Q2 2020 Quanterix Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the quite sure Ics Corporation Q2, 2020 earnings call. At this time all participants are in listen only mode. Later, if you look I'm just a question and answer session and instructions will follow but that's fine.
No one should of course assistance during the conference. Please press Star then zero on your touched on telephone I wouldn't like to turn the conference Oh, but your house, what's your amongst your boss. Please go ahead.
Thank you great.
Good afternoon, everyone and thanks for joining us today.
On today's call is given those all ski our chairman and CEO.
Before we begin I would like to remind you about few things today's call will be recorded and we'd be available on the investor resources section Affordable site. Today's call will contain forward looking statements about based on management's beliefs and assumptions and on information available as of today. It off this calls.
You may not actually achieve the plans intentions or expectations disclosed in our forward looking statements.
Forward looking statements involve known and unknown risks uncertainties assumptions and other factors that may cause actual results performance or achievements to be materially different from any future results performance or achievements expressed or implied by the forward looking statements.
Risks and uncertainties that we face I've described in our most recent filings with the Securities and Exchange Commission. During today's conference call. Let me discuss some financial measures, but I'm not presented in accordance with U.S. generally accepted accounting principles or non-GAAP financial measures in the Q2, well it makes it easy and in the appendix.
So far presentation, which had a we live on our website you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to compared to GAAP measures. We believe that these non-GAAP financial measures for white investors, we probably wouldn't be there to Peter comparisons will follow patients. These.
Financial measures I'm, not looking makes under GAAP.
Should not be considered you Mike solution or as a substitute for them make sure it all financial performance.
Buried in accordance with got with Dod I was done the called over to Kevin.
Great. Thank you very much a ball and appreciate everybody joining us for this important conference call of our Q1.
You too results first half results the.
Slide three shows an agenda I will discuss the vision and strategy, both the executional side of our business as well as he aspirationally value creation side.
Talk through first half strategic advances and highlights as wallets some of the second half growth and strategic catalysts that we feel will be highly productive for investors as well as for our customers.
We also then we'll follow up a mall would describe and provide more details on the financial report then we'll open it up for culinary Arts.
On slide four since the slide reviews in the past, but it shows.
I'll be evolution on the left hand side of this excludes it sensitivities occurred for digital Biomarkers that quite church has.
Disruptively advanced over the past 10 years, starting you can see back in to 70 range. There was nanograms per ml levels of sensitivity and then through that the last I'd say 20 years.
Then that's picograms per ml capability that.
Several to customers companies on the left hand side, we're able to achieve on the right you can see Siemens Roche now but have utilized these technologies.
Sure immuno assay to the license in the diagnostic industry. It's about 200 approved proteins today, but there is probably around 1300 proteins that are research. The men are you all markets on the left but the real breakthrough came when quantifying it started to advance by a thousand ex since 2014.
Another thousand exits attempts or grams per ml, and we believe that I'm walks the potential to see as many as to over 10000 proteins and research markets that could lead to as many as a thousand proteins and I'd be Mark. These are all estimates, but we also just announced about two months ago that we've also achieved a 100 X.
Greater sensitivity beyond the thousand actual this is really continuing to allow our technology to advancing on the right hand side you can see the vision that we've been able to achieve utilizing this excludes it sensitivity and the real promise is to go from late invasive sampling, whether it be biopsies or cerebral spine.
It'll flow chaps.
Go from those very intensive or even imaging invasive samples to really noninvasive blood sample saliva yarn and allow you to see disease earlier with the less invasive sample and you can see that those two combined dimensions earlier and noninvasive allow we think a breakthrough in medicine.
This slide.
We now have a slide five just showcases you can see on the X axis the stage of detection of disease and the later you detected disease typically the hardest to treat so late invention leads typically to very bad inexpensive outcomes and cancer neurology or the latest many.
At times to be detected in that creates a lot of class in the health care expenditure.
The next actually scope the red in the blue boxes down below the axis. That's the level detection, just illustratively of our technology and the key here is that if you want to see busy earlier the protein concentration is going to be much lower when the disease. It's very early stage base.
Slide levels, when you're healthy are the lowest level of proteins and that's typically a level that most technologies today cannot measure and then as you get.
The concentration of those disease Biomarkers increases in today's technology and Red can see on but this is late stage then on the left hand accesses the invasiveness. The the Y axis you could see the same phenomena. When you have a very intense invasive sample you have very high concentration departing but if its a.
Very low invasive like blood slide return the concentrations much lower so the key here is the blue boxes is what some more enables allows us to reach into earlier stage detection with less invasive sampling and you can see the number of third party peer reviewed publications now that are showcasing our ability.
To do some cancers clearly neurology has become one of the big focus areas. The teams it sometimes to see the disease and the cerebral spinal fluid, but it's a very and base of samples unit blood with correlations is what we've been able to do now there's a lot of publications, leaving so many drugs being tested using these biomarkers and one of them.
Newer areas that were really reviving we do a lot of work of HIV, but felt the bottom infectious disease and you can see the kroner buyers. There's a lot of publications down our ability to see this krona virus.
As well as infectious diseases earlier.
This next slides pretty important we've been showed us for the last six months on the left hand side is what we car research market, which is primarily a low risk high growth.
Opportunity, we're execution is Paramount and we believe there is a good two to three extra value creation here and lot of what we're doing as catalyzing drug development by being able to allow our pharma customers to recruit patients using our technology in earlier in the disease cycle using these biomarkers and.
When you can recruiting and lessen basically earlier it gives the drug it better chance of being efficacious and had a lower dose which reduces its toxicity and so the pipeline. It's very rich we've been validating this technology, we've been funding a lot of our company with.
Nearly 300 million of of raises over the last five years since since I've joined rebel a very experienced management team board in our founder founded Illumina as well as Kwan Keryx as well as many other companies and so for past six months, we've been talking about staying focused on neuro, but then also having a CAC pivot which.
Fans for coated accelerator in China, and we've made great advances in all of those areas leveraging this ecosystem culp hiring precision health care wells that allows us to quickly commercialize our technologies and you heard neuro.
You're going to here, we're making advances in NFL and now P. child as well as the H. Dx for those those different biomarkers and co. Good we're looking at both antibody as well as antigen testing as well as the a native immune system and that we can even see NFL roedl Def starting to occur.
In covert patients and so we've got researchers third party researchers now that are measuring accidental death and covert patients from the cold virus hurting the neurons and we can see it and blood again accelerator, we've used to really grow our business during the last quarter too.
We expanded a prior to the cobot pandemic, but now we secured a large payer group one of the largest in the world to do major population studies inside of this accelerator. We also are announcing today. In addition to that March peer group contract everyone. We're also announcing that we wanted the NIH Rad ex probe.
Graham first work plan, one and we're in the.
We've been notified that we've won the award and so we're now working in that we're playing one and we've also secured some major pharma deals.
Relative to the Biomarkers, good news, particularly in neuro and continue to evolve the NFL in the potential for companion diagnostics and we're building our China channel aggressively. So let's go back five years, we really didnt have revenue and this past year. We had 57 million. We've raised as we mentioned this level in our valuation has.
Continue to increase.
Today, it's roughly at these levels of value in our outlook, we believe a solid goodness research market, we got about 10% penetration, but on the right hand side is aspirationally side and interestingly, we think co. Good and this crisis as we've mobilized our company to try to help fight this crisis and get the world back.
On its feet with better testing, we actually think it's further showcased the brilliance in the capabilities of our Samoa technology as you know two years ago, almost two years ago, we redeemed our rights to go back in two IDBD. We had sold the exclusive rights to be owner, you, but weve retained goes back and.
Since then we've been advancing our CRM NFL offer MMS and for brain health and we've always felt that there's potential for an Ivy the partnership to replace deal Mary you and we bought Oman and Weve subsequently license to mind the NFL.
Antibodies for a future IBT test for mass and other.
Brain function test that.
Siemens is interested in so we think our debt our diagnostic strategy games validation and whats helping to see the potential cobot. We mentioned the NIH Grant we won in the momentum of exposure to the NIH. So they can see now what our technologies can do this large paired group studies that really are based on fingerprint getting.
And capillary blood, we're pretty excited about the infrastructure being build out to support that peer group studies and building out the capability because we think it's a key opportunity and franchise that our sensitivity enables has the ability to get an answer from a very small sample and then in neuro, we continue to have opportunities to evolve into.
Drug trials and you might as saw in the front page New York times, the discussions around PCTEL, creating a lot of excitement for a blood test that could maybe screen for all cibers and in that particular article they are talking about senior and also numbers maybe as much as 20 years before dementia and then the NFL also is playing a role in both.
Alzheimer's disease, as well as MMS drug trials, and the validation and normalcy studies or continue to evolve as well for NFL, allowing us to further pursue FDIC sanctioning of that technology, particularly in a single site LD T lab, we also.
Solid drugs get approved using NFL roche's Novartis, both had phase three trials and drug approvals and that's a pretty important breakthrough for demonstrating the value of our NFL. We'll show you about more in a moment, but no. We do think theres potential modeling for the partnerships that we mentioned in Ivy, but also working.
To license the PCTEL antibodies for some of these newer.
Opportunities to see Alzheimer's and blood and we think its game changing this is a slide Weve also shown left again is execution. We've added in your co bid, which we think co big markets in research or about a 200 million dollar market opportunity and then you can see we moved that across to the right and if you add co bid and what's been going on and.
Cobra diagnostics, we now think that the the overall tam opportunity longer term when we'd look over and the diagnostics the approachable market here.
The opportunity for Tim can actually dropped from 40 to 55 billion. So we continue to see a lot of positive movement and you can see the dispersion of our technologies and where we're deploying them in this build out and you can also see our penetration in neurology is less than 10% and we intend to the drilling.
On college.
So first half, but lot of those oncology labs shifted over became covered lives. So it's actually allowed us to showcase our ability to measure the immune system.
With our technologies, which have been very productive.
This next slide just walks through covert neural platforms are some pretty important advances here small potentially is holding that seems to some high definition testing in the Cobrand world, We're going to talk more about that we also see it as an attractive entry point to precision health and vision with this large payer contract that we won in the low.
Asked a couple of months game changing home based antigen test and blood.
Began.
That is a major opportunity with the NIH Red seeds ability study that we also won and are currently doing work on and then we.
One a lot of large accelerator deals with strong growth occurring in the first half and that second neuro area as we show compelling neuro toolbox continues to evolve we launched to tell when did you one we launched the four plex, we're working on.
Tell to 13, so it's been large drug studies also for all Cibers and then best that we are seeing in the outlook, which is a very big opportunity for us NFL PCTEL. So it's getting more validated and its clinical potential is beginning to be more ascribed as these publications continue to amass.
And we've also seen these drug approvals that we mentioned, which we think is pretty exciting and then on the platform itself forget the 100 ex sensitivity, we've got the licenses with Siemens and there's more interested.
For NFL as well as we think there's potential for small license more broadly with an Ivy partner and then aged H. Dx is delivering on the promise that we said around increased reliability at our current precision health Syndicate continues to grow with many webinars and.
Different levels of communications coming from these Kale wells.
Podcast, helping the world see the way our technologies can disrupt this next slide just shows that Theres a lot of different technologies that have been approved for co bid and virus and an antibody and there's a lot of challenges still as we see in many of the publications around those technologies and so this this next slide you'll.
Substrates that.
Those barriers of basic testing would you have to use ppt to take the nasal swab. This is evidence of some false positives and negatives due to sample collection challenges.
Mix that somewhat unreliable the lack of quantitation low throughput high cost many of those barriers.
Have the potential to be moved positively by or similar solutions and that's what we're currently working towards it was great to see the NIH validation of that as well as United Health Group validation.
And this slide was been use over the past six months as well with many of the seminars we've had.
Workovers you can see you know the early interferon innate immune response to the antigen, which is in fact, the virus, which sits in the center. Then you can see the peaks of the adaptive antibodies, which the ciraulo Jay on the radiant side and our initial.
Quality into this with the NIH is looking at this high sensitivity antigen. We also are working towards the high definition serology capability from an argue ofer vaccine producers and then innate immune system, we've already seen a lot of stratification for cytokine storm using our technology with many researchers in Ohio.
Zones, and we mentioned the NFL being looked at for measuring the impact of co bid on the brain and number five is really the ability potentially to look at all of these areas simultaneously. If you could do the testing in the samples to kind of get a much better picture, we're starting to see some publications from some of our cable.
Wells in the PPH ecosystem using DHX.
Showcasing different types of testing that they're able to achieve and we think that comprehensive testing is going to be needed to really understand what's going on with this virus. When it when do you have immunity how long would that immunity last what did you have reinfection is a lot of deep questions that need we think better technologies and testing.
To answer this is just a summary of all the different companies. An example of all the companies in our PPH ecosystem better deploying our technology and helping US further advance it and this is just the slide to discussed we think a breakthrough in this past couple of months. When we signed this contract minimum of a million dollars of population studies with a well.
The largest payers in the United States are in the World, We think teaming up directly with the payers who are really trying to create outcomes and then utilizing this quite terex vision, where you can see disease earlier lesson basically and potentially with home sampling leads to this partnership opportunity, where we've already signed one.
On track, but we see on the left hand side, there's millions of members and these paired groups and their goal is improved outcomes as is our goal and finding the biomarkers that enable that and then having the drugs available when the biomarkers reveal early detection those are the key components in the slide further illustrates across all of these different.
Areas, we've got Biomarkers today that we can start to deploy and we're starting that out and cobot, but longer term, we think that even four areas, where there is top disease costs, where there was not biomarkers. We think discovery working with these paired groups could lead to further advances and that biomarker menu to enable this kind of.
Visionary opportunity for baseline assessments in early detection.
Wanted to show in the area of coal good.
The breakthrough of doing fingerprints, we think allows home sampling eliminates a lot of this challenge that healthcare workers have weren't ERP to do these nasal harpoons to try to get the infection audit and you can see that there's.
On the right a lot of challenges with false negatives and positives and and work exposure that have been evidenced in publications and we're trying to try to use our technologies to see if we can create a breakthrough by seeing the virus and the antibodies in blood, which we think particularly the buyers could be a major improvement.
Sample testing and its ability to be scaled less worker healthcare worker exposure more convenient lower cost. We think the supply chain is also somewhat distinct. This is a couple publications one of those date back to 2004, where they are able to see Sars, one pretty productively and blood and now we've got a game.
Changing.
Publication, that's a hasn't been published yet, but it's it's been issued for preliminary review and that made it public where they're able to see antigen in blood approximately 60% of the time. So we're pretty excited about the ability now that some sars coca to using the similar technology and blood.
Potential that that could have for advancing the research markets as well as some day, maybe even the diagnostic markets and these are opportunities. We think if you did drive blood spots you could then courier them into different laboratories centralized laboratories that currently are able to do a lot of testing and within a $75.
Most of these current reference labs, you can probably get to half the population of the United States. So we're looking at these different avenues and our work with the NIH as we try to build this out. This is an interesting publication just came out the journal neurology, where you see a lot of symptoms of losses smell taste headaches insomnia COGNA.
And again, they are now showing direct correlation to the symptoms with our NFL in blood. So this is going to enable not only short term.
Exploration around these issues with accidental damage from that the krona buyers, but more importantly, what's the longer term impact there's a lot of individual saying they didnt have really symptoms, but theyre now have a neurological symptoms and brain fog and so we think our NFL can play an interesting role there and then just going full fledged into the the neural.
Algae side of this these are these products that the top three that we've already launched and PCTEL to 17 is something we have under work and this is that New York Times article Amazing isn't it long sought blood test for Alzheimer's Enbridge and so our technology, the NFL and the PCTEL total in the 181 worst showcase there, but we.
Also have a lot of worked out that we're doing in the 217 area and believe that that's a big area for our future as we got the greatest sensitivity to see these biomarkers and blood and then finally in this area of diagnostics I just wanted to further iterate good possibility and promise to further advance the IBT markets and we've been really.
The establishing a lot of validation in are you all markets and you can see here there are four top players in IDBD.
That make up probably two thirds roughly of the revenue and those companies typically have a core labs in a point of care position, they're stable growing their attractive markets, but the got high barriers to entry very expensive and so since we recaptured our rights and we've been able to prove all eight of these check marks on the versatility of our technology, we think.
That the advances we've made with this large paired group NIH Rad ex program the major pharma advances with NFL PCTEL and all the publications that we've been able to validate Simone are you all markets. We pick it opens the door now better than ever before for a win win opportunity for an IBT partner relationship to mitigate some of the risk.
Created the upside of their ability to penetrate those ivy markets. So relative now to Q2, specifically I wanted to show that the publications now are approaching 903rd party peer reviewed publications you could see 500 of them are in neurology.
And you can see the number of Biomarkers in the second category. Those are what's fueling our growth and you can see the accelerator growth. We almost have had year to date revenue almost equal to what we had all of last year. So we're making good progress and continue to want to grow the accelerator with with a lot of.
Opportunity and projects, particularly when many of these labs are shut down out there and DHX, it's being Revalidated, we felt that the.
The consumables, we knew that they're going to be a little bit off when we had the revalidation of HD X, but we'll see pandemic kidding, we've been able to really keep a lot consumable flow doesnt shoppers consumables, but through our accelerator and that's been key for us. During this up pandemic time and you can see the the number of instrument placement.
This has been pretty significant for the first half of the year and and our total revenue.
Larry Route 29 million for the year and then if you looked at the specifics and you'll hear more from a mall on this while we knew that we would have.
Off first half due to some of the H. Dx revalidation the pandemic hit as hard primarily in Q2, but theres a lot of strength in our business, particularly in June as we continue to then evolve into the second half of the year with a lot of growth catalyst as we mentioned those major contracts that we were able to get.
Approved in the latter part of Q2 and so.
Instruments, you can see the growth was 2% consumables minus 34 and lab services was plus 33 first half year lab services other services, plus 60 minus 17 and.
Seven and we're going to see we think in the second half a resurgence of many of these pieces of our business as we're already seeing evidence that's assuming that the krona fires doesn't have a major secondary relapse and economic issue on our customers right now most of them have been open back up this graph just.
Shows the the demographics on slide 22 of how our business is currently stacked up and you can see that North America grew 27% Europe and Asia is growing faster.
This is the last 12 months average you can see our customer groups of pharma biotech is growing.
Around 30% academia little bit faster, because we've launched products to further cater to them and then in the disease categories. You can see neurology does overwhelmed, but we are evolving our oncology position co. Good Walsall play a role moving forward because our three products.
Dx SRX SPX, we've already discussed kind of at year end, where we think will be we feel still really drilled about the targets that we said beginning year for HD action, both trade ins and new sales and the SRX has been very hot.
120, plus installed in 2019, and we're off to a very fast start very strong quarter in Q2 as well we don't provide granularity on those numbers, but was a very strong quarter and that same with SPX and.
And then you can see our plate bead assays that we have in the accelerator itself working towards play and LDC capability by year end. This flat slide shows all the companies that are currently utilizing our technology for.
Primarily drug approval research as well as diagnostic longer term research, improving both efficacy and toxicity with the 300% improvement and overall probability of a drug getting approved in the phase three if.
Use our technology after phase one are starting at a phase one this probability improvement by lowering toxicity, increasing efficacy has really been the driver of our growth on the left hand side for the execution and all of those companies now presenting at PPH and further validating the ability to use that that re.
Search markets has allowed us to can keep evolving our business and you can see that number CR owes now that are using our technology and we've actually completed 118 major phase 123 trials and quantify since we started running them and accelerator key to this as we've mentioned before is that the FDA.
Has really sanctioned new biomarkers, particularly for neurology, because they see a lot of neuro health as a national priority given the co. Good long term impairment veterans posttraumatic stress disorder. The opioid addiction, the rapid ramp an all time or patients over the next 50 years and then many of the mental issue the cost burden is.
Ordinary so drug makers have been looking for objective Biomarkers and we really broke through NMS first and now we're starting to migrate into all dimers, which is really exciting and that's the rapid adoption you can see number two of those markers and then area of NFL you can see we've had a very rapid ramp and publications 42.
And mess publications and try and clinical trials and then also branches into all Simers.
Yes, Parkinson's so NFL has really been a big winner and this is the two drugs. We mentioned earlier that utilized our technologies either as a surrogate secondary endpoint or primary.
You can see that these drugs are being approved this year and without the NFL. It would have been hard to gotten them approved as quickly and this year coming up in extra comes on slide 29, we're actually going to be showcasing this study, which is the normal says study for NFL is a key to advancing our clinical van.
In addition, with the FDA, there's going to be a lot of fanfare lot of our customers. We presented data at extremes around this study in many other studies using NFL and slide 30, you can see we are just continuing on our roadmap to build our neuro based the bio markers on the left hand side you can see there are a lot of neuro tool kits and this.
Cerebral spinal fluid, but thats, a very expensive invasive and really.
Somewhat dangerous.
Sampling technique and across all these different diseases on the right hand side you can see now the ones. We can do in blood and we're continuing to Mount our advances and Peter how is the most recent category, where a lot of our future growth over the next I'd say six quarters, you're going to see a nice spicing RP child with the launch as a 181 and eventually to 13.
So in summary, I would say on the left hand side. The execution continues to flow of with neuro plus the CAC pivot.
On the right hand side or aspiration will opportunity continues to accelerate given what we're seeing happening with covidien with our neuro panels advancing in the clinic with many of the drugs. So we would like to summarize we have a category changing defining sensitivity and technology. This market is evolving into a larger tamar.
Tony We think we've got tremendous validation 19 of top 20 pharma is we have all of those publications and now close to 900 of them and all the drug trials nearly 1000 album. So this is key to our continued involvement we've invested heavily in there and the growth of our products. So that we can have a razor razorblade approach.
And we're seeing solid returns of from this growth and we do think there was a good commercialization track record with this group that we have so now with that overall summary, a mall I would like to turn over to you. If we could been talk more specifically around the Q2 financials.
Thanks, Kevin.
Im going to provide some additional financial details of our Q2 2020 performance I would be to putting to slight coca too.
As Kevin noted revenue in Q2 of Twentytwenty was 13.1 million on was impacted by ongoing quoted 19 pandemic.
As Steve said of assisting maximized opportunities to safely gain access and installed instruments at customer sites diluting 2.8 million instrument revenue inline with prior to year despite axis challenges.
As anticipated consumables revenue was impacted by customer facing interruptions in that operations due to cope with 19 and finished at $4 million, 34% lower than prior year.
We had proactively expanded on excavator solutions capacity to support our customers sustain that would be sufficient clinical trials.
Just drove 33% increasing our services revenue, which finished at 6.3 million and also limited the group revenue decreased to minus 3%.
Yields debate total revenues of 28.9 million.
12% increase.
As stated previously we're not providing revenue guidance.
On a non-GAAP basis Q2 gross margin was 44.1% what's society of to cross promotion of 51.2% to 20 to 20 gross margin also includes 364 basis points negative impact from our successful HD one fleet in program.
300 basis points adverse impact from lower cost absorption due to lower consumable revenue our non-GAAP gross margin excludes the impact of noncash acquisition related purchase accounting adjustments related to acquisition of mom in 2019 and provides investors with their lewin beat it to beat it comparison.
A final patients.
On a GAAP basis up to gross margin was 39.7%. What's this priority of to cross promotion of 51.2%. We believe me how a significant portion of people gross margin expansion in the future as we evolve the mix towards high margin consumables IMAX legal services scale out all the business.
And to reduce product cost.
Operating expenses totaling 17.4 million in Q2 Twentytwenty use of cash in Q2 was a district decreased 7.6 million coop proactive working capital measures. The balance sheet is in good shape as of June thirtyth with approximately 89 million in unrestricted cash.
Did I would add shifts outstanding for EPS.
28.3 million for Q2 Twentytwenty Peter.
Well what ought to be at least we go to 2020 performance and progress made on our strategic priorities. We remain focused on the coding to up strong growth trajectory in the second half of the year. Despite the continued challenges brought on by the could on our lightest pandemic with that I will turn the call back to Kevin.
Thank you very much appreciate that of the mall and we'd like to now open it up for questions.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then the number one on your touched on top.
Dan that's tied them the number one key I touched on top.
Your first question comes from Dryness, Dod Shankar from Cowen Your line is open.
Hey, this is Chris on for Doug. Thanks for taking my questions. Kevin just to start on accelerate area that was it really impressive performance can you just give us a bit more detail on where the incremental demand is coming from I ask because I'm curious if these customers and you just snow and therefore, there can be opportunity to sell assistance.
These customers down the road.
Yeah, Great question.
Chris I would I would say that there was a couple of dimensions that are encouraging about the accelerator revenue.
One of the dimensions is that we saw a lot pick up and the planar.
What we would call the 10 Plex Corplex technology looking at a lot of cited kinds and as you know the immune system essential the inflammatory pathways and pathology are central to most diseases.
So we had some pretty important breakthrough customers come in and run some of those trials with this newer technology that we all always know that.
What we do an accelerator today helps us in our product sales tomorrow. So we were very encouraged to see.
That newer technology being deployed and those immune opportunities and so that would be one area. Another area that we certainly are seeing some evidence of opportunity is in the the cobot area and infectious disease, we're certainly seeing impacts impact.
Summer labs.
Either had our technology or didnt habit, but because we expanded and we're prepared for.
Running on behalf of customers, it's given us an opportunity to showcase our technology to a new group of customers as well as.
Those are already owner technology and so.
Those as well, we're very productive for our advancement I think the two major contracts that didnt really have a lot of revenue recognition as yet but are.
Looking very good for our future would be this.
Large payer group, a multi national diversified healthcare payer group for them to see and be able to team up with this vision of of home care sampling as than doing b.
Testing in our and our laboratories. We felt this is a breakthrough and this is a minimum of 1 million dollar contract. So we think it's this going to allow us to keep showcasing how biomarkers can play a role and significantly changing to the cost structure and the outcomes by seeing disease long before symptoms less.
Invasively and then secondarily having NIH.
Notify us that we've won this.
Work plan, one feasibility study for developing an antigen test. We think this also is giving us great momentum in our accelerator lab to showcase a lot of our capability and then theres been some large pharmas as well that I mentioned to further continue there there are some retro.
Respective testing some of it pro.
Prospective.
Testing of neuro, primarily and then in this new area of immune with the the planar assets and the Corplex 10 Plex of cytokine. So hopefully that helps you Chris.
No that's great and.
Maybe trying to just obviously lots of exciting developments on both diagnostics and recent research side in both your press release in prepared remarks, I'm curious how this impacts your thinking.
And how does that impact your longer term revenue growth target, 30% to 40%.
Yes, interestingly that that growth target has been primarily a research.
Growth target and we still feel very.
Good about that and the more we've advanced the promise of what we're going to diagnostics as opposed to advancing purely diagnostics I would say that many of the advances were making can really showcased the promise of what we're going to be able to do in diagnostics and probably with more validation than we've ever seen.
It actually helps our research business because most of our pharma customers part of why they came to US was they felt there was a very strong path to the clinic and we're very committed to continue looking for an actual specific IBT partner as we mentioned was a goal going into this year as well as just can.
Continuing our own advancing and so our ability to to evolve into our own CLIA LDP lab by year end and provide actual patient samples is a capability that we think.
Really could be showcase within a fell if we can further advance NFL for invest for multiple sclerosis disease progression with the FDA that gives us a single site opportunity to advance that so no I would say that the 30% to 40% has never been.
Stronger in our minds relative to the long term growth prospects of the research, where we have very low levels of penetration into those markets and we're disrupting them very productively, but I do think we're starting to see the advancement of the diagnostic side that really would be over and above that but I would also call that longer term result.
Got a big contracts being signed today that validated but the longer term aspirational side of revenue growth probably takes a year or two before you start to see anything material there.
Understood and from my last question is 75 Ht access 75, as our action SPX systems still the right way to think about place sense for the full year.
I asked because.
Formats, we're certainly much more resilient than we had expected in Q2, and then I know you're not providing revenue guidance, but how should we thinking about the recovery trajectory from here I guess when do you anticipate returning to your historical revenue growth rate. Thank you.
Absolutely Chris.
I think that.
We provided.
What we thought the H. Dx.
It's going to be possible that roughly half of our aged GXS by year end.
We will be.
Our HTS will be HD exes.
Some of that about half of it it's coming from replacements of BHP ones and then that's the pure growth of of HD exits and.
The goals that we set at the beginning of the year.
Are really a onetime set and interestingly I would say that we would say that weve felt the first half has been a productive advance versus both are h. dx interests or ex goals as well as as us Brexit we didn't expect a large number of SPX is in 2020. So it's.
Permits have continue to flow and I think the strong accelerator growth is a very good indicator for future instrument and consumable growth. So we feel pretty good about that and as long as there's lot of major closing of labs I think we feel like we're going to be back into action.
Relative to our growth trajectory, we we are still projecting a strong second half we feel that we are starting to see a lot of good progress of lab openings. If they continue to open at the current page we feel comfortable that we will be by year end for sure back at this.
The level of growth that we projected longer term so the key will be.
No basically continuing to get labs opened and keep evolving our menu, particularly in neuro and I think that we're going to start seeing some productive positive tailwinds from co within the second half as well.
Awesome, Thanks for taking my questions.
Sure Chris.
Your next question comes from the line is panel so it sounds as if need be Leerink. Your line is open.
Yes, thanks, Kevin.
First question is I mean, the service accelerator business continued to do well. So just wanted to understand sustainability of that trend I mean, obviously, we're not.
You know seeing complete recovery across the country and.
Maybe you are actually Europe has recovered a little bit better. So maybe just give us a sense of.
How do you expect that business to continue to recover while the consumable sales and the installations recover on their trajectory. So just help us understand.
How should we look at services business.
Sure, Yes, the services business has.
You know really been a way for us to continue driving consumables, but as you know the consumables. The good consumed in the services business go onto that service revenue line.
So a portion a large portion of what goes through services is actually consumables.
No I would say that there's still a lot of certainty and many of our customer labs in many of them have continued to stay focused on co. Good as opposed to returning to.
The categories that they were originally most of the the labs that have turned into covert labs were cancer labs. So interestingly, we're seeing good productive visibility buyer oncology customers.
Co bid as a explore.
Using the H. Dx force or all the G indoor antigen testing and also the innate immune system as well as NFL. So we're actually been pretty encouraged by.
That development and we see opportunities as we mentioned in the second half for services to support those large population studies with one of the larger largest payer groups in the world.
And then getting data.
Can only further fulfill the opportunity for more testing in what's been interesting about some of that work is it's been done with our capillary fingerprints, where we're able to take a really small sample and maybe even a one microliter to 10 microliter sample and get an answer from it we dilute up and have sufficient sensitivity to still.
Good answers and that infrastructure enables a whole new paradigm of testing that I think will support and build upon our accelerator services for the next several years. So I'm actually very encouraged that the services have a lot of growth catalyst kind of being built into them for the sake.
Second half and potentially longer and again that translates into product sales on a longer term basis, which I think also bodes well and the non consumables. You know we had negative growth than in Q2, I think most people expected that it would be negative potentially in Q3 as well, but we'll see because.
A lot of these large pharma trials now are starting to gear backup for all Cibers and Theres a lot of interest in our technology as we mentioned because we're the only once it can really help them on invasively and blood have biomarkers that are objective for a category, where there's been no drugs approved and Andrew tandem Abbott Biogen is.
Now looking for approval this year, and we see Lilly and other companies really making advances.
Fast and furious and utilizing our technology. So I do think that the consumable pull through.
Independent of the services can also start to see a recovery in the second half.
Okay. That's that's very helpful.
On.
The academic and.
I know you covered some of this already but I just wanted to get a better picture.
Given the replacements that you did hear Fraced GXS and installed it can you give us a sense of.
How is academic.
Expected to recover for you and what's that any trends that.
Academic.
Access to the labs.
How is how is that doing in July and then on European side, I mean, do you expect any impacts in the European horizon budget.
The essentially was flat.
From from the last budget do you.
Do you expect any impact there or where your expectations for that budget to I think generally at expectations, where that but it is going to improve.
So with the benefits or price. So do you see any impact from that.
For the heat that last question was on the NIH budget.
It's the European Horizon budget of European Kingdom got it.
Got it so no I think in general academia.
Has been a smaller portion of our business and I think one of the things. We've done. This quarter is we've included the accelerator and the total revenue the company when we split out academics versus.
Pharma and we've seen a really strong pharma usage of the accelerator very strong concentration and Thats why you see more like.
60% pharma, 40% academics, but we do have products geared towards academics with the SPX and SRX. These are more recent launches that we feel very productive lower price points smaller size smaller footprint and so we do believe that the combination of.
The smaller footprint and also going into Asia, we believe that we're going to see more academic growth and thats really the publications come from.
You're right.
I would say a disproportionate of academic labs shut down versus pharma during the co. Good crisis and so some of those academics that switch over but many of them were shut down but we're starting to see lot of opening back up very interested in the h. Dx for covert trials and for co bid linkages to medical instead.
Solution. So many of these academic groups through have affiliations with the medical institutions that are really still trying to do research on Kogut and we have this panel of capability now for Kogan did I think we'll be will bode well for academics and the second half, but they don't you.
Lies the accelerator as much as they do buy products and so I think you got to a much better product distribution on academics and as a.
They start to return Thats going to create I think good instrument and consumable pull through I don't expect there'll be any impact at all to the horizons budget being flat in Europe, we have a lot of European funding Thats coming from many of the disease consortiums and so I think that in the area.
As of MMS and many of the neuro with extra rooms, coming up you're going to see up just a nice surge of funding and a lot of activity still in that that landscape. This through to the fact that there's a real need for drugs and neurology and we see.
Neurology being impacted.
But just in United States, but around the world and Kogut is partly due to that fatigue and the impact of cobot on patients longer term around the world whether it be the innate immune system fatigue, and the cytokine or the neuronal death in the longer term implications for mental health and for brain health all of these are areas.
I think we'll start to see funding coming from multiple sources in these countries as they try to get back on their feet and figure out how to sustain a healthy setting and each of their countries.
Thanks, and last clarification I just wanted to.
Sentencing, but you have worked so half of your.
The one replacements of HD excess of wondering.
How do you think the rest of the trajectory works out here and the duration of that how long would it take to replace the rest of the sort of installed base there and model. If you maybe can you clarify if that was to sort of occur over the next couple of quarters. How are you thinking about the gross margin impact.
Yes, maybe a mall I'll just the high level comment that we gave some goals out beginning the year night in this call mall felt that.
We're still pretty much feel good about most of those goals and so it might be good if you could just provide your clarity thinking around.
The overall each dx position.
Paul.
Sure So put it I mean for the remainder of the yard we do expect.
A lot of its Steve one lead in flux unities.
That is healthy demand for it and keep in mind, we launched this towards end of Q3 Q4 right.
In September October timeframe, especially in University fun bid situations, new budgets become available. So we will continue trade in program across Q3 in Q4, and we will continue to see gross margin impact commensurate with Q1 in Q2.
In the remainder of but as we discussed before it's a good problem to have because it creates a lot of consumables on you would be going forward and a much better customer enrollment.
And satisfaction with our product.
Okay Thats great. Thank you.
Thank you and your next question comes from the line of Maxim, especially from Canaccord Genuity. Your line is open.
Hi, Thanks for taking the questions.
Can we just diving deeper into the recent trends you've observed current your core neurology customers over the past month or so so in terms of trials in utilization picking back up is particularly with your your larger pharma customers and has coated 19 led to any major expansions from one therapeutic.
Area to another or an extension business with some of your top pharma customers.
Yes, so max.
I would say first of all the there is more excitement and I've seen in quite a while.
In the field of all Simers and the A. I see was held last week and I think there were 50 posters that showcase Samoa and there are lot of talks.
And I I think in general there's this belief that were on.
Brondeau dreary.
Important moment for Alzheimer's research with the Biogen, Andrew Canadamark baking the advances the that's made.
And then Lilly and others seemingly investing aggressively in many of these different areas. We're very encouraged by the work that they are doing and the way in which they are approaching.
Alzheimer's and feel that Biomarkers are becoming more important objective marker to help them with the FDA showcase efficacy and I think that historically.
Being able to try to reverse dementia once dementia has hit when it could take 20 years of pathology now being shown in many of these biomarker trials before dementia hits by the time it hits the ability for a drug to reverse that it's very difficult, it's like a raging force.
Pardon or try to put it out with a water done, but if you can get to these.
Pathologies evolves simers when it still looks like a match beyond what we've got a chance with a drug even at a lower dose to put it out and I think that that reality.
It's really beginning to take hold and I really apply BMS community as being the first shot on goal, whether 16 approved drugs and invest in and what do you have to it requires Max that you pro proved of the validation of a biomarker buys showcasing that on a currently appear.
Group drug and so and then mass where you had approved drugs. It was easy taken NFL show its.
So how the biomarker NFL comes down with an approved drug and then show its validation via that approved drug and then move it across that make it a secondary surrogate endpoint for a new drug in the area of all Simers, it's taken longer because there is no approved drugs and it's harder to show the validation around the technology.
And I think that these recent breakthroughs are being able to see correlative impact of imaging with measuring cups, Chow and blood. Those breakthroughs are starting to really do hope to many of the drug industry to new objective Biomarkers that will open.
Up a field of neurology and neuro.
The advances and agents that you couldn't get through without these biomarkers. So I'm very encouraged I see a lot of interest rate now by the large.
Farmers that have pipelines in this area and even some of the biotechs that are building parkison.
Agent.
Portfolios et cetera.
Even direct NFL disarm some of the smaller grinch groups, we see a lot of interest and those Biomarkers and then when you look at the field.
Oh, what coded gone to the world I think that the.
We're really probably only in about a third inning.
Because every day, we're learning new things about ways that the disease can be transmitted what's that mean to have immunity protection. So that you don't get reinfected and how long will that protection last.
T cell or b cells that are providing this and how to chart that didnt make it into the deck around vaccines in the fight in the race for vaccines and many of our customers are trying to get those vaccines approved and our ability with our testing to try to help them with end points on vaccines and even to recruit appropriate patients.
Looking at the innate immune system.
As well as the adaptive immune system and Surajit, we think all of these different questions haven't been answered yet and so what fields and what disease categories are going to be impacted I think it's early but we see like the large payer groups running trials like on Ace inhibitors, where they might have evidence through their music.
The people aren't Ace inhibitors bites show, a better prophylactic benefit from getting cold, but as an example, where we might see.
Some of these crack seems that we've seen for hepatitis being deployed as potential vaccines for colder than blocking the virus and then you're starting to see the than erodible impact of co bid and you see the strokes that are occurring and you see a lot of the immune system fatigue.
The current so what's the long term implication of cobot on patients is something that I think the pair groups are very concerned about.
Trying to do their own resorts, so they get underneath and understand kogut. So they can protect their members and be able to keep their life expectancy longer than those without these biomarker technologies and also the to deliver health care more efficiently and I think that leads to longer life expectancies and greater member.
We ship and I think it's going to happen across the heart, it's going to happen across our even think oncology because you're going to see relationships between fatigue immune systems, and what that might need to acquiring cancers, you might see it certainly in the whole aronow area and even future infectious disease, I think is going to be a category.
Because it's going to be the next Sars to common or we're going to be ready for it. So I think across the board you're seeing in a pretty interesting.
Moment, where diagnostics valuations could approach what a farm as valuations and if you can link diagnostics too early detection and then have the pharmaceutical agent with lesser.
Dose and toxicity actually prophylactically prevent the disease I think you're going to start to see the diagnostic increasing and drive some I'm pretty bullish right now on the role diagnostics is going to play across therapies and across this early detection and disease prevention.
Great and then have your coated 19 applications led to conversations with diagnostics companies are for types of diagnostics companies that you hadnt been interacting with much before the pandemic and how have the last few months changed how you think about the ideal way to enter the clinical diagnostic.
This market and maybe your ideal partner.
So I would say that.
One area that we've been getting a lot of imbalance is around home care sampling and this whole area of fingerprint or saliva testing.
And and exploiting samoas technologies for being able to have that exquisite sensitivity to see inside of those.
Sample matrices.
Disease early I think there are diagnostics point of care systems.
That have been very much a wait and by this promise and so we've got some inbounds occurring in that area I think the broader base.
The company because I showed on the one slide have also watch carefully as they've seen us make great advances with prepare.
Healthcare syndicates, because those payers syndicates are really trying to to create new outcomes.
And how they enter relate with their patients and surveillance of their health could lead to the next big breakthrough I think in the diagnostic category. So I do think that are advances with the payer groups couple of them with our advances within a age.
Further.
I'll say created interest by the large IDBD houses that would potentially want to deploy the sensitivity not only in their core labs, but in pointed care as well and so my view is that this is a great moment, where we've created so much validation of the Somo what technology with an overnight.
Nearly 903rd party pure pubs, all the farmers using it all that momentum in the.
Yes.
NFL and now with co bid I think we've lowered the risk.
For an Ivy house to deploy quite Terex with technology back when we did the deal marry your relationship which was an exclusive relationship.
100% exclusivity across all disease categories I do think that was premature for them to really had our technology validated and is it ends up we were more of a focus and oncology.
And I would say neurology than infectious disease at the time and so we really weren't that good of a fit but I do think that all of the large IBT houses I would say any of them and all of them have shown different capabilities to be able to use our technology become disruptive and so we think.
There is an interesting when when opportunity with no either one of them or or many of them in.
I think if you have a strong imaging position you would want to try to marry the bio markers that we can measure with image.
If you don't have a strong imaging position you might try to use the neuro panel to displace imaging. So I do think the different diagnostic houses whether or not to have imaging. We're not have implied impacted the way they think about the role in the disruption that these biomarkers can play and we're just.
Barry formally focus right now on NIH CDCF DJ these agencies better understanding our technology the more of that that advances couple of them with the payer groups. The more it validates and lowers the risk of a large IBT house utilizing the technology, that's where I think the when when comes and Max and so I don't.
No Theres, a particular player I would highlight it's being best they all seem to have a little bit different.
Demographics and potential impact in the way they would utilize.
Similar.
Great that's all for me.
Perfect snacks.
Thank you once again in order to ask a question. Please press Star then the number one and telephone keypad.
Im showing no further questions at this time I would like to turn the conference back for our chairman and CEO Mr., Kevin is asking for any closing remarks.
Thank you very much we really appreciate it we've gone a little over the the IR and we're very excited about the progress that we're making the world is definitely in a very tough space place right now both health wise and economically and we're trying to do everything we can we have an incredible group of employees the dedicated themselves and I've never.
Seeing like that over the last four five months they've worked most of them seven days a week across the board and really don't everything they tend to try to help and we just want to think of the investor base for all your support as we continue to do everything we can to help the world get back on its feet and we hope you stay safe and healthy thanks very much for lifting.
And we'll talk too soon bye bye.
Ladies and gentlemen. This concludes today's conference. Thank you all for joining them in August.
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