials to come into that I mean seems like the.
The increase in and consumable revenue was about a half a million it had and was essentially flat from Q1 to Q2, but then and increased again this quarter just wanted to get a sense from you as to.
That contribution and what's your expectation of the timing of the current trials.
When would those trials be completing and if there's any expectation for near term trial additions into the consumable revenue.
Yes, clearly trials are pretty important opportunity and it starts with phase one trials that are very small and then you have phase two and then ultimately their largest trials or phase three and we did have a very significant novartis trial early in the year, which we've commented on.
And then we've also continued to advance the the reliability of our HD. One that's out there we have done a lot of things to improve its performance and so yes.
You are talking about a quarter on quarter growth, but I think the way to keep looking at this is year on year growth I mean, we've been running almost doubling on a year on year basis and a lot of that is because of we think the the beginnings of a trial sequence of interest that is going to we think continues so.
We're very bullish on trying to drive trials and feel like Thats, a big piece of our future opportunity now we're not going to no.
Guide to that it's we don't actually guide, but I would say that we've always said that as a long term growth horizon, even though the denominator is getting bigger we if we had said going into 2015 and 16, we felt that long term growth of 40% was achievable and and then on average.
We think that consumables should be outpacing.
The growth the average growth so when we look at 40% total growth back in those years, we always assumed that we would see stronger consumable growth and we probably would see slower instrument growth and then we would feel like.
The services would be kind of on that that 40% and if you looked at this year as kind of plant out. This way, we're seeing the strongest growth and consumables. The thing that has surprised us probably more than and many of the investors is just how significant of an instrument growth we've been able to create this year, which again as a catalyst for future growth.
And so people don't buy instruments to have them set they buy him to use them. So we're very encouraged by the instrument growth and your question is that on we will be very much focused on trials as being a key to our consumable growth ramp and it's not always going to be steady and.
Steven you will have surges because of trials and so when we looked at some one of the key things. We did last quarters, we looked at averaging a four quarter, averaging and we could see like the underlining growth was significantly improving when you do the averaging in I think thats a good way to ensure you don't get tripped up on any.
Kind of models that you might be building a penny.
Okay. Thanks for that and then on.
I wanted to get a sense from you from in your conversations with pharma.
The expectation for protein and peptides markers or significance of protein peptide markers versus the genomic markers, which are dominating the pharma conversations or farm.
Cdx is and other a companion diagnostic than other products that are getting on the market.
I know youre seeing growth in neurology I, just wanted to get a sense from you.
Applicability of protein peptide markers broadly using similar platform, what's been the conversation there and what's your expectation here.
Taking share away a little bit from genomics. Thank you.
Absolutely.
I think penny that one of the roadblocks to utilizing proteins. Historically is the sensitivity and DNA became everyone's exciting kind of focal point for investment funds because they were able with PCR they were able to increase the sensitivity of what they could see.
In the body, but the way they did that was they amplify that the amplified the PCR that amplified the DNA and they are in a using PCR, which created some some biases. Some 80 biases and then my last company that we did do a 10 x. kind of value creation was caliper life Sciences, we built the DNA libraries.
For most of alumina and I think you're aware that our founder of this company also was the founder of aluminum and key like myself have a tremendous interest and what the protein represents because in a way.
If you can get to the sensitivity of baseline understanding of the protein in a way it's much more phenotypic because the identical twin studies or what I'd like to look towards and that is that they are born with the same DNA profiles, but yet one of them grows up to have a very different propylene a protein profile because of environmental factors and.
The way they live their lives and that is the key we think to why proteins are so much more phenotypic and by applying sensitivity to them. We can now get to the same level of sensitivity that you have with DNA with protein and if you look at Roche Siemens and Abbott most of their franchise.
As a big piece of it has been based on a license and proteins and so we know proteins are very phenotypic for CN disease, but we we havent been able to do is used proteins to see health and by having sensitivity, we can get down to the levels that show health and then movement from health shows you very early stage.
Disease movement. So we actually think that someday there is going to be some very profound liquid biopsy opportunities that are not just going to be based on genomics, but also in molecular but they're gonna be based on protein and I think you're going to see a lot of companion diagnostic opportunities in protein one of our one of our great customers is.
Rules based medicines that myriad they've run over 650 trials phase 123, many of them are an auto immune an immune type deficiencies again looking at cytokine and so I think that you're going to find the proteins going to be tremendously.
Capable to help discriminate disease from health earlier, and it's going to become a good adjunct complimentary to DNA and now you're asking will at some day displaced DNA will someday replace molecular I don't think I would ever see it totally replacing it but I think it will be very complimentary.
And how far and what it's reaches as something that it's too early to tell but I can tell you the level of adoption that we've been able to create with basically no revenue five years ago. So what we were able to do right now with this consumable pull through from pharma biotech, which is outpacing what you see in molecular so I actually think that brought a very.
Strategically.
Differentiated pace of growth and adoption that the protein is enabling with the sensitivity of the protein and I know you're proteomics.
Person yourself a Phd.
Preneed. So maybe you all have you give a presentation on this because I think everything I've said year I know agrees with what your base belief system is so anyway, you want to comment please do.
No I appreciate.
Comments.
Proteomics 2.2 is coming so it'll be interesting thing.
That said there so I appreciate your insights there.
And if that last one if I could.
Yeah.
Ask around Oman, I think someone that has already covered but just wanted to get a sense of the existing number of sort of contracts that Oman had prior to client to acquisition.
We we sell one led by the technically we saw.
Another one with Siemens here and wanted to get a sense of.
What's that we if we should expect further contracts here.
In the near term.
With whom on and other.
Potential other contracts that will be renewed thank you.
Very good question and I would say that most by far we were by far their largest customer I think over 50% of of their antibody output was coming to us to make our NFL kits and so our sensitivity coupled with their specificity and sensitivity created a rule.
Significant opportunity to clinically discriminate many of these biomarkers and neurology, but ultimately we think and a lot of these other fields that we've been we've been commenting on.
I don't think that there was a lot of contractual work prior to us acquiring them. The Siemens was was beginning.
There was this major announcement by Biogen 18 months ago that Biogen was teaming up with Siemens to launch a CRM NFL test. If you recall that was a game changing announcement and what was interesting was all of the data was based on some moa that led to that that deal.
And at the time, we Didnt have diagnostic rights you might recall we had.
Teamed up appeal, Merieux, who doesn't really do neurology, so much and so we were somewhat caught in a in a relationship that didnt allow us to produce opposite these nor neurological opportunities and so I think the Siemens opportunity because of the installed base and I would look at rose Similarly, they've got a 70000.
Sales and installed base I would love to see some of these biomarkers that we can engineer like NFL on their instruments and then ultimately when you get to panels are similar technology, we think will be become big key component of what will be required. So even though there wasn't a lot of.
Sales that were in there we felt the Techni was very important we think thats a great company, we believe in them and so we wanted to complete that deal right away and that was again done. After we owned them and then Siemens I would bet that there might be two or three more in the next year.
We're very careful on how we.
Set up those deals we want to make sure we're capturing a lot of value.
And we're very pleased to say that we're capturing a lot of value in these deals and we feel like thats, an important piece to the equation, because we'll be continuing to Chantal NFL via our some moa and use cases that we know these other channels can't get too and we want to keep pushing the edge of science to.
Create those use cases and thats key for us with similar but then there is a great way for us to create value. We think through some of these other deals and we'll be very careful and the way we structure.
Okay.
Alright, Thank you Kevin.
Thank you Pony.
Hi, I'm showing no further questions at this time I would like to turn the conference back dependent.
Ski for closing remarks.
Thank you very much Hey, you know, it's been an absolute pleasure to be working with a mall on all this but small you've been with US now how long settlements seven months and I got to say that.
Ill cross just about every aspect of our business, we've been scaling it and we've been culturally building now what we think can really disrupt and I do believe any of the investors that can attend piling precision health, you'll be able to see a really clean opportunity to what we think the future hold so thank you so much for all your.
Support and we'll be talking to you at the ended their Q4 period. Thanks a lot.
Ladies and gentlemen group Inc. conference call. Thank you for your participation you may now disconnect.
Good bye.
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