Q3 2020 Earnings Call
The third quarter fiscal year 2020.
At this time, all participants have been placed in a listen only mode and.
Open for questions following management's prepared remarks.
During the Q <unk> session. Please limit yourself to one question and one follow up.
I would now like to turn the call over to David Claire Biotech knees Senior director Investor Relations in corporate development.
[music] good morning, and thank you for joining us on the call with me. This morning are Chuck come up Chief Executive Officer.
A couple Chief financial Officer, a biotech might.
Before we begin let me briefly cover our safe Harbor statement.
Comments made during this conference call maybe considered forward looking statements.
Including beliefs and expectations about the company's future results as was the potential impact of the cope at 19 pandemic.
Our operations and financial results.
The company's concave for fiscal year 2019 identifies certain factors that could cause the company's actual results could differ materially for most projected in the forward looking statements made during this call.
The company does not undertake to update any forward looking statements as a result, with any new information our future events or developments.
Okay as was the company's other FCC filings are available on the company's website within its Investor Relations section.
During the call non-GAAP financial measures may be used to provide information pertinent to ongoing business performance.
Most reconciling these measures to most comparable GAAP measures are available on the company's preferred.
Issued earlier this morning on the biotech Corporation website at Www Dot bio dashed technique Dot com I'll now turn the call a Chuck.
Thanks, Dave and good morning, everyone. Thanks for joining us for a third quarter conference call.
This has been extraordinary corridor.
First I want to thank all the employees suppliers and partners about technique for their exemplary service.
We have worked through the covert 19 pandemic, we're happy to report that we have no corn Corona virus cases in any of our global site and implemented practice safety measure. It's very early in the crisis in February to protect our employees.
Our balance sheet is sound, the very strong cash position and low leverage.
We've not conducted any restructuring or for a lot to date, even the mines of our employees and a neighbor and focused on serving our life science research customers and clinical diagnostic partner.
Well hold at Nike negatively impacted our business this quarter, primarily due to the temporary shutdown of academic labs.
We are playing a critical role in the global fight the developed a secure as for the virus.
Overall, we were having a very strong Q3 until the virus pandemic had a pronounced impact on our business in mid March but even so we ended the quarter was 6% organic growth.
I think probably impact or corona virus in the quarter, we estimate our organic growth would have been closer to nine.
Our team all delivered incredibly strong operational results in Q3, but adjusted operating margins expanding year over year by a 130 basis points to 36, <unk> ahead of schedule and with strong cash flow.
Now I'll get into some detailed quarter, starting with the performance by geography, the North American market was very strong with low double digit growth organically on a corridor.
<unk> pharma girl.
In the region with over 20% fall Academia increased mid single digit and general both end markets were impacted by Cobot 19 related shut down starting in mid March although our academic market experienced a disproportionate negative impact of Iraq.
The good news is that these are academic labs, not large industrial manufacturing line has researchers return of the lab and get back to work, we anticipate utilization of our consumable snap back very quickly.
Overall Biopharma research activity has been less impacted by the virus.
As many labs continue to operate at varying capacity.
I don't believe we're lowering our belief that once its pandemic is under control life Sciences research will likely increase significantly.
It appears everyone Friday from government through the private sector now knows where an antibody and this can only be good herndon [laughter] with current stay at home policies. Many of our customers are spending much more time on other time online. Therefore, we continue to focus on our digital marketing efforts that are driven significant increases in a website traffic across her brand or the.
Past couple of years.
Third <unk> search engine optimization continual refinement of our website and digital advertising will remain a growth lever for the company going forward and will be even more important as a differentiator in the current pandemic environment, we've never done more webinars and digital projects to reach out to our customers. For example, we recently held an expert on diagnostics Webinars hurry urology.
Many of whom are working from home now and had over 100 participants.
Moving onto Europe, which was positioned for sequential recovery until a virus had finished the quarter with revenue down from last year by 7%.
Here, we had a very strong quarter and biologics as well as with our simple plex platform, which is seeing strong growth in cobot 19 related patient care.
Patients by monitoring cytokine storm onset and progression.
However, the strength was not enough to offset the mark shutdowns in academia, which especially impacted our simple western genomics assay and raising businesses in the quarter, it's still uncertain when European lab will begin to open back up but we're expecting has to be country by country process.
So far in April our German business is showing signs of an initial recovery with Italy potentially not far behind.
Our largest businesses in the UK, which is likely to be a month or so behind Germany in a recovery process.
Finally, we had a surprisingly strong Q3 in Asia, given the complete shutdown in China in late February we're preparing for a quarter of negative organic growth in this country, but finished with positive organic growth in the mid single digit. This fantastic finish reflects the outstanding work done there by the local team our employees in China are back to work serving sort of thing.
Research market. It is largely turned back on and expecting to revert to their long term trend of double digit growth in Q4.
The rest of Asia, all performed extraordinary well in Q3 with growth in the mid teens.
However, many of these countries, including Japan Korea, India are currently in varying state of locked down and expected to remain fill for most of Q4. Accordingly, we are expecting double digit negative girl outside of China in Q4.
Before I turn the call over to Jim for the financial review I would like to provide some more detail on initiatives that our country company is working on to help our customers develop tests and find remedies for coal that 19, I will provide an update on some of the strategic growth initiatives that will have a largest impact to our company for years to come.
Starting with our cold at night initiative, we're experiencing significant demand in ramping production of our proteins antibodies use in front of IRF research, including reagents that our component neurological I say.
Oh, we are working with several health care providers and perfecting antibody outsize using the traditional life. The platform that can detect an individual's exposure profile to covert 19.
And then many health experts believe will require meth testing before world economies can resume any sort of pre Colby 19 normal.
Oh I wasn't mentioned in my commentary regarding Europe, we've experienced significant significant global interest and the man to leverage Alex as an automation tool for the detection and monitoring of covert 19 patients that are potentially experiencing cytokine release syndrome. This dangerous condition represents a critical and potentially fatal point to the disease management.
And our genomics division, we're supplying cobot 19 aren't April approach for buyers detection and tissue, allowing researchers to confirm the organs that are impacted by this virus.
And then Exosome diagnostics, we have validated and preparing for foreign Cobot 19, real time, Q PCR testing in our labs in both Munich, Germany in Waltham, Massachusetts.
Following the implementation of processes and instruments to automate the tough will be capable of processing over 200 sample the day and we can ramp further after that this lab developed tests will provide rapid and reliable detection of patients with active Corbett 19 infection. [laughter]. These are just a few examples of how practically every division of our company has pivoted resources to find.
Innovative solutions for Cobot, 19, and participate on a global level to help eradicate the herbal virus.
We are uniquely position provide reagents, an assay for all aspects of Cobot, 19 research and diagnostic and our mission thrives on helping solve these types of problem.
Next I'll provide an update on two of our important strategic growth platform cell and gene therapy as well as Exosome diagnostics.
Starting with Haoone gene therapy, we continued to make progress on the construction of our new dedicated GMP protein factory construction of the filled your remain on track provide GMP proteins and large scale to our cell and gene therapy customers by the second half of fiscal 2021.
We're very encouraged by initial interest and demand from Biopharma customers had we actively market are coming GMP protein production capabilities and capacities in fact during the quarter, we execute our first large scale GMP protein supply agreement. This cultural is still making its way through the regulatory approval process for therapy, making the GMP protein related revenue likely in fiscal 21.
[noise] many other customers have been engaging us with interest in long term supply agreements to ensure continuity of supply for their present clinical studies and to meet their future commercial needs in the meantime, our GMP portfolio has been growing at a rapid pace, but a number of onion cytokine.
Being used to grow Falcon clinical trials.
[noise] also within our cell and gene therapy business, we have begun operationalizing the joint venture with Wilson wall, and Fresenius Kabi that we announced last quarter.
As a reminder of this commercial consortium offers a complete and simplified cell and gene therapy workflow solution using products from all three parties. During Q3, we focused on establishing a unified sales structure that customer facing website and point of sale and creating impactful marketing collateral featuring all three parents offerings. In addition, the emerging interest a natural killer cells.
Piece for oncology has been demonstrating some great clinical potential and the JV is well positioned for the renewed natural killer interest leveraging our GMP protein clouds media and TC Buster platform for fell genetic engineering of difficult to grow natural killer cell.
Now enough data next is on diagnostics in the Ekso Dx prostate test there were several positive developments in Q3.
And there's still much to do to make sure. This noninvasive prostate cancer test becomes available to all patients with heightened PPSA level, we're contemplating a more expensive more risky and painful tissue biopsy.
Following the final local coverage decision or LCD from our medical Medicare administrative contractor or Mac National government services, and yes, we haven't billing Medicare for applicable patient test center, receiving steady reimbursement for test submitted to this important pair recall that our we're currently preparing for the reconsideration process with our.
Mac ngs to get the L. city more accurately mirroring the more inclusive NCCN guidelines, which will expand the potential market size for the test based on our prior experience, we anticipate a public comment period to take place in the summer followed by a final LCD in a false.
Continuing on the reimbursement front, we announced receipt of a an unlimited tenure reimbursement contracts with general services administration, or G. assai, making the exco Dx prostate test available to more than 140 government entities, including the Veterans' administration health care system.
Our conversations with the private payer community continued to progress, but many payers want to see a clinical utility study published prior to issuing favorable coverage decision.
We expect <unk> such publication in a leading peer reviewed urology journal with the next couple of months.
The clinical utility study shows improved patient compliance.
He did a for prostate biopsy or proceed with biopsy compared to the control arm when implementing the exit the f. profit tough in clinical practice.
Due to this increased compliance to proceed with biopsy physicians detected 30% more cases, a clinically significant where high grade prostate cancer compared to the standard of care control arm.
Implementing happy not only saves the health care system money by avoiding unnecessary biopsies, but also increases compliance among patients that need biopsies, leading to higher cancer detection rates, we anticipate the of clinical utility an economic value as shown in this study will resonate with the private payer community, increasing the frequency of our conversations and strengthening the.
Argument for favorable coverage decision.
[noise] currently the Corona virus pandemic has had an impact on a number of individuals seeking wellness business, which in turn has had an impact on a number if you say tests and ultimately the number of Ekati ex prostate test conducted we saw this play out during the month of March and a decline in test has continued into April we responded by recently launching an at home collection.
Good for our exit the ex prostate test, enabling men, who are sheltering in place enough unable to see a health care professionals to know if a biopsy should be prioritized. The <unk>. The solution was launched with a patient targeted marketing strategy, including search engine optimization, a Facebook campaign and Webinars to drive awareness that patients do not need to go into the urologists office to have acts.
To this valuable test, we believe the flexibility of providing urine sample. It the convenience of the patient will be yet another key differentiator of the exit the ex prostate test from the competition.
With a pipeline of additional tests companion diagnostic applications in partnership opportunities. There are multiple avenues to create value with Exosome diagnostics, we have a few partnerships in place and our an active discussions with several diagnostics and biopharmaceutical companies for potential applications of Exosome diagnostics technology.
In summary, I'm very proud of the way our team executed in our fiscal third quarter, especially considering the global challenges created by covert 19th the pandemic creates some near term challenges, but also some near term opportunities as we deploy reagents to enable vaccine and therapeutic discoveries and diagnostic solutions.
That being back from the current environment, our pillars for growth rate fully in place we remain in the very early innings of realizing a tremendous liquid biopsy in cell and gene therapy potential opportunities.
And our Proteomic on genomic and now an analytical tools returns remain extremely well position in very Underpenetrated markets I firmly believe that environment for life Science research and diagnostics will be even stronger as we emerge from this pandemic and we have the financial strength and product portfolio to capitalize on these opportunities with that I'll turn the call over to Jim.
Thanks, Chuck I will provide an overview of our Q3 financial performance for the total company provides some additional color on the performance of each of our segments and give some initial thoughts on potential scenarios for our Q4.
Starting with the overall third quarter financial performance adjusted EPS was $1.39 versus the dollar 21, one year ago with foreign exchange positively impacted EPS by seven cents.
Most of the foreign exchange impact was due to nonoperating foreign exchange related to our Cashpoint arrangements.
GAAP EPS for the quarter was 92 cents compared to $1.50 in the prior year. The biggest driver for the decrease in GAAP EPS with a $400000 in realized and unrealized gains on our investment in chemocentryx compared to 12.3 million an unrealized gains in the prior year.
Q3 revenue was 194.7 million an increase of 5% year over year on a reported basis organically revenue increased 6% with foreign exchange translation, having an unfavorable impact of 1% and less than 1% growth contribution from acquisitions.
By geography, the U.S. grew in the low double digits, while Europe declined approximately 7% and China grew mid single digits as for the rest of Asia organic growth was in the mid teens.
By end market, which excludes Asia, our diagnostics division and other OEM customers.
Bio pharma growth was in the low teens.
While academic sales decrease, but a low single digits.
Moving onto the details of the piano total company adjusted gross margin was 71.5% in the quarter compared to 71.3% in the prior year.
The increase was due to volume leverage partially offset by foreign currency headwind and to a lesser extent the image and acquisition.
Adjusted SGN a in Q3 was 26.8% of revenue and 90 basis point improvement compared to the prior year with volume leverage partially offset by investments in our core business to drive near and long term growth.
R&D expense in Q3 was 8.2% of revenue 20 basis points lower than the prior year Prime I, primarily due to volume leverage.
The resulting adjusted operating margin for Q3 was 36.55% an increase of 130 basis points from the prior year period, and 310 basis points higher than our second fiscal quarter result.
Looking at our numbers below operating income net interest expense in Q3 was 4.2 million decreasing point 7 million compared to the prior year period. The decrease was due to a substantial reduction of our bank debt during the first half of fiscal 2020.
Our bank debt on the balance sheet as at the end of Q3 stood at 420 million.
Other adjusted non operating income was 3 million for the quarter compared to 1.5 million of other expense from Q3 last year.
Mainly reflecting the foreign exchange impact related to our cash pooling arrangement.
For GAAP reporting other non operating income includes realized and unrealized gains from our investment in Chemocentryx.
Moving further down the personnel our adjusted effective tax rate in Q3 was 21.3% and we are anticipating Q4's rate to be closer to our year to date adjusted tax rate of 21.6%.
Turning to cash flow and return of capital 49.5 million a cash was generated from operations in the quarter up 25% over Q3 of last year.
We also added to our cash position by monetizing approximately $30 million of our Chemocentryx investment during the quarter.
In Q3, our net investment and capital expenditures was 9.3 million, mostly driven by construction of our new GMP protein factory, which remains on schedule for completion by the end of calendar year.
And during Q3, we returned capital to shareholders with $12.3 million, a dividends and approximately $50 million of share buybacks, leaving 39.4 million average diluted shares outstanding at the end of quarter.
Next I'll discuss the performance of our reporting segments, starting with the protein Sciences segment.
Q3 reported sales were 145.5 million with reported revenue increasing 6%.
Organic growth was also 6% with foreign exchange, having an unfavorable impact of 1% on revenue growth and acquisitions contributed 1% to revenue growth.
Growth in the segment was driven by strong demand for protein reagents.
And both our biologics and simple plex instrument platforms, partially offset by the impacts of KOVA 19 customer shutdowns.
Operating margin for the protein Sciences segment was 44.7% decrease of 40 basis points year over year due to unfavorable foreign exchange and to be merger and acquisition.
Turning to the diagnostics and genomics segment Q3 reported sales were 49.4 million an increase of 5% from the prior year.
Organically revenues also grew 5% with foreign exchange translation, having an immaterial impact on revenue.
Economic divisions, Arnie scope contributed solid double digit growth in the Americas, but this growth was partially offset by Kobin 19 customer shutdowns in China as well as Europe.
After his own diagnostics contributed approximately 3% to the segment's growth in Q3 with Medicare collections over a million dollars. Following the final lab coverage decision by Ngs in December.
Moving on to operating margin for the diagnostics and genomics segment at 14.3% the segment operating margin improved from 7.63% reported in the prior year.
The increase reflects an error double in operating profit due to less dilution from actions on diagnostics volume leverage from our genomics division and productivity gains from our diagnostic tools Division.
As many of you know, it's not our policy to provide specific annual or quarterly guidance, but in steps that provide some high level color and how we anticipate our business to perform relative to our longer term strategic plan.
Clearly the evolving cobot 19, pandemic and related customer impact we've not contemplated in our long term strategic plan, nor shorter term annual plan.
Therefore, I thought it'd be helpful to provide some color on the impact we've seen from cobot 19, so far in April impossible somewhat scenarios of how it could play out for our Q4.
Well, let me begin with the headwinds we've seen so far in April.
With most with most academic institutions shut down in the Americas, and Europe, and some non essential research put on pause by Biopharma.
Our run rate reagent, an assay businesses in these geographies has dropped off considerably from prior year levels in the range of minus 20 to minus 40% depending on the product line in specific region.
Encouragingly there have been recent talk in both Europe, and the U.S. about slowly and systematically opening up universities for professors to conduct a research even of uncertain about students returned in the fall.
Obviously when it is safe to do so in this talk becomes action are run rates will gradually improve as researchers returned to their labs.
Chuck has already mentioned the headwinds we face in Asia outside of China due to re occurrences the virus in places like Japan in Singapore, as well as the full walk down in India.
However, China is looking like a nice tailwind for us in Q4 with with <unk> growth rebounding well into the double digits.
Other tailwinds for Q4 include our biologics and simple plex instrument product lines, just as they led our growth in Q3. These platforms have started out just a strong in April and we expect to high demand for them to continue.
Actually the simple plex platform, which is specific to covert 19 treatment related needs.
And finally, we should experience some tailwinds from all the other cobot nitin initiatives that Chuck previously discussed.
But has made these products are still currently under development knowing exactly how much they will contribute to Q4 revenue is difficult to project.
All this being said our best estimate of how these variables will play out results in the queue for organic growth.
Somewhere in the range between minus 10% and minus 20%.
Because we do not anticipate that our higher margin reagent business.
Because we do anticipate that our higher margin reagent business will be more severely impacted by the shutdown. This will likely have a material negative impact on gross margins for the quarter.
Our operating margin will likely be likely be further pressured by our operating cost base being relatively flat to prior year on much lower revenues.
Right now we are assuming that we have seen the worst impact from Kobin 19 in April and that conditions will gradually improve from here.
And when they do we will emerge is even stronger company as we continue down our path of executing on our strategic strategic plans key growth initiatives.
In summary, despite unprecedent conditions create by Cobot 19, we delivered 6% organic growth in the third quarter.
We are position of financial strength with cash and short term investments in excess of $250 million and our leverage ratio just 1.4 times.
One thing this global pandemic has clearly highlight is a need for life Sciences research and we believe that global demand for our tools, which enabled drug discovery and production genomic and Proteomic analysis and diagnostic solutions will emerge from this pandemic stronger than when it began.
Our global teams and product portfolio or position to capture that stronger demand. In addition to our original growth plans when the virus related headwinds subside.
With that that concludes my prepared comments and I will turn the call back over the operator for the line for questions.
Thank you we will now be conducting a question and answer session. We ask that all callers limit themselves to one question and one follow up if you have additional questions. You may recall, you and those questions will be addressed time permitting.
If you would like to ask a question. Please press star one on your telephone keypad, Hey, confirmation total indicate your line is in the question Q.
You May press Star too if you would like to remove your question from the Q.
Participants easy speaker equipment, it may be necessary to pick up your hands it before person Newstar keys.
One moment, please volleyball for question.
Thank you. Our first question comes from the line of Puneet Souda with Leerink partners. Please proceed with your question.
Hi, great. Thanks, So Chuck first of all congrats on a solid quarter here, despite the disruption and.
It's good to see the resiliency and China had very tough compares that you had already from last year. So in April if you could ah. Thanks for the comments, but I wanted to understand how is how do you view the recovery here for academic and bio pharma segments, just sort of given that behavior.
Academic has been impacted more heavily.
Any sort of early signs in the latter part part of April that you're seeing here that give you a better picture into may.
In in either of the Biopharma segments or the academic segments, then I've a couple of questions.
Sure well Biopharma is still pretty resilient and I think as we talked about I think we have some some upside even there with a with a lot instrumentation that is as if that is harder than ever biologics are doing really well we are starting to see that drift into cell and gene therapy qualification. So we expect that platform a due to continue to do well.
Simple western is little bit under pressure because in it and unlike biologics, it's kind of 50 50 with academia, so a little softer.
It's anyone's guess when things start opening up I mean, you're hearing it already state by state, including lawsuits or is there is a lot of fatigue out there people want to go back to work.
And with that labs will reopen and I think people are also getting creative or what they can started doing.
And then we are seeing more activity on line and a lot of webinars activity and so.
End of April and maybe not so much material by May we're hoping some.
Certainly the Q1, we expect we expect to see things starting to come back. So we're hoping this is more of a reverse as a long you and in all its kind of where we're looking at it who need other way said another way to think about two is.
You know with.
Gradually opening up the economy to go back to work a lot of its going to require social dispensing practices, while at work and the argument that can be made that labs in general it.
Potentially easier for those.
Practices that we put in place, perhaps and other types of industries. So another reason why we think that once the economy does start to gradually we open up a life science research will be one of them earlier phases of that I know on our own labs, which are marked a lot like every other lab that we're pretty social distant anyway people aren't just on top or another and these labs. So I think there for <unk>.
Good.
You know, it's just can take time for people, who acknowledge that and kind of get into it but you know the world is going to be different.
There will be mass at work for quite some time I'm sure and lot of different things, but you know a lot of our people war that stuff from gloves anyway, [laughter] filing I think too much issue there.
Pretty amazing to see China, just kind of turn back either of any good data point that you know if you come back and follow good social distancing everybody, whereas a math it looks like a you know there's there's a good promise that we don't every escalation. So anyone guess over what happens with wave 123, or the next coming years I'm sure there'll be some of that too but.
We're very very.
Optimistic that when this is all done the paltry $40 billion NIH budget is going to go up dramatically so surrounding air compared to what's been lost you know and what's being thrown around here for stimulus. So.
Research is going to go up and we're perfectly positioned and by the way we're gonna be plug in some of this whole too with with covert 19 projects, which we alluded to I wish we had more positive press release type in our newest to give you, but we're working on many projects here than some that could really scale, but it's too early to tell you if and when we come out with.
Tough.
Serological or other you'll know that it'll it'll have the R&D systems brand new quality behind them. So it will only.
It'll be something remarkable and with high sensitivity specificity and we're all working on technology platforms around what we're good at antibodies and proteins that can be differentiated from everybody out there and who is chasing this stuff so stay tuned more to come.
That's helpful. So following on that.
Coated research I know, it's tough to quantify this but do you expect to see any benefit from the $25 billion over testing and testing research allocation for the as part of the corner bars relief fund and what's your expectation here is just in terms so the.
Portfolio the breadth of the portfolio that you have from antibodies decide at times I mean, how should we think about what parts of the portfolio are likely to Bennett said when that NIH potential NIH increase.
You know happened in 2021, it's so what parts of portfolio boots should we expect to benefit from bad because there's some expectation that that could be directed more towards infectious diseases versus other but traditionally oncology research and other areas.
Hi, I'm well, it's anyone's guess, how much will go one way versus the other infectious diseases, but in terms of our portfolio all of it I can't imagine that there won't be an amazing interest continuing in the proteins that were developed were.
We're a we're selling a lot of proteins that didn't or things are are going up a lot on a lot of categories that are used in this research, especially and also with antibodies and colleagues through monotheism. It's it's been pretty exciting week almost can't keep up in some areas.
So we're working on scalable solutions zone, you know that can really support partners for things like serological. Some for you know there's been a lot of relaxation of the FDA to try and have something work out there and there's been some negativity around that but I can guarantee you that we're on top of this and involved than many fronts and our reach.
Chances are gonna do really well.
The tools are going to do well you've got a measure this stuff. We are the worldwide leader in in the Lysa kits and analyze it could as the best way to do a serological the cheapest it's fast everybody has automation. So you know.
Where a world leader a in Luminex with many partners Luminex is another way to attack a lot of stuff and their everyone's got their flavor of these different partnerships and deals and it's just become so vast and like we talked about your went when do you see a a new trillion dollar plus market open up overnight and it is there a lot opportunities here and we get the best of both work.
All the chase a new market, but also do something wonderful for society, we're going to help eradicate this virus.
Were involved on more front than we can even tell you in terms of resources pivoted virtually over 200 employees have been never been refocused around these projects and the company and they may not all workout, we may win and some lose than others or be a fast follower and others, but a lot of or more if I've been around a lot of.
Innovation, a long time and.
These things always lead to stuff and.
The funding is going to trickle down to touch many parts of our business. There's no doubt in my mind, it's hard to quantify right now but.
It's going to be you know you Gotta look beyond Q4, even Q1, you got to look into next year on year after we're going to be.
Stronger than ever with the base business and we're going to have all this incremental new business on top of it and then we still have our cell and gene therapy annexes on diagnostic platform is just starting to ramp so for us it's a better stores whenever you start looking out 123 years in our opinion.
Thank you had three are our Q3 or our Q3 results just kind of.
Make that indicative, we had a pretty darn good quarter.
Yep.
And last one if I could.
That's gone China. The it's you know that was surprisingly good a quarter given sort of middle but compared to what we were heading into the shape of resiliency that you're seeing there currently what's your expectation how long do you think I mean sort of how long is that sustained.
But there are some questions being raised on the recurrence of the wireless obviously, China was ahead of the curve. So what are you hearing from you came on the ground up there.
Thanks, well, we have a whole team in and we have our management into including in our leaders had to go in and go through quarantine the get back in the country the country's got very very strict.
You know guidelines to get in so they're not letting anybody analog onto quarantine. So that's a big part of why they're staying safer probably everybody is wearing masks. According to our team if you're at you know China is one of those countries weather.
A lot of lines in and so social distance up to this point was was a very small distance [laughter], it's going to change and it is changing and.
There has not been a material resurgence. So if there is no resurgence we think it's like we said back to double digit are hired already this quarter, so nothing but up if there's refrigerants and there is new.
New a new rules going in place, we'll have to adjust but right now there's nothing to worry about their I'm frankly, much more concerned about what happens in India.
In Japan, and Korea, both a little behind the curve right now as well so although we had a wonderful Q3, it's because really there were just late to the game of the of the Lockdowns. So as they work through their Lockdowns. This quarter, we'll have that hit but hopefully they'll have the same coming out the China did.
But you know.
Judging what we're seeing in Brazil, right now I don't like I don't like seen that because I think India's really really at risk, but and that's a big growth platform for it for you know not this year is briefing materially, but you know looking five years out so a good could put some some risk into that but.
I in Korea, and Japan will be fine and after a quarter here and and I think I think China's.
Moving forward, we don't see of gold real hit Europe is a slower recovery and its country by country.
We were having an outstanding quarter until they fit and but I do think we are on on track with a lot of.
Fixing of Europe already execution wise, which is in place and so as a as they go back to work and labs reopened I think we'll be in a much better spot in Europe as well.
As has been phenomenal so and it remains so end of this is what we're going to see a lot of our Corbett 19 incremental growth this quarter and beyond so hopefully we'll uh huh.
Well, if nothing to show, but extra positive news there so.
If the this is this is almost a sadly the event, we're looking for for Ela Ella's finally going to see its day and.
We're up we expect 75% growth in L. this quarter and probably a double for next year again, so it's going to become a a material platform. Finally, when this is all said and done so and our ability to get a true.
All the FTC related clearances that become easier obviously so.
Our next question comes from the line of Catherine Sheltie with Baird. Please proceed with your question.
Hey, guys. Thanks for the questions and congrats on a nice quarter I guess first just going back to China. We've heard from other companies that academic and government labs has locked in terms of reopening sounds like you are not saying that but just curious to hear what was the low water mark for activity in China outlets.
You know at one point down 20% to 40% as well and what did that passed or not really looked like.
It never went negative.
And we ended we ended mid mid single digit we were expecting Oh, we do like everyone. You know we've got a monthly flash we had a monthly process and we were expecting maybe minus two minus three thats. The team is thinking but it never got down there and we ended up mid single digit I think you're seeing a difference the us versus others and other other peers have a lot heavier instead.
Station in level in their portfolio than we do we're also not that big right. So so in a region is front end to end the things that can get back up to speed equipping lab, that's kind of us. So so it's a quicker recovery you are dealing in mass spec and H. plc and things like that it's going to be slower. So I think you're seeing some of that and but you know.
We were on such a nice.
A nice growth growth level anyways, so I'm not surprised to see this as long as labs are back at work the kind of research they do with us with a lot of reagents level testing is something that will snap back quickly, which we also expect to see as well following in Europe and U.S.. That's why made the comments that we did about a fast recovery once labs reopened yes.
Catherine This is Jim in it it too.
Along with Chuck just said Chuck is correct in saying that never throughout the quarter acumen will lead to China ever fall below zero percent growth.
However, we actually look at how the quarter played out January was extremely strong just has we finished Q4 very strong in China that momentum continued into January was basically a record January in terms of organic growth for China and then as you would expect in February it was like it was it was practically a complete shutdown.
But by the time, we got into early in mid March it rapidly started picking up again and that's kind of that was kind of when it was on it was on very very strong and with off there was not even a trickle and like we said before I think with a with a virtually a one quarter or less than a quarter shutdown you don't see a lot or.
First I'm little confused by some of the infant players out there with their comments because it with a one quarter shutdown or less it shouldn't have that big of an impact on on instrumentation and the way the way the cell cycle is for those I can tell you already spent station is come out of the doors strong in April because it has been pent up demand because it's only been off for a month or two fill these orders were there.
And now there is somebody there to take delivery and where our bookings are really strong in China right now in all our instrumentation.
Okay very helpful. And then I appreciate the commentary on your core reagent portfolio trends in April any comment on what you're seeing and Oh diagnostics businesses is the cobrand related activity enough to drive growth in that diagnostic sub segment or are there more meaningful well, we had a great quarter there unfair.
This is I shouldn't be a notice a third quarter in a role without being negative [laughter] think thats ever happened. So as I've stated our lumpiness is starting to dissolve we've got our glucose under control, but there's a lot of our reagents that go into the pipeline for diagnostics and allowed us headed towards coded 19 as well so were very strong right now he.
Metallurgy strong and the diagnostics in general that in the upstream work that we do at San Marcos very strong a lot of large order that you know we ship a lotta you know a lot I GM and in AG. So they are there.
There are a lot of players of want everything we can make our our issue is now we're starting to look at our own level possible serological nothing else. So we need all this stuff ourselves and so you know we've never had.
We've never had before we can't we don't we can't make enough. So we're really focused on that so yeah I think its the strengthened our car diagnostics tools division is will remain strong so.
I mean, it's it's still not the.
The margins are very good this quarter and it's one area. We do get was we do get leverage with scale at that and.
And it did we see continuing so.
Best it's been and the pipeline has never been better I've told you for many cordis and building and we have newer companies coming onboard and we're getting more visibility you know companies like mine Ray in China, very strong customers and getting stronger and stronger so.
The business is building so it's great.
Great. Thank you.
Our next question comes from the line of Dan Arias with Stifel. Please proceed with your question.
Morning, guys. Thanks, Chuck I just wanted to ask about antibodies, how big is the portfolio in revenue terms. These days and to some of the points figured base can you just sort of talk through how we should think about the totality of drug discovery efforts and the Surajit tessick activities when it comes to the growth that you're.
We're expecting there that you saw in that you're expecting there versus maybe to the three pandemic average.
Yeah, well as you know, we we make and sell over 50000 reagents and over half of those are antibodies.
And then we redistribute and source you know another couple of hundred thousand or more.
There's a long tail, though as you can imagine anda and we have a lot of heavy runners and my but I. Just mentioned you know, we we sell a lot of bulk orders and I GM to this some of the big guys out there diagnostics always have.
This gives us the ability to do things for ourselves should we want to and so we have been under attack by many partners, who want to work with us to have our world class quality reagents into their their test.
Here's the issue anybody in their kitchen can make 20 assays and to gain get through a decent qualification and make it look like they have something it's a much bigger deal when you got to figure out a way to make 5 million test a week.
We can do that so so we're working on on scaling that we don't give out still the numbers of our actual component of a division like that but it's still roughly.
Ill just around the third or so that division in the end you you know that we've been talking about the growth rates our growth rates and antibody has been very strong.
Double digit up until recently and we've been taking share really everywhere across the world. We've been we've been a.
Attributing that to our strong digital campaign and our digital.
Processes, and you know websites coming together and being able to.
Do a lot more.
FCO and et cetera under an AD word payment in such the all these have worked a lot for us, but that's kind of across the portfolio. So right now the focus is on how to how to scale a handful of these that are super high demand. Because these are the winners at the world for for these very scalable tests.
The trick is can you scale on can you can you make them you know.
And I'm in a bulk form in a cell line in which means you've got to be looking at models, probably end up or one a few companies that were the can really do this and that when we say we can do it we can do it so.
Stay tuned.
Okay. So if we assume that you are one of few that can manufacturing scale the way that you're talking about where the benefit to be derived in twoq you be.
Greater than it was in one Q and should we think about that growth rate being above that so I think he said low double digits or maybe just double digits that you've seen in previous quarters, I guess I'm trying to understand what has taken place is going to you for some of these companies going to be at me I'd comment you would you.
Well still the vast amount of our portfolio is for research right and with academic labs downhill Aarding is so we had that hit it wasn't so bad in Q3, but Q4, we've talked about where it's going to be so well the new antibody work for all these tests offset you know the gap from academic research in general it's hard to its hard to.
Yes.
Some of these are massive opportunity is it's going to depend if we get the deal or not you know and if we get it will be talking about it. If we don't know will be we probably won't be I'll make that gap up in a quarter.
But if you look out a year I think we'll have we'll be back in full strength in double digit on antibody and I think we'll have some portion of all this this new world [laughter] going ahead as well so I expect our antibody business to be thriving anywhere from now.
It's really hard to pin down how much but.
Got to be a couple of points better than we were doing up until this quarter I would think at least.
And it could be multiples of that if we get some of these opportunities land in our favor.
Got it okay, maybe just on.
On X is I'm, just I'm sure you're prioritizing the sales and marketing activities right now so.
What are you thinking about when it comes to investment in sales force expansion and promotion or you are you able to stay the course on what you've been trying to do there.
And then maybe somewhat along those lines appreciate the heads up on the publication on Ekso Dx. That's on its way is there anything in terms of a head to head study versus other tests that might be in the works. Thanks.
Yeah with regard to the investments not commercial side I mean, clearly as right now we're definitely focusing on the digital marketing aspects of it as Chuck talked about in his in his.
Script, I mean, a you know what reality is mostly urologists are at home right now and so and we're actually it's encouraging because we're getting actually some very good response rates from them on Webinars and and I see hits to our web sites and question so forth.
We will it be nice if we could actually turn this a bit to our advantage and be able to you have more contact with them in more education of our product with them. During this time, when they're not frankly going into the.
Into their doctors office.
So that you know so then we'll see where they start to come back in the office as the.
Restriction start to get lifted than most assess what we need from a sales force going forward from there, but there is no immediate plans, but talk about the quarter to quarter sequential improvement in the dilution because we are making money. We're kind of we're kind of watching our investment that's working yeah. Yeah. I mean, obviously, we you know this is the most meaningful revenue we've had with X is on this quarter so far today.
And our you know our our dilution with regards to the X's on businesses a lot less this quarter that has been that all being said if you exclude zone.
From our results, we still would be over 40% operating margin and the rest of the company. So.
And I'll add to that Tom and then cover the utility study.
We could invest harder, but right now now more than ever to no need and I mentioned about and a very successful Webinars 100, we've actually had since last few days multiple webinars with over 100 urologist. So there'll tuning in and this home study is really going to be helpful. I mean and.
The exact sciences. Good example, but you can do with a home application.
But we started this out with a with a very small set of kale else to get it get a launch get a going and kind of work. The kinks out it's had already remarkable success over the next we're expanding it immediately so on you know it's I think this is great annual all our competition out there you have to do a blood sample or DRA. So you can't do those at home. So we have clearly now a real.
Differentiated will solution so.
That's all going pretty well I'm, then we're still focused on partnerships and talking to multiple entities on one deal. We do have done we'll be announcing soon and hopefully some more coming as well.
And then there's a long term platforms you know the you know we are in the midst of.
The other of us to other clinical study for the bladder.
Things have slowed down with patients obviously with collectible.
Things not being pushed out and kidney rejection is moving forward as well, but we're still negotiating looking at partnerships on the blood side, we have validated test for lung and breast and a lot of interest, but these things take time so.
Yeah, It's a platform that's going to get there, whether it's really there and as they as a home run in 123 years or takes 10, I don't I don't know, but it'll it's all going the right direction. The utility studies Ben done for Awhile and it's nothing more we can do within their hands and they're making the pretty pictures and getting it ready for print and the it's supposed to be within them.
But you know, we said two months or better in the in the in the transcript today, but we expect it to come out in May.
It's a thousand patients. So it's it's a good study and it's a it has an amazing control element to it as well. So it's been it's going to get a lot of notice. So it's going to have an impact and we of course, we of course have pre released it to the allow the payers in the end the their their impressed that of course, they want to see it in formal print before they can make any coverage decision. So so.
It's all going right direction expect that to happen. This does this quarter as well and you know [noise].
Onward, and forward, we'll keep grinding [laughter].
Our next question comes from the line of Dan Leonard with Wells Fargo. Please proceed with your question.
Thank you. So so first question appreciate the color on.
People trends for the reagent business is it possible you can quantify April results revenue trends for the total company can you just so we could assess like how much of an improvement do we need to assume may and June to get to that call. It negative tend to negative 20% number for the June quarter.
Well, we're hoping it's the bottom of the quarter. You know so you can take that as you may and get to your minus 10 20, we gave it it's hard it's hard to give you much morden that Dan right now yeah. The reason for that as because one of those Tailwinds I mentioned is what we're seeing in our instruments portfolio specifically in biologics in simple plex.
It's based off of order rates that we're seeing so far in April, but we very cautious about getting overly optimistic about that because the reality is the order flow of instruments is much much heavier in the back half of the quarter than isn't the first half so even though the year over year improvement is very very strong it's off a very low number to begin with and so.
That's why we hesitate to give those numbers out specific can tell you.
We expect to 75% growth and in the Ela platform is only that because we can make anymore [laughter], we're going to have over 150% growth in instruments. This quarter alone in that platform. We it's a complicated cartridges you know and it's just it's we just can't make anymore. We can't scale it quick more quickly than that but.
It's going to keep growing at those kind of levels, they think quarter on quarter, an awfully. So one one good success story I mean, a year from now it'll be a very immaterial part of that division.
Appreciate that and then just to follow up.
Could you elaborate a bit on your comments regarding the first supply agreement in cell and gene therapy was that something that you had in the funnel prior to committing to the new facility in partnership or is it something materialize post you, putting a shovel underground.
Any further color would be appreciated thank you.
Yeah, well there there have been dozens of preclinical and evaluations Asia, we're selling a lot of GMP proteins. Now. Unfortunately are very small lots because they are basically in our research facility. That's for building a GMP factory. So we're testing in in looking at equal in only quality.
Programs the things in Clinicals right now on many many fronts. This one is one that's been in the mix for awhile and it was the first want to come up but there's there's many more close behind it now that said just because they get a supply growth in place doesn't mean that we're ready to go the races here with volume it's going to take definite finished their face reason and get ramped in.
There's timing so it's it's a one it's you know one quarter to four or five quarters until you start seeing anything commodity at Iran, but like I said I think there's such a stigma around the whole viral vector side of all this stuff and people are they're scared about these 18 month lead times, you're seeing on these approaches and cell therapies that we expect there's going to be continuing.
One of people coming to US early like this company did before they're down whether clinicals to try and get a supply going in place due to test the mix should unlikely they see and try to make sure. They know they're going to get something without waiting a year to to get access to supply. So.
It's still kind of a J curve you know, we don't expect ourselves gene therapy business to be at that 300 million our levels of debt potential division for five years out and you know, it's a J curve to get there, but the best part of that the front end of out of the biggest part to growth of assets will be GMP proteins, we feel we feel so.
I can tell you the JV on the stuff does funnel through that and.
And they have over 100 customers that are evaluating everything from the the logo instrument through a Tc Buster through our our clouds that there's a lot activity. This this thing is is going to happen.
Our next question comes from the line of Jacob Johnson with Stephens. Please proceed with your question.
Hey, thanks.
No it's on margins in the diagnostics and genomics segment.
I think you alluded to on this it sounds like it was a little bit less dilution from access but could you give us some more color on margins in that segment.
You know the 14% market level. This quarter, we should we think of this is kind of but a new florist segment going forward.
There's some benefits that that helped you in the core.
No it really wasn't any real onetime benefits. If there was any now that it can be variable it would be in our diagnostic tools.
They have large order flows from customers and some of them. Most orders are more profitable and others. They did have some unfavorable mix. In addition to their productivity measures. They put in place, but I do believe mid teens going going forward is something we should be expecting from this segment. All three parts of that segment zones genomics division as wells are diagnostic.
Tools had expanding margins year over year.
As you know we've been waiting many many years to get back into this next and that's when working out now so.
Before I arrived and gets a nine years ago. They lost a big losses here with them and it was IP involved into that IP is expired all this past year, and so where where after it and thereafter with us and.
We're growing that account, which is one of the biggest accounts in the world in this area for for controls and then the pipelines full of others as well. So this division's never never in my mind never look better in terms of a potential evening out in lowering the girls and Jay Let me is the Jim again, let me just clarify that my statement I'd say on a normalized basis going forward that should be the four we should expect going for.
For Q4, I. Unfortunately, do believe will be an exception to that just because of the volume drop off is going to be some just getting both segments. We believe at this point in time.
I think big takeaway that we're hoping for more of a V versus a longstanding you here. Okay recovery. So it's it's yeah, we got all watch there.
Level resurgence in the feasible lockdowns come off if fatigue does really take over in states open up and labs reopen under may be under new ways to work and stuff you know, we're going to get lot more business quickly and we'll just have to watch and see what happens with the virus. After that so hopefully these antiviral come on strong as they look like they are.
Reached a new is now in the in on a year from now on people know that is a vaccine myth that possibly can help. Thank it will take an extra year for people to trust the vaccine but.
No, it's a year out to be back to normal and business, but I think we've got new stuff coming and layers on top but I think also the added investment into research already being talked about is going to we're going to get a bunch of that we're going to after I mean, there's no way for us not to were just too much everywhere.
That's very helpful and in fact, you touched on digital marketing efforts couple of times. It sounds like that they've helped US is cobot environment. How is the effort are progressing to implement that on Europe.
Well you Saar great results on Opex. This quarter here is only one area, where overspent [laughter] that area. So we keep doing a lot of data analytics and seeing what we're getting for our digital investments and we continue to get more than 10 to $110 to one on an investment in basically in in revenue.
So every dollar we invest in the digital platform, we're getting back 10 or better in revenue. So I've told the team keep doing it keep spending keep buying Edwards keep working as COO keep getting.
Into our customers, you know laptops, and and computer environments as they're searching and its can lead to more business and it's so far working.
Just as important in Europe. It is the U.S. I think Asia little different what much more a local.
Local language involve there, but we're also expanding now in Europe to make sure we have a German version of everything we're doing as well as the others and that's also going to help.
And that's really days for that but that's that's more upside I think.
Our next question comes from the line of Patrick Donnelly with Citi. Please proceed with your question.
Great. Thanks for taking the question guys, maybe just on the island, telling quarter did you see any pull forward activity on the consumable side, just fit labs preparing for potential supply chain disruptions actually results getting a pretty solidly just trying to figure out.
Onetime portfolio stocking.
There may have been a little bit in January in China, getting ahead of things, but there was probably more for the new year than it was [laughter] see may add the pandemic coming.
I don't think we've seen their talked about any of that.
Not noticed any no I think.
If we are looking at a V here not a you I do think that we'll have a quick snap back and they all of those order for instance won't go away, but you know if.
If labs are shut down all year than I think I think there is a bigger impact on on larger orders and capital investments like that but.
Right now, we don't see it to be honest.
Okay, and then the kind of a V. You're talking about you broadly expect not across the markets are you feeling like each end market could be a little bit front in terms of labs getting back on line.
The ability to order right away.
Yeah, Biopharmas is a steeper v. clearly, but we have less lab shut down their all working at least partially right near all did I hear what else are staged in shifting so there is little less activity, but they're all open academic he is going to be up as they come on so it's going to be slower and it's going to be University. The University state by state we were we.
Got very extensive plans out with all our sights of how we reopened how we work with locally with within their states Interstate guidelines, which are going to be all over the map issue realized so.
Our next question comes from the line of Paul Knight with Janney Montgomery Scott. Please proceed with your question.
Hey, Chuck are you seeing the.
Start of any stimulus like the NIH is getting a billion and a half are you seeing that in the discussions with those clients or customers academically or and window. When do you expect it to hit if you do see those monies starting to develop.
I think it's early on me like everybody else, we buy the research to know where the grant money is going and so we'll be chasing that like everybody else, but as you know we sell everywhere. So we're going to get our fared our piece of it and we talked.
In the last 234 years, it's been roughly a six to seven 8% kind of increase annually and NIH been it's been good times for the last few years right and we've talked about that adding a point to our organic growth because of that so you can do the math yourself, but if we have this kind of influx you know I think you can go along those kinds of.
Those kinds of ratio was I think and yes, we're going to be involved in yes, we're going to get a piece of it in the <unk>, but I do think it's still early.
Do you think that been with your protein simple what platform that you know where are we with a customer penetration and do you think in I guess this shutdown period that people will come back.
And maybe ramp up there their transition to protein simple faster I mean deliver a possibility that but the first question really is your penetration now versus traditional western blot. So and can you think you can pick it up when the I'm kind of plan the operations a little time, while it is quite period.
Yeah. The only reason that platform was was down was because they're truly half in academia. So.
We're still under 15% penetrated we think so I have one things are all back on line I think we're back to double digit growth without and it's been consistent I think you to remain consistent biologics has been I really nice.
Come around here and we we talked about a couple of quarters ago, they're being more more interest in using the platform.
LNG in therapy, and you know in QC related activity and that's happening and it's happening everywhere, including Europe. So that's pretty good to see and that we have a higher we have a higher penetration.
Obviously, I mean, we're not the only game in town you know going after biologics right. So and then simple plex is.
Now there's lots of different flavors of doing multiplexing type of.
Assays ours of course is.
Highly sensitive very fast big because its microfluidic.
It's one a few platforms that can do a panel in the interim hour and give you really good results for some the of problem like the cytokine storm problem.
Our current a wheel OCA quantum trucks into a hospital as easily.
So you know, we're winning all that business because of the ease of use the the fast speed of the results. It's the size of a red box very reasonable on price and a pretty big menu for panels and the ability for us to make custom panel for anybody very quickly.
So, it's all about making those cartridges and be able to scale up those panels into.
That that business has been there has been a rocket ride the last couple of years analysis from this quarter on we can't make enough. So.
Well fee.
You know big a big drawbacks, it's always been that you know, it's still a research type into instrument and we've never really geared up for you know for for diagnostics in the for being at the patient be clinical but now that is changing and people are doing that for us because it works development there. They just they want it so they're doing it.
He is a good example, so.
Our final question comes from the line of Alex Nowak with Craig Hallum. Please proceed with your question.
Greg Good morning, everyone. Chuck recall quoted you had some challenges in Europe, just ignoring focused right now where are you at with rework in that business and would you expect into three quarters coming out to covert that geography could be back a double digit growth.
Great question.
Pre covered we are ready to talk about the the nice recovery in Europe, which was on track and especially in biologics and and is this hit and you know Europe is just shut down at their even on vacation today. So after all this so so.
It is what it is.
We have made changes I think I made those comments even last quarter. So we're early on the changes commercial you made them and in I'm I'm hopeful we're just not that big yet in Europe. There things, we can do and recoveries going to happen there on that on the execution front and then.
Yeah and allow the opportunities Italy's example.
Now to cut a lot of a lot of growth lot of we're going in Italy, especially when they exhaustive their eye health care system. They needed testing. So you know Lf platform is perfect for that because they can measure it can measure analytes that spike early in the in the cycle. So you know if theres a lot opportunity there and we'll get more and that's what we'll see.
Probably next quarter in the quarter after if our our decisions bear fruit or not but.
They were starting to go through February so.
Okay understood and then private companies are having some hard time finding access to capital. During this time that might mean, some better valuations on the private side. So should we expect a biotech needs to be a bit more aggressive with M&A over the next several months to several quarters.
We're always looking for a deal Alex so.
I'm, we're always hunting, we're working on some right now they're smaller, but theyre <unk> theyre good ones.
We'll see I expect some things to get cheaper. After all this is kind of done there's some denial of at least the system, but we'll see.
We have reached the end of the question and answer session I would now like to turn the floor back over to management for closing comments.
Well. Thanks, Thanks, everybody for for coming on line again, I want to thank all our employees and partners that was yes. We've never worked harder [laughter] I can tell you that and we've got great great team in place that all come with great resumes they know how to work through crisis like this.
We are doing all the right things.
We're working very ethically as well, we're trying to solve these problems and help as much as we are trying to make new business. So.
Look forward to a you know to a better quarter in a quarter out this quarter will feel it how it turns out.
It's a wide range would everyone's given a wide range and.
Thank you know the drill there so everyone to stay safe and.
And we'll do the best mechanical talking next quarter Bye.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines. This time. Thank you for your participation and have a wonderful day.