Q4 2019 Earnings Call
Oh yeah.
Thank you for standing by and welcome to the commentary Corporation Q4, and full year 2019 earnings call. At this time, all participants or any listen only mode. After the speakers presentation. There will be a question answer session.
Yes. Good question during the session you will need to press star one on your telephone if you acquire any broader assistance Peach My started zero I would now and then the conference over to almost doubled CFO. One terex. Thank you. Please go ahead Sir.
Thank you Kathy.
Good afternoon, everyone and thanks for joining us today.
With me on today's call is given to us Roski, our CEO President and chairman.
Before we begin I would like to remind you about few things today's call will be recorded and will be available on the investor section of our website. Today's call will contain forward looking statements that are based on management's beliefs and assumptions.
On information available as of today. This call we may not actually achieved 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 or achievements to be materially different from any future episodes performance or achievements expressed or implied by the forward looking statements.
The risks and uncertainties that we face I described in our most recent filings with the Securities and Exchange Commission.
During today's conference call, we will discuss some financial measures that have not presented in accordance with U.S. generally accepted accounting principles or non-GAAP financial measures in the Q4 earnings release and in the appendix afford presentation, which I will build on our website you will find additional disclosures regarding <unk>.
Non-GAAP measures, including reconciliations of these measures compared to GAAP measures.
Believed that these non-GAAP financial measures provide investors with relevant beat it would be that comparisons a photo patients.
These financial measures a marked recognized under GAAP and should not be considered in isolation or as a substitute for a measure of financial performance prepared in accordance with GAAP without I worked on the call in order to Kevin.
Thank you very much mall, yeah, Doug thanks, everyone for listening in.
Hi, Bob build an agenda today that I'm going to talk primarily bought or strategic and financial progress.
Yeah and inside of that we'll talk about certainly Q4, and a four year highlights, but also the vision and strategy bulk around the execution and the aspiration.
Our company's opportunity I'm wall, So talk specifically about our goals and several of the key growth catalysts that are in place for 2020.
I am all will then spend some time going through a little bit more detailed look at our financials and open up for Q1 eight.
Before starting their spend a lot of news in the last couple of weeks and we've been getting a lot of questions regarding the impact of their krona bars on one carriage.
Our top concerns or health and wellbeing of our employees around the world. We've had a task force in place for several weeks monitoring the latest developments, we meet regularly with our executive change to stay on top of the situation as of today.
Situation has not had a major impact on our operations or commercial team is in regular communication with our customers and we're continuing to support day to day off field operations.
We've also taken steps to ensure continuity of supply. We're also closely following the latest developments from the CDC and developed contingency plans should.
The situation further deteriorate necessitate some of those contingency plans.
Just a way of the financials about 13% of our revenue comes from age all of which only 7% comes from China only a negligible portion of our revenue comes from medley well, we have seen the minimal impact on revenue and supply. So far we would be remiss, if we didnt column.
Matt.
That's a continued global spread the cold but by Jean.
Would impact our instrument placements in consumables and services revenues.
As we close out Q1, and enter Q2, well, there's the potential for some short term disruption we remain very positive on the long term.
Sectors of our underlying business. This is obviously a fast changing situation and we will continue to proactively mitigate the impact on our employees business.
Operations as well as customers and investors.
So with that I'll briefly dead I'd like to start on slide four that shows a rapid ramp in our publications for the quarter and a four year as well as the bio markers that are now being measured by our customers primarily blood, but they do cross just about every category.
If sample type from the human body.
We also are shown on this slide our revenue.
And you can see that we did in fact delivered very strong Q4 growth and that led to.
The 46% Q4 growth and a four year growth with 51% at 56.7 billion.
What's most exciting about this as well the compared to do compelling revenue growth has been augment it also by very strong gross margin advance, which will show we did launch early or H. Dx, we got that out in Q3, and we also launched in 2020, I'm, sorry, 2019 or SPX.
Our full year consumable growth had some onetime.
Very favorable opportunities built and where we actually grew at nearly 90% year on year. We also were able to raise $120 million of growth capital, which gives us a very strong balance sheet, which we thought was important to manage any uncertainties that were ahead of us as Wallace.
Give us the opportunity for some pretty interesting and compelling mast Roche aspirational growth opportunities, we were able to acquire mine on July 1st close that deal. We initially bought it for defense, but we've now seen some very interesting offense opportunities with that asset.
We did license after acquiring the Omani antibody company.
We licensed NFL forward IBT license to Siemens and also provided check the source of supply of our NFL didn't make it to an industry standard.
We also had 49 publications and that extra <unk>. This year was one of the stronger showing job as well as I see further augment in just the strength of our neuro portfolio Biomarkers. We added some really important people to our team is pass your namely a mall as well as rich.
General counsel to continue to evolve the the progress of our company. We also recently named.
A catch you ought apply via as our senior Vice President clinical Biomarkers, given this new opportunity that we see a emerge. So slide five you can see that we had very strong Q4 consumable growth of 74% and.
And we could also see we had 380.
Bips Oh gross margin.
On an adjusted basis, which is very compelling.
We also overall for the year grew our instrument revenue, 55%, which is a significant surge we had two products that we launched this past year, which created a really nice surge, which is a great leading indicator of future growth given that the consumable pull through.
He is now 45% of our overall revenue mix.
Having grown greater than 80% this past year.
On slide six we just illustrate the various components of our revenues starting with the accelerator you could see our full year growth. There has been very significant we've now done 101 drug trials drug trial projects in our accelerator Laboratory our services lab. This is.
Very important and Weve continued to create strong backlog there to protect us as we may need it for any of the growth of implications going forward, having a strong backlog just gives us greater visibility to the the overall growth trajectory and we are seeing a really nice strong surge of growth right.
Now given the change over much of our installed base on instruments may that customers are seeking out and utilizing our services lab.
And then you could see the instrument placements. We reached 400 by year end. We also you could see the growth for the last two years, it's been a step up from the previous three years and the instrument growth nearly 50% both years.
And you can see our strong.
Consumable surge in 2019 was some level of one time.
Revenue, which primarily was Q O Q1 of last year for about a billion dollars associated with the major Novartis trial, which you May proceed last week, they announced that they believe they're gonna have approval of that it best drug that utilize dark NFL as a secondary surrogate endpoint. They believe they don't have that approval in June of 2020, which is pretty.
The exciting and the role we play there, it's even more exciting and you can see the rapid gross margin to sent on the right hand side of this slide.
Over the last example, which they stayed on the slide is.
In the consumable category. The utilization is the total dollars that we've sold of instruments what percent of those total borrowers have installed base through.
We sell annually and consumables and for about three years 15 to 17.
We were running around 35%, but we'd now step that up and it's been running for the last couple of years at 50%. So that step up is coming by our menu expanding evolving to more kits supply than homebrew and just the better instruments that greater throughput.
Slide seven just illustrates the the the demographics of work of our revenue you could see that were primarily North America, but you can see we're growing Europe and Asia faster, so, it's creating a better balance longer term.
We customer wise, we're primarily either academia pharma, but were about 50, 50, now, which academia has been growing faster in the last several quarters primarily because.
We've been watching the smaller product form factors to try to help us solicit greater publication growth from academia and you can see neurology growth continues to be very strong and we just now launched into oncology. So we're expecting to see some nice growth college in 2020.
And then finally up from a mix perspective consumables now.
Had the strongest growth this past year now represents 45% of our overall mix given us really good visibility for future revenues. So now like to move just briefly to strategy you know the ability to take and see disease much earlier disease cycle. When the disease is still treatable.
Long before symptoms and to be able to see it noninvasively a blood is the real value proposition for our company and that's supposed to seeing diseases today, particularly in neurology and cancer very late stage and many times it require surgery or spinal tap in order to get the sample to look at.
That disease state, so seeing it and blood much earlier this transformative when you consider the opportunity that.
Represents as we combine technology with health care and form these digital biomarkers that basically enable our technology to be exquisitely sensitive.
Slide nine just shows that.
There was a lot of things that cause identical twins to be different as they grow up primarily their environmental factors in the way they live their lives they might have the exact same DNA when their board, but it's the protein phenotypic protein that changes and expresses differently throughout their their lives and these environmental factors.
Trigger a lot of what's actually creates disease and so we've honed in on the protein and try to really it's still a whole proteomics revolution by digitizing proteomics and creating the opportunity to see it with exquisite sensitivity slide Chen.
Just illustrates above the the iceberg analogy that we show here you can see some companies like Luminex MST a protein simple from technique that have traditional capability to measure at the levels of that we show your nanogram to Pico Gram per ml and that would also be true for.
Siemens Roshe Dabic that have moved about 205 proteins historically into IBT diagnostics of about 1300 that are measured overall without the bottom you can see required terex plays theres about over 10000 proteins, we think that circulated blood that aren't really able to be measured today and we.
Think that represents an Ivy de protein opportunity of nearly 1000, maybe four times today's level of approved IBT and it's our sensitivity into defense or Gram per ml. That's a thousand times more sense of that's enabling that's on the right hand side, we just showcase some of the most important bio markers and we show.
Green.
Our vertically today's detection level and then the yellow bar that goes horizontal shows that the traditional level of those particular, biomarkers and human and when you're really healthy you're at the lowest level, which would be to the far this to the left and then you can see the red being quite terex yellow deal on these critical biomar.
Occurs the ability to see them when you are healthy as well as when you're disease is what really differentiates our ability to achieve it on these critical biomarkers were actually 3000 times.
More sensitive on average so it's up a real key way to differentiate ourselves in the next slide is this a slide we've used the previous private presentations to illustrate that it's typically a cancer in order to generation that we find and very late stage, sometimes stage for like in pancreatic cancers or.
Many of the lung cancers of brain cancers are so far along that Theres no. Good way to treat those diseases same is true with neurology, particularly for all Simers MCT and many of the neuro diseases. Sometimes you don't detect them until you have symptoms and by time you have symptoms. They are very late stage. So now you could see that weve.
Nearly 155 publications and cancer during 63, nor in neurology that not only allows you to see the disease earlier, but less it basically and it requires the ability to see proteins at very low concentrations to create that low invasiveness to be able to see a blood what you used to bill see into it.
Actual surgical biopsy or spinal tap and it seemed disease earlier also requires lower levels of protein detection.
So on slide 12, we've begun to illustrate that we do believe we have a low risk opportunity to just continue like a machine to deliver from an execution in the research category, where we don't have regulatory or reimbursement risk and we have multiple growth drivers. We basically growing this business from no revenue for.
Five years ago to 57 million in 2019.
The growth trajectory is actually doubled in the last nine quarters since we've gone public with the support of a lot of our investors, helping us grow because our technologies are helping drug companies increased the probability that their drug is going to be developed and approved and that is something that must most of our investors one for there.
Invested investments in the drug companies, which have helped get our technologies incorporated that those companies, but on the right hand side. Most importantly, a little over a year ago, we regained all of our diagnostic rights and we do see an opportunity aspirationally to enter into a market. That's probably 10 times the size of the.
Research marker on the left the does have more risk and does require regulatory and reimbursement approvals and that's something that we're carefully trying to measure and manage and study. This year. So we can start.
A way to move from the left hand side into the right hand side and by year end, we hope to have some pretty good strategic ideas of how we can do that so further tapped into this significant opportunity in liquid biopsy as well as we're calling it liquid MRI, but the ability to see brain health and blood long before disease could be eight.
Changing disruption to the way neurology practice.
Next slide to show the execution on the left in the market side.
You can see that that market is more like $1 billion to $4 billion and today, we play primarily in the neural market, where we have almost 10% penetration about $350 million market, but we're now moving in with the newer product SPX, where we have less than 1% penetration into onco, which of the 750.
Million dollar market and you could see some of the players are mainly luminex and MSD, but on the right hand side you can see that our first of all the of excitement is in this neuro disruptive diagnostics, which we estimate could be as large as $5 billion and we think our age Dx and SRX are being built for clinical opportunities as we evolve.
Over this year into a strategic articulation of our pathways into diagnostics. The next slide Slide 14, just summarize is that we sell instruments, we sell assets, which are our consumables and then we have this accelerator level in the right and we launched that each Dx, which is our largest franchise the HD franchise.
The way on the left early last year, we were able to actually install 56 HD excellence by year end, which is a very fast surge half of those retraded, where we are incenting the customer to trade in the reach the ones, which hurts short term margins, but actually it's going to help long term margins because the h. GXS.
Pull through more higher margin consumables.
And they eliminate a lot of the field service investments that we need and placed with the HD. Once we actually estimate by year end 2020 half of our age the installed base, which will be nearly 300 will be h. Dx is and again, we think that about 50 50 about will be trade ins versus new sales at the 200000 dollar price point.
These technology also gives greater.
Potential for even enhance sensitivity and better consumable economics, and you can see the aesrx and the SPX SPX was watching the cancer. This past year and the accelerator. We now have NLD t. capabilities for those drug trials, which is important as we demonstrated the ability to help drugs get approved.
By recruiting earlier cohorts when the disease isn't symptomatic, yet and it's easier for the drug to be effective and lower toxicity because of lower dose you to affected disease.
Next slide just shows the sensitivity enables a lot of things, it's not just the ability to see low abundant markers, but did you early detection allows you to see any answer from a smaller sample you can dilute up for better accuracy. They also gives you the ability to multiplex multiple markers simultaneously to create better disease spread.
Sophisticated without suffering the elimination of sensitivity and it gives you future proofing because of all these new markers that the proteomics campaign are beginning to uncover none the radiant side you could see we're continuing to invest in greater levels of sensitivity because when our sensitivity is deployed in samples like these.
Friebel spinal fluid today, we can actually see proteins that we think someday, we'll want to be seen in blood and that will require another 100 exit sensitivity to achieve that so we're pretty excited about that advance. This next slide 16, just shows the toxicity and efficacy challenges of the drug industry and if there was a 300% improvement.
The ability to get it stays three approval from a phase one approval if you're using these biomarkers and on the right you could see there is now 46 instruments at sea arose like Labcorp Quest and rules based medicine and Euro Fenton frontage and there has now been 101 drug trials, even in our own facilities and.
And our services. The next slide to show that the FDA is very honed in on neurology, whether it be the 26 suicides, Dave from soldiers that have posttraumatic stress disorder, where the opioid addiction or the rapid ramp up of all time or patients thats being predicted in projected or all the mental health issues that we haven't America is.
Great and their large cost burden and that's caused the FDA to issue guidance to use biomarkers to help get drugs approved the next slide starts really it's a buildup slide that you can't see today, but it starts in 15 and it builds up to 19 and you could see now all the companies that are using our technology to help support either research or did you.
Drugs approved slide 19 illustrates these three areas on the right hand side of Aspirationally that we're starting to do a deep dive strategically to understand the best way for us to migrate.
A compelling value creation opportunity into neurology liquid biopsy and point of care and you can see the value proposition that we feel we have in order to enable that as a platform company. We think in many ways, we could become somewhat the liquid biopsy the aluminum liquid biopsies or maybe the exact sciences of the brain.
<unk> evolving our platform technologies into these rich diagnostic landscape.
Illustrate that slide 20, just shows you the rapid ramp up of drug trials using the art neuro filament like you can see there were 42 trials, thus far I'm using our NFL, primarily a secondary surrogate endpoints. There's currently five phase three trials across 1600 invest patients utilizing the NFL then.
On the right hand side, you can see that the NFL also works against other disease neuro diseases like all timers CPI LS and is currently 134 NFL clinical trials using our NFL. The next slide 21 has been shown in the past, but it illustrates that bye.
C and with our exquisite sensitivity the great Miss that new mine antibody peers had for NFL.
Gave us an advantage to buy that company at 172 of the liquid.
Blood based.
Publications are all based on the new money antibodies as well as our Samoa and that combination makes it very specific and very sensitive and you can see on the right hand side, we looked for three years to find somebody other the new mine and nobody was able to supply this very specific antibody peer which weve.
Now got in house to protect our franchise, but also to allow us to grow. It. This is the first time were shown on slide 22, and this is a follow up from the two investor meetings. We had in the last two weeks, we illustrated that NFL is continuing to grow and this shows you. The total clinical studies using NFL or is it.
Totaled 134, and you can see that some of those are completed some of them are active either observation old or interventional, meaning that they actually have multiple cohorts and they're measuring versus a placebo effect or even an existing drug in the middle category. You can see that the 76 actives you can see.
Now they cut across the different phase 123, and four and then you can also now see.
The category that those particular trials rent from the different neuro diseases, then when we take the three key nor diseases over to the right you can see that our penetration is less than 5% across all the trials in those three categories. The light blue represents our current penetration. So this is a set of slides that we've been working on to better articulate.
Just the how big this opportunity as it were using with our field to try to get further penetration of our NFL and mentioned and an actual trials by linking up our sales teams with the chief medical officers of our key customers in the neurology framework. This next slide 23, just shows that whether it be drug trials.
Like Novartis as we've already mentioned or drug selection for which has the best drug for the disease. Because there are today 16 approved drugs for a mess worth 22 billion NFL could be the way in which you can keep an MSP patient very rapidly to get them on the rights road and the difference between dining a wheelchair.
Which their life expectancies, the same for NMS patient versus dined standing up the difference between using in EMEA ride. It takes two and a half years to see if a drug is working there is evidence now within three months as one of these trials here illustrates the first one but you can see the impact of the drug on Dms patient. There was also trials going on with.
Disease biology, and there's a lot of evidence that this is going to advance into the clinic and we're working.
To try to create almond ft, a opportunity for a meeting this year. The next slide 24 to show two key trials ones for analytical validity for the FDA over 17 sites will be soon be a publication on this where we were able to get the same results across different users in different labs different customers and then on the radiant side you.
I can see that there's already been an equal 130 healthy people from ages 20 up until age is 80 to see what their NFL levels are because as you get older. Your neuron die and we can measure that that nurown will damage of age, but if you're above the line. It says if there's something going on from neuro degeneration, whether it be all dimers right.
Yes, parkinsons or even concussions that could be putting you in harm's way. So there's a large 11000 healthy control study now being run in Europe, 80 Cross 18000 samples to create that normative data, which will be important for the clinical validation with the FDA.
Slide 25 illustrates the various key goals for 2020, we're going to continue penetrating with high consumable utilization in neurology and that HD ex will be key for us on the by year end, we'll have half of them of the installed base BHP Exes, we're also expanding or Asia Pac presence.
I'm not colleges.
We got that new SPX, we are adding 50 assay to grow the SPX and primarily neuro Oh I'm sorry in immuno.
Assets, where you're looking at.
The immune system to treat cancers, and our technology could help scientists get better at the right.
Immune profiles for cancer treatments.
From a strategy standpoint, we're looking to two landed IBT partnership this year and also will continue looking opportunistically for M&A and we do in the financials continue to see a long term growth prospect over three years of 30% to 40% topline growth. The first half of this year, we do expect to see a slower.
Or a mix growth for instrument consumables, but will be made up in our services because as the installed base changes over to the h. decks and our customers revalidate, they're coming to us to get the answers from our services and so we don't see any shifted the overall growth rates, just a little bit of a mix shift for the first half and continue evolution.
Strong growth margin in instrument growth and we are continuing to advance R&D wise to 100 ex sensitivity. So in summary, slide 26 on the execution side, all the way to the Aspirationally side, we feel we have a category defining technology, we've been operating somewhat flawlessly now for four and a half years every quarter showing.
Quarter on quarter growth as well as annual growth. We think we have a best in class rivals sensitivity in the market is a very big market. Both in research was very low risks in diagnostics, which the risks are higher but we're coming up with a way to use our pharma relationships to navigate into those so from a market perspective.
We think we have a very strong opportunity. We've got now all this validation 19, the top 20 pharma is.
This powering precision health summit that where the top sponsor of the drug trials over 700 them and then all these third party peer review pubs over over 600 them at this point.
We also from a penetration standpoint of a very strong consumable pull through does great visibility to our penetration and gives a much better risk reward evolution as we continue to commercialize with a really an incredible.
Commercialization management team and board that has had a lot of experiences. So I'm all I'd like to now I'll turn it back over to you for some financial discussion around our first up over fourth quarter and our full year 2019.
Thanks, Kevin.
Turning to slide 27, as I go to this as Kevin noted revenue in Q4 of couldn't be 19 was 15.9 million and came at the midpoint of the range. We had provided at the JP Morgan confidence. This represents 46% revenue growth compared to 10.9 million revenue in Q4 2018.
Product revenue grew by 53% driven by 74% growth in consumer Bose and 30% growth in instruments service revenue grew by 26%.
For the fully the total revenue was 56.7 million, a 51% increase driven by 86% fully other growth in consumables and 55% fully of growth in instruments on a non-GAAP basis full year revenue growth was 56%.
Stated previously we're not providing revenue guidance demand for its Dx HD. One played in program Im strong adoption momentum contributed to our revenue growth onto the success of our trade in program negatively impacts gross margin as we had expected.
As stated in previous quarter, there's a goal is to deliver meaningful growth each quarter, while continuing to build backlog for future quarters.
On a non-GAAP basis Q4 gross margin was 47.3% Q4 2019 gross margin includes a 410 basis points negative impact from on H.B., One leading program, which continues to outpace our expectations.
As discussed in our Q3 earnings call. While this may create meal unfavorable impact on gross margins. It is a very compelling investment to drive future consumables growth and excitement around on technology.
Our non-GAAP gross margin excludes the impact of noncash acquisition related purchase accounting adjustments and provides investors with 11 beat it could beat it comparison a final patients.
Excluded from the Q4 2019, non-GAAP gross margins of 0.7 million in noncash purchase accounting adjustments relating to the Oman acquisition, we expect similar quarterly Oman acquisition related purchase accounting adjustments going forward subject to movement in acquired inventory.
On a GAAP basis on Q4 gross margin was perfectly fine one person.
GAAP gross margin includes impact of both HD. One played in program and the Oman related purchase accounting adjustment, but idea to Q4 gross margin was 47.9%.
Well, yes, 29 being non-GAAP gross margin was 49.7%. What's this 45.9% in 28, Dean an increase of 380 basis points.
We believe we have a significant fortunately for gross margin expansion in the future beyond the 29 beam performance as we scale out or what all business reduce product costs and continue to drive the mix to more consumable revenue.
Our objective is to achieve long them steady state gross margins of about 70%.
In Twentytwenty, we expect gross margin expansion to be approximately 200 basis points.
As ive scale efficiency and mix improvements are partially offset by the continued success HD one played in program.
Operating expenses totaled 18.4 million in Q4 going be 19, and 68.4 million for full year 29, Dean the balance sheet is in good shape as of December 31st with approximately hundred a 9 million in unrestricted cash.
During 2019 out of cash balance increased by 64.8 million. The one by 112.6 million in net proceeds from our ATM and follow on offering partially offset by 14.5 million use of cash to close the whom on acquisition plus I'll be another loss excluding Ben.
90 million, a noncash items, such as stock options depreciation and amortization.
Working capital and other requirements of 2.8 million.
In Q4, 29 being cash balance decreased by 4 million as BNL loss.
Net off noncash items was partially offset by effective working capital management weighted average shares outstanding for EPS.
Total 28 million for Q4 2019, Pete it.
Well, what all we have peace without Q4, and full year 2019 performance I'm not committed to delivering solid twentytwenty dissolves inline with expectations I will now open the call back to Kevin.
Thank you very much Amod just wanted to show one last slide before opening up for Q on a it's a slide number 28.
Basically this is.
As a summit that we run called tiring precision help quantify it's actually is one of the lead sponsors over on the left hand side you can see all the companies that sponsor and this makes that a free some summit for most of our attendees as a result of all that sponsorship and you can see in.
And it was in Amsterdam.
In this in the level of attendees and number speakers and in 19 that was Barcelona.
And then in 2020, we're expecting it's going to be in the month of October November.
In Boston.
I also want to let you know that we have a web in our plan for NFL on March 12, if you're interested to participate.
Please let us know it's already got a very significant participation wherever it is going to.
Further describe some of the things around our NFL opportunity so with that we'll open up for questions.
As a reminder to ask a question you need to press star one on your telephone to withdraw your question press the pound or Heskey. Please standby, while we compile the tenant roster.
And your first question is from Doug Schenkel of Cowen.
Hey, good afternoon, and this is Chris off our Doug today. Thanks for taking my questions. Kevin honestly six oncology revenue increased sharply at your salary their services business. In 2019 do you just talk about the key drivers of this growth in was that all generated on your SPX system. Additionally, do you believe this is a good luck.
Leading indicator for SPX placements in 2020.
Does that give you confidence you are I SPX placement target.
Yes, Interestingly, we have had recently a very nice surge.
Of SPX interest.
I'd services level and when we launched our HD one back five years ago.
We didnt really havent accelerator business and we we converted.
What do they.
Promotional.
Opportunity, where we ran samples for customers into a service business and it really was key to growing the instrument placements was to get a bolus of activity in our services lab and so.
This has been a good leading indicator for us that we've begun to see strong movement in the we'll call. It the planar technology. We also do have good movement in the beat the based technology for planar I'm sorry for.
Oncology as well, but we really are primarily wanting to make sure. We maintain the be based technology, primarily for neurology, because we think that in oncology. The beat based is actually a little bit limited versus the planar and that's part of the acquisition, we made where we can do 10 plex.
And having a larger multiplex still maintaining a sensitivity is important to interrogate the immune system.
So we're pretty excited now that both in inflammation and cancer were seeing a nice uptick.
For services, which bode well for 2000 2021 for placements of instruments.
Okay, and maybe on the current a virus situation.
You have enough backlog and seller in there.
And I guess demands from other miscellaneous offset krona virus related growth revenue growth headwinds in a pack that materializes or meaningfully.
Yeah, we don't actually provide that level of granularity guidance, but what we can say was we were planning for the conversion of our installed base of HP, one to each Dx and we knew that as customers in the first half of 2020 where review.
Validating that technology that it would slow down consumable purchases, while that is being revalidated and during that period, they would likely utilize our services in order to get the data that they need to continue.
While they're doing the revalidation. The good news here is that because we anticipated that we did and are continuing to have a very healthy backlog of our services business.
For the purposes of what we consider to be an important installed base conversion, probably one of the things that that we've noticed though that further augment this kind of somewhat krona virus resistance relative to what I know a lot of companies will experience.
Is that if a company does go in what we call locked down and they have some level of quarantining occurring.
Or they are working from home it could impact their ability to run their instruments and again could impair somewhat consumable purchases as well as instrument sales. So having the service is really quite opportune for this particular issue that you cite the grown as far as which.
It wasn't our initial intent I think some of that you know harder we work the luckier, we get maybe but having that strong backlog is very productive obviously for for both of those reasons.
Okay. Maybe just last question on gross margin, how should we think about phasing and for US in 2020, just given added trading system that you have in place.
Could you repeat that question.
How should we think about the I guess pacing or the gross margin expansion in 2020, just given that you have that sdx trade and dynamic in place.
Perfect.
That should be more first half weighted or second half weighted.
Yes, I'll start that answer and then I think a mall, which will want to provide some color.
Absolutely the trade in program does dampen the pace in which we grow our gross margins, we still plan to grow them.
Just at the pace of growth, we've been running at about 400 basis points a year the last couple of years.
We're projecting on a four year basis.
That it's going to be more like 200 basis points.
And so most of that is the effect of that trade in program and we probably also have some level mix effect that's occurring.
Part in the first half based on those large trials at Novartis ran with the NFL last year in the first quarter. So I would say that there's an overall effect that we expect it's just going to slow the pace of.
Gross margin expansion and I do expect that we'll probably see a bigger issue in the first half than we will in the second half based on that changeover I'm, all you might want to comment as well.
Yes, thanks, Kevin to build on it Chris Oh that the headwinds we will see isn't the first half of the from the flood program.
On a full year basis, we are seeing 200 basis points. So in Q1 in Q2, we expect gross margins to start coming up from the Q4 levels as some of our mix and productivity kicks in but the fact 50 would only see in Q3 in Q4.
Okay, great. Thanks for taking my questions.
You're welcome.
Your next question is from the neat Buddha of SBB you rank.
Hi, Yes, hi, Kevin Amal. Thanks, So Dan Thanks for the details from the slides and thoughts on strategy going ahead. So.
I think a bigger question here.
For investors to the you know the long term guidance I just wanted to make sure. You mean, you posted 51% growth there and Thats fair 19, and 65% last year given the number of growth drivers that you are pointing to a is it you know it's safe to assume that you will continue to.
Be a 40% CAGR for a longer term, despite being 30% to 40% topline growth that you're mentioning for this year.
Yeah, we do think that.
In some ways.
There is a little bit of a.
Correction this year.
Not really up.
A correction off of a pretty strong growth pace, but.
I think when you consider the.
Types of things that we're going with the overhaul of our installed base.
Couple of than with the fact that our denominator is bigger and we know we had.
Just a small amount of onetime large trials from novartis.
When you add all that up we feel very confident in this three year CAGR of 30% to 40%.
Where we end up this year.
We don't guided and annual basis, but.
There are as you point out a lot a healthy growth catalyst. We just as you know are very conservative wanting to make sure that we don't get ahead of our skis relative to a lot of the transition that's occurring this year. This is a a year, where we've got tremendous growth catalyst in place.
But it's also a year that we don't want everybody to just the simply add all those growth catalysts up and looked like we're going to have another 50% growth year, which we've had the last two years.
So our commentaries pretty common.
With the way it's been historically, so we feel very good going into this year that we have a lot a nice growth catalysts in place, but the same time, we do think that as a denominator gets bigger and with the level of execution stuff that we're trying to achieve this year, it's going to be smart for investors not to expect the high end of this curve.
Right out of the gate, but obviously there's opportunities for upside as we traversed through this year.
But for the longer term.
40% CAGR is still.
Something that that you are so aspiring to and you were confident that.
Yeah, we basically have stated that actually in our slides that we have a 30% to 40% CAGR for three year period and that assumes that the denominator is getting bigger each of those years and it also assumes that that is for research and as you know.
Making a lot of headway on possibilities for measuring NFL and clinical studies and so we don't have any of the potential upside of of let's say, if we were successful moving into.
LDP single site LDP friend of fell we don't incorporate and try and at this point plan on any of that revenue, but certainly we're working towards as you know.
Okay got it.
And then on a clinical trials those that have been obviously, a major driver of growth this year and last year, so on and if so.
Can you help us to help me understand whether these biomarkers that are coming from Oman would they be exclusive to you when the and that's trials were too.
Turned into a companion diagnostic.
And could you maybe give us a sense, if the or would that could they be used on competitor systems as well, meaning the antibody being used on competitors systems as well in the still license from context, just help us understand how should we think about the actual companion diagnostic product if the drug was to improve.
With that product.
Absolutely no first thing I would say I wouldn't looked at it has a negative.
We actually looked at it as a positive that we think it's important that we get.
Multiple pathways into the market.
Utilizing our antibody pairs or it will never be the standard it will actually did.
Reinvented and could dismissed a lot of the the long term value creation opportunities. So lot of what we're doing its proactively establishing long term value for this NFL franchise and so the the one place so far.
We have licensed and we've only license that for the purposes any long term IDBD diagnostic is to Siemens Siemens has an installed base of 10000 7000 to 10000 instruments and.
We believe there are some use cases that you'll be able to deploy.
And in IBT steadied inside of their instruments that we think it bodes well for us to work with them to get the NFL and in IDBD.
Basically franchise and so they will be making investments significant investments over the next several years to get our NFL.
As an IBT on their platform now that is a nonexclusive, meaning that we can in fact move that onto other.
Diagnostic platforms, and we do think that Roche's Abbott both are very significant installed bases. All of these companies rose Siemens and Abbott due primarily single Plex. They don't do multiplex, we think longer term that for drugs for disease specificity, having a panel.
There's going to be important because NFL only shows neuro degeneration. So it's kind of like the cholesterol of the brain there could be a lot of different things that caused cholesterol to go up and so there's a lot of pathology that different drugs go. After we now have drugs going after NFL believe it or not as a target.
So our view is that longer term when there's interest for specificity is that all simers. That's create the nurown old disease or is it MMS where is that.
Ill with or is it concussions, we think the specificity is going to require other markers to be added to the panel and that's something that unfortunately, many of our IDBD partners. We have to right now we have Siemens for NFL, we have abbott for blood screening, but not within it fell but just in the general category They would not.
Necessarily be able to utilize it in a multiplex because they don't do multiplex and if they did that they would not have sufficient sensitivity for those use cases and so in a way. We think we're building a very bold market for NFL and for some moa given that we think longer term a multiplex is going to be very much.
Needed to get sufficient neuro disease specificity.
Got it and then up so like the last one on the current commercial supports that you have in place I wanted to get us as a sense of where do you stand with the sales reps and remind us what as you move towards these efforts should we expect any expansion there in the <unk>.
The commercial organization and more importantly, the salesforce.
Yes, we week, we typically are making investments in our sales force at about the 20% to 30%.
Level per year. So you would expect growth in that headcount of 25% on average we have also recently brought in what we consider to be some of the top sales leaders in the entire landscape. We started searching for a new.
North America sales leader back about a year ago and headed right now joined us from Thermo and she took over the reins rate right. When the year started and her first sales meeting was focused on what we call. One team that's part of our inside a revolution campaign.
Were they basically are taken the field application scientists, which are primarily phds that support the salesforce couple of bid what the field service engineers that are in the customer shops fairly routinely at least at it on a monthly level, coupled with the salespeople and team selling so we call. It one team so she's.
Kick that off as our European team has done a lead or two that we brought in about a year and a half ago Avant Sargent one of the top European commercial leaders.
We also launched one team in Europe. We also brought over from Soma logic, one of the top commercial Vice President leaders from that company. His name is Andy keys, He's running all of our services the accelerator and that's why we've seen such a bolus of growth. So that we got these three sharp shooter leaders.
That how really honed in on the inside the revolution of what we called one team and now we're focused on Asia. That's the next major focus point is to further build out or Asia operation and we had a lot of meetings over the last six months, we have about five or six people that are on the ground, but were primarily use.
And distributors throughout China, right now, but we do see longer term maybe not in the first half of this year given the krona virus, but we do see significant opportunities. It's only today, 7% of our sales and so we're pretty underpenetrated, but we see a very significant opportunity. So I would say that you'll see a 25%.
Investment and head count, but it's the quality of what we're bringing in that is really high quality in there actually linking into our investor base. That's provided its leads because of the drugs that they want to get approved with our technologies.
Okay. That's great. Thank you.
You're welcome.
Your next question is from fund G.
Some of the teed up BTI G.
Hi, Thanks for taking the questions I'm just a couple of what a couple of questions maybe going back to Chris is first question was wondering if I could get a bit more color on d. oncology market opportunity near term. So it seems like on a lot of the near term opportunities are coming from you know better characterization of later stage.
Cancers, I'm not sure if I'm interpreting that correctly.
But was wondering if they're kind of meaningful opportunities in the are you know in the near term for some of the earlier stage screening Q disease, non recurrence monitoring on and things like that near term on and then when you talk about the utility of HD acts as well is it do you think HTS is more.
Yeah, I mean, he treaty therefore, it kind of even the earlier the more sensitivity.
Needed I guess segment.
That of that market.
Yes, you are asking some pretty interesting question sungy, even if they border between the left hand side, which is research and execution to the right hand side, which is our aspiration of liquid biopsy.
You know opportunity assessment that we're doing this year.
Starting on the left hand side the product that we've launched as a corplex.
It's an asset of 10 of the most important cytokine interleukins interferons that basically today, you can't really see them at baseline healthy levels with the competitors technology on a routine basis, and we think that on most of the markers that we have in our panel you're able to clinically distinct.
Wish.
And discriminate baseline levels and so any movement from baseline for Immunotherapies is a very important finding and measurement because.
In general if you look at like Keytruda in some of the Immunotherapies. They have response rates that are less than 20%.
And they also have cytokine storm or lethal toxicity, that's around 10%.
So basically 80% of time these drugs are not providing the cancer patient any benefit and.
About 80% a portion around 10% about time, theyre actually upped regulated but you'd system that becomes toxic and kills the patient.
So we think that seeing these.
Slight declines at baseline levels as a great research opportunity and today, we have customer competitors in this landscape, where we don't really have in neurology competitors, but in this oncology landscape. There are few companies that are incumbents that were disrupting with our sensitivity and it's not only the ability.
To see these decided kinds of baseline movements and seeing the earlier, but it's also the ability to get better clarity and less false positives and negatives through the dilution of samples and so we're pretty excited that we've got.
Kind of an avalanche of interest in our services lab to utilize these 10 plexus.
For cancer, and inflammation or immune system kind of work. So those are all get written up and become testimonials and give us a lot of bandwidth for research opportunities.
But I would say that that's in the drug industry.
There's a lot of researchers that are looking at our technologies for liquid biopsy believe it or not theres. Several companies that have bought our technology that are building out their own liquid biopsy position utilizing our ability to see proteins that exquisitely sensitive levels.
As well as we see early detection.
In blood of breast cancers, and things of that nature as alternatives to today's technology. So I'll call an imaging screens like mammograms et cetera, we've got a lot of researchers.
That are shown a lot of advancing of the protein in the proteomics, which in many cases as more phenotypic and also complimentary to the DNA and Arnie.
And I think you're probably aware two is our SRX can do DNA in arnie as exquisite sensitivity levels without using PCR and so we've got to kind of a multi old mix shot on goal with our SRX into cancer, but the SPX. It's been primarily for researchers in immunotherapy and now we've got research.
He was looking into the liquid biopsy landscape, we either with the SRX or with the the SPX. So I look I'd give you an indication no I would say that the right hand side Aspirationally. We've watched all these companies like from the Terra Garden.
The next genomics most of them or are kind of based on the alumina technology and you look at the market caps of those downstream companies I think than other won't be foundation medicine, the kind of add up to two X the market value of the aluminum and we've got this translational platform that isn't quite as discovery focused I'd say.
The next generation sequencer is but it does allow you to measure. These the concentration of these critical protein markers that there are other ways to find them in the cerebral spinal fluid and more invasive samples that were than able to translate into the translational opportunity, which we think we'd like to.
Better understand how we can maybe enable the liquid biopsy with our own platform. So that's part of the the research that we're doing this year that is not as short term opportunity that's something that we're doing the opportunity assessment in 2020.
Great. That's very helpful. And then just my follow up is on instrument placements I'm.
Not sure remind me again, if I from an intra quarter standpoint, I before the end to end she may ship men.
I guess cadence within the quarter do you see the majority of that.
In the into last month of the year I'm, sorry last month at the quarter.
Yes, I would say as many other tools companies do I was just curious I thought though.
I would say the last couple of years, we've probably signs I have had.
Pretty good visibility throughout the quarter. So I think that we do know with the launch of ditch Dx that in Q1 in Q2, we are going to probably see some increase in our growth rate and this services to cover for a lot of the validations going on with this new.
The GE, but in general we have pretty good visibility to the instruments throughout the quarter and we do see purchases, but just the ended the quarter, but also early in the quarter. It isn't on common do see a little bit of a fourth quarter surge and capital.
Shipment purchases versus other quarters, that's not uncommon, but I would say that for us our first half is going to be.
Really increasing the mix of services, which does two things we have great gross margins in our services, but it also creates future demand for our instruments. So we're pretty excited about those prospects as we try to build out the longer term consumable pull through.
Uhhuh, which we've had I think five years in a row now a very strong growth.
Great. Thank you so much.
Absolutely.
Your next question is from.
Michael Peterson of JP Morgan.
Hey, thanks.
Kevin I would follow up question on the partnerships as we think about Abbott and came in.
Milestones, we should be paying attention to and thoughts on timeline of when we could actually some on the market.
Yes, Hi, Tyco, Yeah, I would say that we are in our strategic goals for this year attempting to land another IDBD relationship and you might remember we had deal Mary you.
And we got all those rights back and so now we're in a position where we can kind of re cash into the right.
Landscape and application space Bill Mary you was not focused on neurology and oncology and we do think that Abbott and Roche and Siemens do have a very nice participation in those categories.
So hey, you can't time, a deal like this but I can't say from a strategic standpoint, we are setting up a target to try to get another one landed this year, we did the Siemens last year, which was primarily on the on NFL.
This one we hope to achieve this year would be more aligned with where the opportunity landscape is for these diagnostics and we think that theres tremendous potential to use our some mowat technology. So not only someday advance into point of care, but also to enables significant benefit.
Core lab's today, which is much better economics, given that the sensitivity allows you to get answers from smaller samples more productively. So we're we're very bullish on and I'd relationship opportunity in 2020, we can't time, we can't tell you when that would happen but.
I do think that it will be a fairly significant milestone for our company further validating what I consider to be disruption that we could create with this technology and one of these diagnostic companies acknowledging that opportunity and teaming up with us.
And then thinking about AIDS yet you know you talked about the expecting 50% of 81 install base to be upgraded by year end can you maybe just talk about what it takes to get the remaining out accounts to upgrade and then how should we think about overall utilization HTS is I think 20% higher fall through so how should we think about average utilization across the installed.
It is perfectly yes.
Yep.
So first of all the way we've set up the target for the the installed base of HD, one versus HD axes that by year end, we expect that the total amount of HD ones will be roughly a 150.
And there will be roughly 150 of the HTS. So 50 50 by year end and of those units that we sell this year of each the actions, we think that probably half of them will be upgrades to the HD, one or the other half will be new purchases at the at the 200000 dollar level.
And from an it's as you point out the the overall pull through.
Well, we first started Tiger, we talked a lot about a third of our instrument revenue would be kind of recurring will now we're up to 50% and so we're fairly confident.
At the total dollars of instrument installed base, we will get that same level of 50% or greater of pull through so in the case of an HD exit goes for 200000, we would expect that we're going to build a pull through 100000 now that typically is a quarter or two after the install it takes a little bit time for them to get up and Ray.
The validations to be completed but you know the 50% is now a pretty good number to be using for modeling purposes, even though it had been as we pointed out lower than that when we started.
And then last one I just on pipeline if I go back to our conference in January you talked about potentially entering liquid biopsy and single cell I know you mentioned liquid biopsy couple of times in this call. So how are you thinking about that opportunity in single cell and then as we think about you know the sensitivity improvement to 100 full target increased how should we think about how do you guys that is I think you.
Talked about the already having a passive based 40 X, but how should we perfect.
Yes first on this this liquid biopsy, we we clearly.
We count proteins versus.
No measure a broader based concentrations directionally counting the number of them.
In a way their digital technology works and so whether it be in the area of doing it with a single cell or whether it's with a lot of cells that your head or genetically looking across the tumor our view is that knowing how many of the proteins of interest there are is a unique offering.
Community and we think that the protein is much more phenotypic than many of the customers that we have in those liquid biopsy field has been primarily honed in on molecular but theyre now juanita augmented with the ability to to do some level of protein work as well so I think that our goal would be.
Our year end, we're going to have the ability to articulate.
What our position is on our ability to evolve into liquid biopsies, we want to make sure that it's going to be something that makes a lot of sense for our investors because it would be a higher investment profile to move into that landscape and today. You know we can watch that many of the liquid biopsy companies really habit migrated into early to to.
Section there more into measuring drug efficacy and patient monitoring and residual disease monitoring as opposed to getting to the upstream.
Actual diagnostics and early detection of the cancer, where we do seem to have an opportunity there anything I would say that we're doing is as we watch the different columns that we see evolving in liquid biopsy and we got all the logos of these various companies that primarily are utilizing illuminants platform to debts or some kind of an answer we.
We are building those same columns in the neurology landscape and trying to understand how our technology might be able to do for neurology. The lot of things that accompanies initially thought they might build do for oncology and we don't really see a lot of competitors there because we're able to do noninvasively. This the SEC.
Exploration of the brain in blood and so the thing that's really attracted us to this second category the neuro disruption with the NFL plus many other mark reflected the P. tells the phosphor correlated towels or like one of the hottest areas right now to augment our NFL, we've got a lotta.
Trials going on right now even at all Cibers utilizing our technologies as well as amyloid beta.
What we think is pretty exciting as many of our customers have deployed this exquisite sensitivity on the cerebral spinal fluid where typically the proteins you find and blood or about 50 times more concentrated into CSF and so there's a body of evidence and CSF that is being created using our exquisite technology, but they're going to need another.
There are 100 acts in order to build to see it in blood, So, we're creating our own market and moving into blood with excludes the technology being deployed on the more invasive samples.
And so that's led us to continue to accelerate this advance and you're right. We have already shown in our prototypes for TX.
Theres, even the beginnings of 100 ex being shown in certain prototypes. So we're fairly confident model in our technological ability to get to 100 acts.
But we're also very excited about the market that we're creating for the 100 X and what we're doing in CSF with today's technology. So it's a fairly unique opportunity to disrupt and build the next round the disruption through increased sensitivity and we're feeling very confident in our ability by the end of 20 to 21 to.
Have a product on the market that will give us that 100 acts and maybe even earlier.
Great. Thank you.
You're welcome.
And your final question is from Maxim Mr. Ji of Canaccord Genuity.
Hi, good afternoon.
So your company has an expanding global footprint can you just go a bit deeper about how you are mitigating any supply chain tax from kind of Iris and then any details around your discussions you've had with some key global pharma customers and how they're thinking about any impact. Thanks.
Sure.
Hi back so first I would say that there are certain customers of ours that have already started some levels of locked down relative to working from home for a large percentage of their populations and it's still fairly minor, but we're watching it closely to see how that evolves.
I think we've we've seen announcements public announcements from Biogen as well as Takeda at this point, we also from our vantage point started very early.
We've had a task force established we actually had a kind of what we call to an insight 1.4 meeting that basically honed in on all the things that could interrupt our ability to be performing in the first half of this year and some of the things that we cited where supply and we actually don't see any show.
Short term supply risks based on the current state obviously as the krona virus continues to spread and that they work on mitigation strategies that could change, but right now we feel good on the supply side. The demand side also we mentioned that we have fairly limited exposure.
Based on Italy in China, being us a very small portion of what we have.
The pharma side of this is what we want to keep an eye on because.
Interestingly. These pharmas are really trying to utilize our technology to get drugs approved and that's their value proposition. That's the number one thing that they really do for their investors and so what we've been seeing at least in the short term in Q1 isn't an excitement to utilize our services as a.
Away, even if they can utilize their own instrumentation inside because of whatever you know quarantining or whatever issues. They might have so we are continuing to work hard on our own position, making sure that we've got our contingency said.
To try doing we can keep our employees safe and effective and making sure that we don't put them in harm's way, but to the extent that we can continue to evolve productively. Our services, we're still feeling very good that there won't be an issue from the supply side.
What we need to build the kits.
India instruments, even though I would say like some of our instrument providers do have work from home types of contingencies that they've been setting up we don't see that impairing our ability to get the instrument supply for the moment and we'll keep a very close eye on that mix.
Alright, Great and then just one broader question. So how does it novartis the success with their drug that maybe a proven Jen has had a precedent for the use of protein biomarkers and and the use of contacts from future trials and then on that no just given that your 10% penetrated in that Neurology research segment, just speaking to the global demand appetite.
Hey scandal any of global spending for neurology research in 2020 versus 2019. Thanks.
Absolutely.
One of things that we saw recently.
And that.
We had up a major show in Boston and I think there were five chief medical officers attending from CR Roes that are doing drug trials as well as from pharma and there's a very high level of excitement for neuro filament light being an early indicator of drug F.
The Cassie and drug performance and we've got some evidence that if you turn off the drug in a patient that within a week to two weeks you could actually see the NFL levels start to return.
Two disease levels and so this is a very quick cycle time as opposed to them or try that we think it could take as long as two years to two two and a half years to be able to see brain atrophy. As a result of some of these diseases. So we think we've got a new gold standard of opportunity and there does appear to be robust interest.
Across pharma for the technology, which I think that we're still seeing almost a revival in some respects of neural pipelines with the concept of having an objective biomarker, which they've never really had before so we actually got one drug company. We just did a video fourth anyone's interested on the call it's with disarm.
At the SARM protein that they.
Have a drug that they're going after the basically can prevent accidental damage in their own all damage and its almost like nfls become a target for them. So we actually are pretty excited that having this biomarker that looks so low cost so non invasive that also.
Provides the opportunity to measure on the road will help is creating more excitement in more interest for the the neuro pipelines. So we feel pretty good and we also feel like there was a national priority on mental health given all the issues with posttraumatic stress disorder, the opioid crisis and also the.
On slide of the demographics with how many Alzheimer's patients are going to hit the health care system over the next 30 years. So all those we think bode well for why that FDA has been trying to help researchers used biomarkers to did drugs approved before them before the symptoms of dementia and other things set in when it's much harder than for the drug to work.
Great. Thanks for the questions and congratulations on a great Tony 19.
So much Max.
There are no other questions in queue.
Okay, Great well, Hey, we really appreciate all the support we wish everyone.
The best of luck and good fortune as we all navigate through this krona virus spread throughout the world. We will keep you abreast of our developments and we're very bullish on on how we're going to turn and translate 2020 into another value creation year for our investors. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you Goodbye bedding you may now disconnect.
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