Q4 2019 Earnings Call
My pleasure to turn the call over to match Mcclaflin Chief Financial Officer.
Good morning, Thank you for joining us to review, Oxford, Immunotecs financial results for the fourth quarter and full year 2019.
Before we begin I'd like to caution listeners the comments made in financial information provided during the conference call include certain statements that are estimates forward looking endorsed subject to various risks and uncertainties.
Formation reflects our current expectations assumptions and currently available data and our neither predictions nor guarantees of future events or performance actual results could differ materially from no stated or implied by these forward looking statements due to risks and uncertainties associated with our business, including those under the heading in titled Risk factors in our in Europe.
<unk> form 10-K for the year ended December 31st 2019 to be filed shortly and our quarterly reports on form 10-Q.
The company disclaims any obligation to update or revise any forward looking statements, except as required by applicable.
During the call, we'll also refer to certain financial information on a non-GAAP basis.
We believe that non-GAAP financial measures taken in conjunction with GAAP financial measures provide useful information for both us and investors to evaluate the company's performance. These include constant currency comparisons pro forma revenue gross margin loss from continuing operations EBITDA and adjusted EBITDA.
Reconciliations between certain gap in non-GAAP results, such as EBITDA and adjusted EBITDA are presented in the tables accompanying our earnings release, which can be found in the Investor Relations section of our website.
Further as a reminder, in early November 2018, we completed the sale of our U.S. Laboratory services business. The quest diagnostics as such the now divested U.S. Laboratory services business is shown as discussed discontinued operations in historical financials in our press release and forthcoming form 10-K.
The discussion of our results in business update on today's call will be focused on our continuing operations into assist investors in understanding the underlying performance of the company's continuing operations will be comparing to certain unaudited pro forma consolidated information for the prior year periods.
This information reflected the company's estimated revenue and cost of revenue is if the closing date of the sale of our U.S. Laboratory services business. The question had occurred prior to their respective periods. This information appears supplemental tables in our Q4 earnings press release.
The pro forma adjustments in these tables were based on the information available at the time and assumptions. It management believes were factually supportable unreasonable.
With that it's my pleasure to turn the call over to Oxford, Immunotecs, Chief Executive Officer, Peter Wrighton Smith.
Good morning.
Today's call all provide a brief overview of operating performance for the fourth quarter and full year 2019, before turning to an update on our business and our strategic priorities.
That will then take over to discuss our financials before handing the call back to me to provide all twentytwenty financial guidance.
Well, then open up a lines to your questions.
For the fourth quarter 2019, we posted revenues of $18.1 billion above the top end of our expectations for the quarter.
Total company revenue grew 14% over the phone fourth quarter of 28, <unk> pro forma basis.
U.S. revenue was $5.1 billion as expected U.S. revenue was slightly down compared to pro forma revenues for the same code and 2018, given the change seasonality of the business.
You will recall that U.S. pro forma growth was exceptionally strong in the first off I mean, you that would normalize in the second half.
For the full year, the U.S. grew 16% pro forma like student blood during a screening basetwenty 18.
Your from rest of world revenues of $2.8 million.
Were up 14% compared to the fourth quarter last year was 16% on a constant currency basis.
Highlights in the quarter with continued strong growth in our UK LTL business and good growth come from.
Asia revenues, what $10.2 million for the fourth quarter 29 team up 26% from the same through it last year or 22% on a constant currency basis.
China was particularly strong as we started to the advantages of going more direct into the marketplace in selling prices into that geography.
Including a pricing adjustment related to Q3 shipment getting caught up with the new contractual price confirmed upon funding of the contract Shanghai Pharmaceuticals in Q4.
For the full year 29 team all global revenues were $73.7 million above the expectations, we had at the beginning of the yet.
This represents year over year growth for approximately 12% of a pro forma 2018 revenues.
It's a 15% when excluding blood donors getting revenues Ltwenty 18 comparison.
We sold approximately 15% growth in each of our geographical regions for the year, which demonstrates the broad based growth drivers of the business as we displaced the skin test a convert customizable superior products around the world.
We sold to close to 4 million tests during the year setting a new high watermark TV volumes of bringing the cumulative number of test Rick Nelson old to nearly 20 million.
In addition to a continued focus on driving revenue growth.
We've also been very pleased with the progress in the company's profitability metrics.
We continued our track record of course margin expansion.
Coming in at 73.8% for the year growing about 590 basis points over the pro forma gross margin in 28 team.
In the yet we were successful in refocusing the company spending around on you more focused business model, bringing down operating expenditure.
This opex reduction coupled with the continued growth in revenues and gross margins roll the company to adjusted EBITDA breakeven for the second half of the yeah.
Turning now to walk you operating properties in a business update.
Oh strategy is to grow all TV revenues across three vectors.
Mostly by converting from a skin test the bulk it's only about 20% converted from the skin tests like what technology.
We continue to drive this conversion I did point guidelines that are becoming ever more favorable to like Russ.
Secondly from overall market growth TB testing is continuing to grow as the world seeking to get control of a TV epidemic.
This is being led by bodies such as the World Health organization Hughes, New 2018, latent TB guidelines should clear evidence for the benefits a systematic testing and treatment to latent TB and support micro testing globally for high risk populations.
Lastly by taking share from like what competitors. We currently have about 25% hypermarkets. Although we have shown that we can become a leading brand in several countries on the basis, a differentiated performance and simpler preanalytical workflows.
Well no able to strengthen off a few providing automation and improved economics to labs.
Okay initiatives to support this strategy.
The live automation to walk customers globally.
To improve economics for customers, who choose T spot TB.
And thirdly to expand all sales and marketing teams and also used commercial partnerships to add to 12 voice and reach in the market.
They'll stay recognizing that more and more countries. All a will establish screening programs, we need to continue to expand our geographical coverage to be able to take advantage of this market growth.
Commenting on each of these intern beginning with automation.
Well somebody single test has been a significant focused of all R&D dollars over the past few years, there's culminated in the new technology equal T cell select.
T cell select is a platform technology, which allows white blood cells to be purified using magnet speeds without impacting the function in the life sell test like calls.
Sell separation is a key aspect of all technology and one that differentiates us from other high gross.
With T cell select new process result in an exceptionally pure sample.
Consequently blood samples collected in the single stand the bloodshed cannot be stored for up to 54 hours at room temperature before you submit test a significant increase over the past 32 hour window.
This further extends our unrivaled simplicity and logistics involves just the customers.
Perhaps more importantly, while using on new T. cell flat accessory kit for the first time customers have an automated solution for T spot TB.
Use of automation will simplify work flow improved throughput reduced hands on time for lapsed performing T spot TB.
We believe it enables our existing customers to grow and then they will have to wouldn't customizable was wanted all test performance, but the who work flow was previously a challenge.
For example, we recently won a significant tenda from an opinion, leading French hospital to replace the plot like <unk> with T spot TB running on automation platform.
Also an installation and onsite qualification of its automation I'm pleased to report. This thought has just gone life with T spot TB and is in the process of switching volumes over from his prior test.
We also started shipping products and placing automation with other customers into Europe and rest of old region. We have a very strong pipeline of interested customers.
As a regulatory process to go through to bring this product into additional jurisdictions, we're well into a U.S. studies fast Jay approval and I'll report more on the anticipated launch timing. So once we submitted and they've received comments back from the agency.
Moving to improving economics for customers.
Labs to on the increasing financial pressure and its therefore, it is part of our strategy to constantly improved economics for customers.
In the U.S. The PAMA legislation has ended pricing for the board she testing.
Under this new regime reimbursement for most test is declining however, T spot TV has a stable reimbursement level under a reimbursement code. The this you need to all tests.
I was able to make automation to they blend the U.S.. We believe this will enable customers to improve their economics.
Well generally automation by reducing labor requirements makes all test more attractive for them to run.
Outside of automation, we can approved economics for custom as if we can increase the efficiency of all go to market trouble and reduce the mockups between us and all and customer.
To that end, our recent transition to business model in China gives us more pricing flexibility in what is a large attractive and growing bulk into TB testing.
We're also expanding the number of wholesalers, we use in Japan, which allows lucky and customers to use that favorite vendor.
Last year as it relates to why UK LDL service, we already part of the UK National Health services Logistics network to enable hospital to send off sample seamlessly, let's say with though as though they were 70 to any other part again it yes.
We're now working to become saying to the NHS decentralized laboriously information system. So that customers can older and receive result, the click of a button, reducing labor costs to them and administrative talks.
Moving now to sales and marketing and commercial partnerships as we previously communicated a major focus for recent sells them often expansion has been in Asia.
Especially in China, where it well, we ought to transition to a new business model away from our prior exclusive distribution partner to model, what whereby we take more direct control of the sales promotional a market development activities.
This transition it's been progressing well.
We have retained the vast majority of all end user customers through the transition.
Pricing is coming in line with all estimates, but it will still take some time for revenue mix to stabilize and that will thrust and they were pricing finally settled out.
The operational side of things are running smoothly with importation by Shanghai Pharmaceuticals, and subsequent almost contracting and shipment to end use customers working well.
Obviously, we called talk about China, but that also talking about growing the virus outbreak the outbreak how several effect small business, which I will take into.
Most importantly, autozone store for all Carney fit and healthy.
However, as with much of the population there under some travel restrictions on mostly working from home.
Limiting their ability for example to make sales calls to grow our business that.
Equally patients are largely staying at home and avoiding hospitals and that's absolutely necessary.
And also proposed themselves the prioritizing corona bars have other diseases.
Consequently demand for testing a significantly lower than it would be under normal circumstances.
We don't purchase any raw materials from China in all manufacturing and in polling all key suppliers. They also do not rely on Chinese components.
Moreover, we've been telling a healthy stackable materials as part about Brexit risk mitigation.
I couldn't really believed there was low risk and all supply chain for the time being from the disruption to normal business activity in China.
Another item in China that we'd be working through with the renewal of a registration.
China requires you read registering a product every five years.
Applications must be submitted six months before expiration.
Although we taught me submitted all renewal application approximately eight months prior to expiration. The renewal was not issued prior to the expiration of our life license on December 11, 29 team.
The registration renewal was delayed the national products <unk> National Medical products Association and M.P.A., that's scheduled the audit of our manufacturing facility, which they want to complete before signing off on the registration.
We now have the findings from the audit, which went well and then mph indicated that they have any further questions for us.
We therefore believe that we've cleared all substantive steps to obtaining registration I know that will close to receiving it.
However, we're also told the resources within the an M. P. I had been devoted to process prioritize corona virus matters and hence there somewhat distracted from a delay did that normal activity.
We currently have adequate stock in the market to meet demand for the time being however, we will need to get registration in a timely way and with the for us to be able to continue to serve the Chinese market without interruption.
As an added protection against delays, we also shipping some more kids manufactured before the 11th December to China.
This would give us additional buffer stock in the market.
I'll comment a little later when how these things impact <unk> outlook for the year when I talk to revenue guidance Q1 that the full year.
Turning to commercial partnerships, we continue to focus on the successful relationship with quest to is a key partner for the company in the U.S.
As you know principal rationale for this transaction with quest, which has significantly increased the reaching competiveness of T spot TV in the U.S. socket.
We now see this strategy bearing fruit.
Chris continues to make progress and implementation expanding it by the ability of T spot TV for the commercial team and a joint venture network.
Just for TV. It now available in another 1400 patient service centers nationally and growing over time.
I'm also pleased to report the question started running people TBM that Chantilly laporte tree to crude capacity and access to testing.
As a result or self growth request is increasingly becoming from new ordering providers.
I never really in physician offices.
Well the into 2019 crested added over 20000, new prescribers of T spot TB, we continue to collaborate well together most recently on an initiative to drive I agree usage and rheumatologist with the implementation of a rheumatology panel that includes peaceful TB of course, leading with T support TV in providers with immunocompromised patients.
For these reasons, we remain highly encouraged by the way the relationship across is progressing I continue to expect to result in further expanding growth opportunities.
We also have an important commercial partnership in Russia, which has generated strong growth rather than 29 team.
Oh, we feel the market opportunity in Russia is significant and there's a lot of headroom still to grow that.
Consequently, we're continuing to work closely with all commercial Paul has some putting through the fourth of course that.
Lofty Tony talked commitment to expand our geographical coverage. We're also very proud to have been included in the public costs logo, the global truck facility or GDF.
The mission of GDF is to facilitate worldwide equitable access spoken hostess medicines and diagnostics.
As of May 2019, GDF delivered more than $2 billion, and TB medicines and diagnostics to 142 countries.
GDF is the largest global provider of quality issue, a TV medicines diagnostics laboriously supplies to the public sector.
The GDF is housed at administered by the Dublin show within the stop help stop TB partnership.
You objectives, the GDF ought to shape the markets the GDF works to supply as donuts and other stakeholders to ensure the availability of quality assurance sustainably priced products that responds to market needs.
Secondly to facilitate access.
GDS provides technical assistance to facilitate the introduction and uptake of innovative medicines and diagnostics and client countries.
Finally to provide best in class procurement services to ensure the countries have access to the cost you shouldn't products they need when they need them.
We have agreed to sell T spot TB associated accessory regions, a pricing, which we believe will facilitate uptake of all test even in countries with at least resources.
Following completion of final contracts, we look forward to partnership with the GDF to shake them all kids facilitate access to our test a news that procurement that work to streamline our access to new markets.
We see this is a big steps to opening up a major new channels for additional countries and like to the inclusion of T spot TB and the World Health organizations list of essential diagnostics and the changing W.H.I. guidance, which now includes a role for all test even in the highest button countries.
Outside of TV. The company continues to pioneer new technology to measure the immune system.
We have a longer term aspiration to leverage our technology and other areas.
One such area is to utilize all technology to enable personalized medicine transplant recipients to manage that risk from start to make live Arsenal CMV infection.
Two significant new pieces of evidence small T spot CMV test have recently been published which demonstrate the clinical value about technology and measuring the immune response to CMP.
The company has been busy this post Yale setting the foundation for growth into 20 to 20 and beyond.
They stopped nations also built from operational improvements continued to support the company's growth and improved efficiency.
For example, we've all been single facility footprint in the UK to increase capacity.
Also this year, we're rationalizing ought to U.S. sites into one site under the same time, establishing an automation R&D technical support capability ahead of the future U.S. approval.
We also embarking on a project to a place so antiquated operating and financial system with a new ERP system, which will once implemented give us new analytics and bring multiple efficiencies to common processes.
The company has transformed through the course of 29 team and notwithstanding the grow Novartis curve ball, we come into Twentytwenty was strong momentum I'm a focused on investing to drive further growth in the company.
I'll now hand, it over to Matt who will give you some more detailed comments all financials.
Thank you Peter our full GAAP results as shown in our press release issued today show. The comparison of our Q4 2019 with the GAAP numbers of our continuing operations for Q4 2018.
For the reasons I've already explained when giving year over year comparisons I'll be referring to the pro forma numbers for Q4 2018, instead to enable the comparison on a like for like basis to our Q4 2019 results you can find these tables at the end of our press release after the presentation of the GAAP results.
Total revenues in the fourth quarter of 18.1 million were up 18% versus GAAP revenues in Q4, 18 and up 14% from pro forma revenues in Q4 2018.
Breaking down the reported revenues on a regional basis U.S. revenue was 5.1 million representing 20% of revenue.
Europe and rest of World revenue was 2.8 million, representing 15% of a revenue in Asia revenue was 10.2 million representing 56% of our revenue.
Turning to volumes in our TV business in the fourth quarter, we sold approximately 250000 tests in the U.S. via kit sales in over 550000 tests in our O U S region, both via kit sales in test process in our UK Odell service business.
Gross profit for the quarter of 14.2 million was up 26% from the pro forma gross profit in the prior year period.
Overall gross margin for the quarter was 78.3% an increase of about 710 basis points from the prior year period pro forma number.
Britain down margins by product service split product gross margin was 79.4% in service gross margin was 58.5%.
We saw an expansion product margins of 700 basis points as we continue to pull through benefits of larger batch sizes greater automation of kit manufacturing as well as the benefits from fixed costs being spread over higher volumes.
We also continue to gain a tailwind from the roll off of royalties as we move to protecting our products through company generated IP.
However, we also benefited from a onetime adjustment related to our transition to new pricing in China.
We also saw strengthening in service margins, both as we have eliminated the drag on margins from the blood donors screening service and as we continue to grow volumes in our UK service lab.
Turning to operating expenses operating expenses increased by $400000 were 3% from the prior year period.
Sales and marketing expenses increased to $7.3 million, primarily driven by growth in the APAC region, and our transition to a more direct model in China.
Research and development expenses increased to $2.7 million due to timing of both new and ongoing clinical studies, particularly those that support automation.
General and administrative expenses decreased to 6.1 million.
Operating expenses for the fourth quarter included approximately $940000 share based compensation.
Net loss for the fourth quarter of 29 team was $1.6 million compared to a pro forma net loss of $6.9 million in the fourth quarter of 2018.
EBITDA for the fourth quarter of 2019 was a 3.2 million dollar loss adjusted EBITDA, which excludes share based compensation unrealized FX gains or losses and unusual items remained around break even with a 931000 dollar loss for the fourth quarter of 2019.
Both EBITDA and adjusted EBITDA, our non-GAAP measures.
Turning to the balance sheet, we finished the fourth quarter with a very healthy cash position of $181 million.
During the quarter, we repurchased $3.7 million of our shares at an average price of approximately $15.54 under our share repurchase program.
I would note that in the first quarter Weve already purchased significantly more shares than we did in Q4 and to date, we've purchased $13 million of stock under the program.
I'll now hand, it back to Peter who will discuss our business outlook.
Thank you Beth.
For the full year Twentytwenty prior to the Corona virus outbreak, we had expected revenues of between 83, an $86 million, representing 15% year over year growth at the midpoint.
On the assumption the business returns to normal in China by the end of March I know there was no material disruption to our ability to serve the market. We estimate the impact to the reduced demand for testing under which you selling days to be around $5 million for the full year.
Consequently, our guidance that full year, including the impact of Croda virus in China is for revenues of between 78 at $81 million.
We would of course update our guidance on next earnings call as we continue to watch how the CRO in a virus outbreak plays out globally.
Based on the midpoint of our annual guidance, we expect approximately 13% to 18% full year revenues to full in the first quarter.
I've seen in prior years Q1 is typically the weakest quarter of the if Asia. This is obviously exacerbated by the impact of the Corona virus and showing up what testing consumptions down significantly.
We therefore expect an unusually weak quarter in Asia before it picks up throughout the remainder of the yeah.
As I mentioned previously we all we're shifting some additional kits to China, but we have some uncertainty about whether we'll be able to recognize this revenue in Q1.
Consequently, we have a larger than normal range for Q1 with the extend to the range principally reflecting what's going on the shipments is customs before the end of Q1.
We expect strong continued year over year growth out of Europe on a sequential increase from Q4.
In the U.S. inline with the new seasonal pension we expect sequential increase in Q4. This will be a little muted as quests no. They have experienced with us as a supplier is looking to take down stock levels over the first talk to move to a more just in time shipping patterns.
Moving down the piano, we're focused on continuing to drive up gross margins through investments in manufacturing automation and economies of scale.
We see an opportunity for gross margins for the year to grow at least 100 basis points over 29 team.
On the bottom line given that we feel we're still in the early innings in TB, we're focused on making investments to maximize the long term cost at the company involved and trying to manage to a particular profitability target.
Having said that we do expect to maintain the company around.
About the adjusted EBITDA breakeven level for the year as we make those investments.
I would note however that they will be quarterly fluctuations not least due to fluctuations in quarterly revenue levels.
On the balance sheet side, all principal uses of cash its continued all share buyback.
Also intend over time to deploy cash to gain new products for us to develop in sell through expanded commercial channel.
These investments will be an R&D to develop additional tests based small technology as well as opportunistically executing on business development and we'll M&A. If we see complementary assets there will be synergistic to our current business.
That concludes our formal prepared remarks, we'll now open up a line for questions.
Ladies and gentlemen, if you have a question at this time. Please press the star in the number one key on your Touchtone telephone. If your question has been answered all you wish to move yourself from the Q. Please press the pound key.
Your first question comes from the line of sung Ji Nam from B T G.
Hi, Thanks for taking my question, maybe starting out where spot CMB Peter to the extent possible could you talk about what's the timeline could look like for.
Commercial launch and then I'm also remind us again, what's the total addressable market opportunity there could be.
Hi, good morning, since she thinks the question so.
The way, we're looking at CMBS, we view this as part of longer term play.
Aimed to diversify our portfolio of time.
We will require regulatory approval in the U.S. and for us to establish value based reimbursement.
So we're in the process of evaluating the market opportunity building out the business case and getting some will not get feedback before we'll apply significant resources to it.
Consequently that should not be viewed as a as a revenue driver for the time being at least.
As it relates to the the time here, that's one of the things that we're looking to gain clarity on it and Paul It would depend on what reimbursement level than what reimbursement pathway. We would see it's taken the U.S. and that hadn't so I don't want to put out a figure right now until that was complete.
Okay, Great and then just my follow up is on the cooling the virus outbreak.
Wondering you had to now that Youre shipping some kids to China as though.
As a rule out task for TV.
I was wondering what's the update on that on.
Yes, and then also as you looked at some of the other reason getting.
Getting hit by the the outbreaks in South Korea, and Italy could you kind of talked about.
I guess with my this again I guess youre.
How is how important those I did read this might be.
Okay. Yeah. Thank you asked the question. So I think it seems that the shipment I think you're referring to the donation.
All 3 million RMB worth of kits to China, that's been very well received by the K wells in China, and obviously as were building a more direct presence in China, we view that as Paul the ball reputation and brand building efforts and showing up.
As it relates to other countries Corona virus, yeah, we have not yet see they I disruption to our business in Japan, and South Korea for example, but obviously if other countries.
What's the impose the same kind of travel restrictions on patients word to dispose and kinda behaviors as we've seen in China, then clearly they wouldn't be a disruption in those those countries. We havent reflected that no guidance at this point because obviously, it's still very early on as I've said, we've not yet seen a disruption.
I wouldn't know of course that Japan is is material for us, but smaller than China at South Korea is a much smaller component of all revenue. So it's really Japan that would be the market would be most focused on.
Great. Thank you.
Your next question comes from the line of Doug Schenkel with Cowen.
Hey, this is Chris on for Doug. Thanks for taking my question I just follow up on the last question.
Can you comment on that you expect you recapture and had a loss revenue due to run the virus situation.
Hi, Chris Thanks, the question I mean, when we see these these interruptions before as we've seen for example in the U.S. It first points in time generally you know the volumes just lost because even though the might be pent up demand for testing healthcare systems, a generally running pretty close to full capacity and so they call just double the amount of patients.
They see just because there's pent up demand and so in our assumption is that the demand is just lost.
Okay.
And Peter I believe you mentioned that Eric 20, kinda, new prescribers of cheese not TV in the U.S. can you provide a bit more de Johnny profile profile. These prescribers are they need to I Graz or are they competitive conversions and additionally, our there anymore or logistical barriers as it relates to wondering for this customer group.
Yes, so I don't have the on store than that.
On the on who they are exactly and whether that competitive takeaways or new to agrees. We're working through that we're doing some survey work outside of the mine, which will give us a better information to inform that.
In terms of the logistical power is you know quest is made a very significant progress you know on the electronic ordering system.
As all system, you know as I said, we're at about 1400 patient service centers now getting closer and closer to that I got to have just over 2000, So that's making progress.
Quest is making progress on an halt thing or logistics easing capacity for T spot TB as I mentioned I'm sure that joint venture networks, but also for opening up and running T spot TV in that Chantilly lab.
Still at some remaining steps to be to be made on on the integration activities, but I think is very encouraging that we're already seeing so many new prescribers of T. sport TV and it kind of vindicates. The main rationale why we did the transaction, which was to access pulse the market, we couldn't otherwise reach ourselves.
Okay and can you also give us an update on your larger account strategy was flat are you seeing meaningful increase in a win rate or access to potential new large accounts and how are you thinking about this dynamic it's running 20.
Yes, we got she has been working very successfully with.
A question National account team and we have some have made some flashy some very significant wins in the course of 29 teams. So yeah. Chris you will note that all customer base fraud. The transaction was was both those large accounts. It typically you know hospitals big public health accounts and we certainty.
Watch, where clearly a watching to see a growth in this additional channel because outperformed the market that we didn't have access to before it doesn't mean weve taken off the off accelerates as it relates to large accounts and as I mentioned, we're working well with quest to all the closing bonuses that continues to be part of course story the company going forward is.
Okay and my last question just once you sell slacks I guess this is a question on commercialization yeah. It's your potential to commercialize that product for applications beyond TB testing.
Said differently, it's just a project like diagnostic vendors are labs could using this opportunity you're exploring.
Yeah, absolutely. So as I mentioned never had remarks, you know the company has through the course of.
Okay.
Look in its TV has been really pioneering some new technology for measuring the immune system that can be deployed in many different areas and it's not just us to hasn't needs to purify white blood cells for use in functional life sell assays and so over time.
So right now deployed that automation for TV, but over time, absolutely we would like to explore about technology into additional markets.
Okay. Thanks for taking my question.
Thank you.
I can ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one key on your Touchtone telephone. If your question has been answered what do you wish to move yourself from the Q. Please press the pound key.
Your next question comes from the line of Tyco Peterson with JP Morgan.
Hi, Thanks, Julie offers high so Ah first starting off in China could you elaborate on the pricing adjustments that you talked about and when do you expect pricing to eventually settle out and how much incremental man should we expect 2020 and Dan with Guardians of registration renewal in China, how much risk.
Embedded in your guidance if any.
Hey, Julie it's Matt. Thanks for the question I'll take the first part and then I'll hand, it over to Peter on the registration so with respect to the pricing adjustment. It was it was around a million dollars that we booked in Q4 associated with the Q3.
Shipment so that was basically retroactively adjusting the pricing in Q3, and if you look at it on a gross margin basis, it's roughly it rounds to about 200 basis points of gross margin in both Q3 in Q4. So that's just broadly how to think about it in terms of the overall pricing in China, There's still some dynamics that we've got us.
He play out over the next kind of quarter or two and that really depends on the mix. So you know we've had roughly 90% of our customers convert from FFO, Sean over to Shanghai pharma and were seeing how pharma still in the process of contracting with them and so really it depends on the end user segment. You know is it a tier two distributors in the lab.
Is it a hospital and then what province, or we selling into so depending on that mix in terms of how it shakes out that will then give us a much clearer view on the average pricing in the country. So that's kind of what we're working through as we get into early 2020. So taking your question Judy about re registration. So you know as I've mentioned in our prepared remarks, we believe we.
I'll close to re registration.
And there isn't a material impact on the business right now because we have adequate stock in the markets continue to serve demolished and we will will do for some time.
On the basis, both the we have stopped to cover us for the time being a and because of our expectation that we will receive the registration at time anyway. Our guidance is based on the five then the isn't some material disruption to supply in the marketplace.
Got it that's helpful and then in the U.S. I was wondering if you have a rough sense. When you back that's you sound like approval and are there any contribution embedded in your guidance and then in terms of seasonality how what's the magnitude of those sort of shifting seasonality between first half second half.
Hi.
Okay. So as it relates to T cell select as I said in my prepared remarks.
We will give timelines once we submit didnt have feedback from the agencies at this point in time, I'm I'm not going to to give that other than to say that we did not expected to maturity impact revenues. This year, which I think was probably good question.
As it relates to seasonality and I'd first hall as I've mentioned, Yeah Quest is now they got comfortable with US is as a supplier is seeking to take down the inventory levels from the inventory level day inherited when the transaction happens and that's somewhere in the one to 2 million dollar range.
Oh headwind for us this year.
Actually the first off.
Hi, Thanks.
Your next question comes from the line of Bill Quirk with Piper Sandler.
Hi, This is redrawn for bell thanks for taking the questions. So first off could you just give us some more color on guidance and the pacing over here and then snack following up on the registration renewal comment.
So you mentioned you have adequate stock for the time being you just talked about the color I'm not at how long you think that stuff will last and then do you have any more specifics about when you think Dorsey registration I know you said you think it'll come soon but just given the delays in the process from the current a virus destruction and if you've had any conversations or any color on that.
Yep.
It was quite difficult to hear you saw and get all the second question, which I heard am I going to ask you to repeat your first question Oh, we didn't catch that so on the arbitration renewal based on current utilization the market, we've got month, rather than weeks of stock left in the mall kids.
As I mentioned.
Seeking to get additional stock into the into the country, which if it plays customs will continue to elongate that pathway.
Yeah. It is.
Estimating timelines are regulator agencies is always difficult, it's not something it's in all control, but as I said in my prepared remarks, we have not you know we don't have any outstanding questions from the agency, we believe where it will close and given that we have not that much stock in the market. We believe we will tell you that in time.
Before we out of stock in the market would you. Please repeat your first question.
Yeah. So my first question was can you just give us some more color on guidance and the pacing over the year. Thank you.
Boy. So I mean, obviously Q1 will be lie as I've said because of general seasonality in the business I, specifically Asia is always kind of weak seasonally in Q1.
And don't forget exacerbated by the kind of virus outbreak. The U.S. seasonally is generally weaker in Q1, but obviously it how first off at this year as I said, the quest de stocking will impact the business to that you'd want to $2 million over the course, the yet but that's falling in the first off primarily Matt is there any comments you'd like to make about.
Yes, yes, no I think the rest of the year is is we look out to kind of Q2 Q3 Q4. Once you see the uptick from Q1 Q2 will be our biggest quarter of the year. I think is what we expect just given seasonality both in the in the U.S. in Japan, but it'll be relatively consistent with Q3 in Q4, I don't see any big peaks and valleys in those other quarters.
Great. Thank you.
Thank you thanks Rachel.
I'm showing no further questions at this time I would now like to turn the conference back to Dr., Peter Wrighton Smith.
Chief Executive Officer.
Yes. Thank you all for joining us to discuss our fourth quarter full year 2019 results. We look forward to update you on next quarterly cool.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may now disconnect.
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