Q4 2019 Earnings Call
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Good morning, and welcome to the biotech <unk> earnings conference call for the fourth quarter of the fiscal year 2019. At this time all participants have been placed in a listen only mode.
And the call will be opened for questions. Following management's prepared remarks, I would now like to turn the call over to Mr., Jim Hippel Biotech Neis Chief Financial Officer. Please go ahead Sir.
Thank you good morning, and thank you for joining us on the call with me. This morning is Chuck Kummeth, Chief Executive Officer of Biotech me.
Before we begin let me briefly cover our safe Harbor statement.
Some of the comments made during this conference call, maybe considered forward looking statements, including beliefs and expectations about the company's future results.
The company's 10-K for fiscal year 2018 identify certain factors that could cause the companys actual results could differ materially from those projected in the forward looking statements made during this call.
The company does not undertake to update any forward looking statements as a result of any new information or future events or developments.
The 10-K as well as the company's other SEC 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.
Tables reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier. This morning on the biotech the corporation website at Www Dot biotech <unk> Dot com.
I'll now turn the call over to Chuck.
Thanks, Jim and good morning, everyone. Thanks for joining us for our fourth quarter conference call.
The fourth quarter to close out a record fiscal year for back technique, where we achieved an important milestone of double digit annual organic growth in fiscal 19.
10.5% to be exact.
This represents the first year of double digit organic growth come back technique and the kind of growth we strive to continue for many years to come.
In our fiscal Q4, we generated.
7% organic growth, which we expected would be lower than on our annual average due to the choppy order timing or a diagnostic OEM business as well as some tough year over year comps, we had in Europe region, but I'm pleased to report that our key growth platforms. The ones that have performed exceptionally well for us all year continued their strong performance in the fourth quarter.
These include antibodies Cassez cell and gene therapy simple western simple plex any city, all growing double digit for the quarter and the full year.
If you look at our performance by geography, let me start with Europe in Q4, Europe struggled to grow over last year due to a number of headwinds that face this quarter. How these headwinds were already significant on the wrong, but put together they presented a challenge for Europe to grow in the most recent quarter.
These headwinds included the year on year timing of a recurring significant big farm order the timing of Easter holiday this year versus last tough Q4 comp where they grew in the low teens last year and even a record hot weather. The last several weeks since you and they kept many people at home to stay cool.
If researchers aren't at the bench then they are not using are buying our products, especially in our run rate reagent business.
Let's not forget Europe has been a stand out for the past three years now with double digit organic growth for the better part of this time.
And even with a softer Q4, we finished the fiscal year with European organic growth in the high single digits.
I couldn't be more proud of the way our European team inside the company and finding and creating collaborative it synergies between the divisions.
And providing a superior buying experience for our customers. We remain confident that our European team will still perform at the top of our industry going forward.
With regards to the other major regions. They continued to perform exceedingly well in the quarter if they have all year.
North America organic growth was in the mid teens for the quarter and the full year and trying to grow up in Q4 with over 20% in over 25% for the full year.
There's been a lot of effort dedicated to our go to market strategy is far superior web site, which allows customers to new complex products searches and the introduction of over 1200, new products over the course of the year the wave in oncology research as well as solid NIH funding has also allowed 2019 to become a record year. The evidence is strong at the way we'll continue across the globe.
Now, let's dive a little deeper into performing so our growth platforms, starting with those with a protein sciences segment, which organically grew 9% for the quarter and 13% for the full fiscal year.
Antibodies, an assay is performed extremely well for us in Q4 as they have all year with both products in our category is growing in the mid teens and in the quarter and the full year. The girls has also been brought across brands and applications, whether it'd be in our traditional R&D systems brand to antibodies analyzes or in our newer novus brand antibodies and multiplex assay is much of the success. We believe is attributed to our laser focus on digital solutions, we have an entire team dedicated to leveraging our investments and Salesforce dot com, our web site and our trade shows to ensure a more comprehensive view of activity with our customers, making it easier for our customers to be aware of the product categories, we offer and help them find that specific solution they need.
The simple western platform has now reached a critical junction of acceptance in our end markets. We regularly ship over 100 incidents per quarter and we have now installed over 1500 worldwide simple plex platform achieved growth rates of nearly 50%. This past year is becoming more and more material to the company.
[noise] earlier in the year, we signed a very strategic deal with micro point of Shenzhen, China, which can deliver us revenue between 50 and $100 million in about three years.
They are taking a leading edge simple plex technology and launching a.
Yes, the FDA approved patient monitoring solution for large hospitals in China, the patient monitoring systems for cytokine release storm syndrome, which can be undesirable effect for gene and cell therapies.
Speaking of selling season therapies. This product line within the protein and science segment also contributed double digit growth in both the quarter and the year, while still a relatively small portion of our business today cell and gene therapy will be very important growth driver for our company in the years to follow.
In the past couple of years, we have moved further into the Bioprocessing and cell therapy market, mainly as a reagents and instruments her supplier.
With our GMP proteins polymer bead technology, non viral vectors and implementation monitoring we can also play a significant portion of the cell and gene therapy workable.
Starting with quite as quick gel Nonmagnetic beads, we can select and activate itself and now with Biogen is non viral transports on technology. We can provide gene editing tools next we can see the gene edited cells with our world renowned GMP proteins and finally, our Ela platform can perform you know assay testing to check for cytokine production and our earnings Cook technology can before and follow on single cell imaging analysis.
Let me talk a little more about the gene editing piece of the work flow that we recently added via the acquisition of beam again at the end of Q4.
Maybe just technology saw the most complex gene editing problems with the correct predatory cutting edge gene editing and delivery tools, enabling and accelerating growth in immunotherapy treatment.
This technology holds the promise of being able to deliver personalized therapeutic agents that greater target effect in less off target side effects. These engines key non viral vector technology obviate several concerns associated with the use of viral vectors.
Including simplification of the entire vector manufacturing process reduce bio safety concerns releases cytotoxicity, you tagine nieces or malignant transformation as target cells and greater flexibility in two large size.
[noise] with all this great technology on a hot hot market demand, we feel confident we are on the way to having a healthy cell and gene therapy business. This business will take a few years to grow to a material level for the company, but we see explosive growth in this space and our larger biopharma customers have been asking us to invest further in this direction. This year, we intend to build a 50 million dollar GMP proteins factory here in Minnesota. In addition to expanding the work flow offering to our customers I fully expect this business to be at least a $200 million division in five years.
Moving onto our diagnostics and genomics segment, where this year, we had a confluence of three different stories that make that may make the overall picture appear a bit murky I will attempt to make the picture less Murphy.
The first stores with regards to our legacy diagnostics OEM business. Currently this makes up the largest portion of the segment and has suffered from the most headwinds this past year. The largest headwind continues to be the glucose controls business, where our OEM customers are moving to continuous monitoring business did a good job offsetting most of the volume drop off with price increases as we largely remain the last man standing in this harvest business.
The glucose control is becoming less material every quarter the impact of this erosion to the segment is largely behind us.
Another headwind has been some tough comps in order timing from bio specific our diagnostics antibody business. This niche business source of specialized antibodies for large diagnostic customers. The orders come in relatively large batch sizes, and therefore can be very lumpy and timing.
They were especially lumpy this year, but this small specialized business produces tremendous margin for the company and they have a strong customer pipeline going forward.
Our in vitro OEM diagnostic assay business located in San Marcos has seen some delays in their pipeline and they only on product launches, but over the course of the next couple of years. We're very confident this business will grow at least mid single digit rates. Meanwhile, our hematology controls business when the Atlas has seen steady growth. This past year as they do most years and we expect that to continue.
[noise] the second major story within the diagnostics and genomics segment. This year has been the reemergence of one of our key growth platforms ACB within our genomics division.
As many of you know the genomics division had a rocky start to the fiscal year. Following a block 2018 and worries city overachieved on their Earnout milestone a 45 million in revenue.
We struggle with these tough comps in the first two quarters of the year, but in the second half of the year, our genomics division posted greater than 20% growth in both Q3 and Q4, we now have a catalog over 25000 probes in inventory and continue to add new applications using the AC technology, including our most recent commercial release of the Arnie School high Plex assay.
A multiplexing sits you hybridization assay for tissue.
We see much more growth to come for our genomics Division. This pathologists me searches transition from the antibody driven I see world to my luck their approach.
In the diagnostics end market free city, the collaboration with like <unk> and other large automation partners continue to advance the HPV test is selling well and there is a healthy pipeline of new tests and development.
Finally, the third store within our diagnostics you know my segment has been Exosome diagnostics with the acquisition of this pre revenue liquid biopsy company in early fiscal 19, we obtain yet another girl platform, which that will accelerate the companys growth rate for years to come.
Our next is from driven diagnostics platform is unique in the liquid biopsy field and is positioned to become a true standard of care for diagnosing treating and monitoring cancers as well as other diseases.
Our diagnostics products will enable physicians to take a more targeted and precise approach in their treatment strategies, and thus improve patient outcomes, while lowering overall health care costs.
Happy you rule out test for prostate cancer is the first of many potential diagnostic tests using both urine and blood derived exosomes that we will seek to commercialize over the coming years future tests may include non invasive diagnostic cancer test for bladder lung and breast as well as diagnosis for kidney transplant rejection in certain neurological diseases.
In its first 18 months of commercialization <unk> arrest, taking a number of milestones including.
More than 25000 patients have use the test to help them in their doctors make a more informed decision as to whether to proceed with a prostate tissue biopsy.
Nearly 2000 physicians have prescribed therapy for their patients.
The national comprehensive cancer network or NCCN included epic recommended tests and their clinical practice guidelines in oncology for prostate cancer early detection.
We received the clinical laboratory permit from the New York State Department of Health to provide Epee test in New York State with a population that supports more than 10% of the addressable market and is key to eventually garnering private payer coverage from large national health insurance providers.
The National Government services Ngs has recommended Medicare coverage for epic and its most recent draft local coverage decision. We expect this decision to become final within the next several months.
The FDA has granted breakthrough device as a nation for the F. B test, making it the first Texas home based liquid biopsy test Kristina breakthrough device designation. This designation not only validates the clinical importance of RFP tests, but also marks a milestone investment of our patent technology platform.
We have contract with 26 commercial health plans and PPR networks and have enrolled coverage by Medicaid in 34 states.
That's an amazing amount of progress or what is essentially a small start up with a new technology platform.
This positions us extremely well for fiscal 20 to be a breakout year in terms of revenue from axis on diagnostics with over a million unnecessary prostate biopsies performed every year just in the U.S., we couldn't be more excited about serving what has been until now a very unmet need NFI is just the beginning it liquid biopsy test for early detection of bladder cancer is on deck.
We have already started the process of collecting patient samples for clinical studies on this biomarker signature.
We've come a long way from solely being a proteins antibodies and Elisa kits manufacturer with our strong brand and science presence, we have moved closer to the clinic diagnosed by diagnosing disease conditions like cancer with our Exosome diagnostics acquisition, our automated immuno assay platform simple plex and easy to use Arnie sculpt ethnic <unk> technology platform.
We're now a company that can provide tools for cancer research diagnostics and therapeutics like car T cell work flow.
It's an exciting time for our company the serendipity the past 40 years of innovation at cytokine that we pioneered with research tools are now providing their long term value by becoming key tools for diagnosis and therapy is too.
I am proud of the team here at Biotechnica unique options. We have made in 2019 2021 of the year and we are ready to rise to the challenges ahead of us and executing the strategy we have set.
With that I'll turn the call over to Jim.
Thanks, Chuck I'll provide an overview of our Q4 financial performance for the total company as well provide some color on each of our segments.
Starting with the overall fourth quarter financial performance, adjusted EPS was $1.25 versus $1.34 one year ago.
Foreign exchange negatively impacted EPS by three cents.
GAAP EPS for the quarter was 42 cents compared to one dollar a weight in the prior year.
The biggest driver for the decrease in GAAP EPS was the change in fair value of our investment in Chemocentryx, which impacted the gap reported number by 91 cents.
Q4 reported revenue was 191.7 million, an increase of 6% year over year with organic revenue increasing 7%.
Fourth quarter reported sales includes a 1% growth contribution from acquisitions and a 2% unfavorable impact from foreign exchange translation.
For the full year organic growth was 10.5%.
By geography, U.S. grew in the mid teens, while Europe experienced a low single digit decrease in China grew over 20%.
As for the rest of Asia organic growth was in the mid single digits.
By end market, which excludes Asia and our diagnostics division.
Biopharma and academia growth were comparable in there were comparable in their respective regions.
For the full year. The U.S. grew in the mid teens Europe grew in the high single digits, China grew north of 25% and the rest of Asia grew in the high single digits.
Moving on to the details of the PML total company adjusted gross margin was relatively flat compared to prior year at 71.9% in Q4.
With operational productivity and favorable mix offset by the acquisition of taxes on diagnostics and foreign currency headwinds.
Adjusted SGN and Q4 was 28.3% of revenue.
370 basis points higher than the prior year volume leverage is more than offset by the additional SGN a added as a result of the Exosome diagnostics acquisition as well as investments in our core business to support growth.
R&D expense in Q4 was 8.5% of revenue relatively flat to the prior quarter and 70 basis points higher than the prior year due to the acquisition of Exosome diagnostics.
The resulting adjusted operating margin for Q4 was 35.1% relatively flat to the prior quarter and a decrease of 440 basis points from the prior year period.
However, core adjusted operating margin, excluding acquisitions was relatively flat to last year and would have been 40% were it not for the negative impact of foreign exchange.
For the full year core adjusted operating margin, excluding acquisitions expanded 150 basis points over the prior year.
Looking at our numbers below operating income net interest expense in Q4 was $5.2 million compared to $2.9 million net interest expense last year.
The higher interest expenses, driven by higher debt levels that resulted from our acquisition acquisition of Exosome diagnostics in Q1.
Our bank debt on the balance sheet as of the end of Q4 stood at 505.1 million down from 522.3 million at the end of Q3.
Other adjusted non operating income for the quarter was point $1 million compared to point $3 million of other expense in the prior year quarter due to favorable transactional foreign exchange.
For GAAP reporting other non operating includes realized and unrealized gains or losses from our investments in chemocentryx and being a gen.
Moving on down the piano, our adjusted effective tax rate in Q4, and the full year was 21.1% and we expect this rate to hold steady relatively steady in the fiscal 2020.
Turning to cash flow and return of capital 55.9 million up 55.9 million of cash was generated from operations in the fourth quarter and our net investment in capital expenditures was 11.7 million.
The increase in Capex from prior quarters was driven by project timing and capacity expansion projects.
12.1 million a dividends were paid out in the quarter, an average diluted share stood at 39.1 million shares outstanding.
Next I'll discuss the performance of our reporting segments, starting with the protein Sciences segment.
Q4 reported sales were 143.4 million.
Reported revenue increasing 7%.
Organic growth was 9% with foreign exchange unfavorably impacting growth by 2%.
As Chuck already described the growth in this segment was very broad in almost every major product category and geographic region with the exception being your.
Operating margin for the protein Sciences segment was 45.4% an increase of 90 basis points year over year due to strong volume leverage and operational productivity, partially offset by unfavorable foreign exchange and the quad acquisition.
Excluding the impacts of FX and Quad operating margins for the segment expanded 200 basis points.
Turning to the diagnostics and genomics segment Q4 reported sales were 48.5 million an increase of 4% from the prior year.
Organically revenues grew 2% with a 3% growth contribution from acquisitions, and a 1% unfavorable impact from foreign exchange translation.
Partially offsetting the strong growth we saw from our genomics division with a glucose market headwinds and order timing issues in our OEM diagnostics division that Chuck previously mentioned.
Excluding the few customer specific orders that negatively impacted the quarter. The rest of the diagnostic division experienced overall growth in the mid single digits for the quarter and the year.
Well, we can't guarantee that there will be no.
Customer specific delays next year, we currently don't foresee those issues and thus we expect mid single digit growth from this division going forward.
With regard to the Exosome diagnostics and as I've stated in prior calls revenue from MP tests performed is being recognized on a cash basis.
This is the correct accounting treatment given its recent commercial launch in 2018.
For patients ish insured by private payers the cycle from test report date to payment can be quite long. This is especially true for patients covered by PPS.
For patients and sure by Medicare payment is pending a final decision made by CMS and reimbursement.
With Medicare approval still pending a very limited amount of cash has been collected on tests. Currently performed thus the revenue from Epay recorded in our Q4 results was rather minimal and we'll be continuing to focus our dialogue on current test trends private payer contract coverage and public reimbursement decisions knowing that revenue recognition will lag.
Moving on to operating margin for the diagnostics and genomics segment at 10.3%. The segment operating margin was substantially lower than the prior year, but up seven but up 270 basis points from the prior quarter.
Excluding the dilution from the Exosome diagnostics acquisition Q4 operating margin for the segment was 24.8%.
For the full year, both the OEM Diagnostics Division antigen Onyx Division had expanding operating margins year over year.
In summary for the quarter, our breadth of growth continues to be solid both in terms of end markets and product categories.
The product categories are leading our growth now the same platforms that can scale and lead us to our five year financial goals.
These platforms are antibodies simple western cell and gene therapy, simple Plex AC d. and in fiscal year 2000, we can add exosome diagnostics to that list.
That's we expect that fiscal year 19 will not only be the first but the first of many years, where our company, we'll execute on a strategic plan double digit organic growth.
But as most of you know successful execution of our strategic plan doesn't really mean top line double digit growth, but also march towards 40% adjusted operating margins.
With our core business expanding its adjusted operating margin by 150 basis points in fiscal year 19, we were already very close to that strategic goal now with the acquisitions now with the acquisitions of Exosome diagnostics Quad technologies be merging in fiscal year 19, our margins have been reset.
But the strategic goal of marching back towards 40% margin has not changed.
We've proven after past acquisitions, where margins have been reset, namely protein simple in HDD that we can execute on our strategic plan on both the top and the bottom line and we intend to do that again.
However, the reset is now complete.
We still have some carryover headwinds from acquisitions, we made in fiscal year 19, it will pressure margins by up to 60 basis points for next fiscal year.
Also with recent strengthening US dollar it is possible that foreign exchange will continue to be a year over year headwind on margins by up to 40 basis points.
In addition to the impact from acquisitions, we are making a major investment in our cell and gene therapy platform by building a new factory dedicated the production of GMP grade reagents.
These reagents will be needed by our biopharma customers in large scale quantities as their cell and gene therapies get FDA approved and move to production.
We expect investment will be approximately $50 million over the course of the next 12 to 18 months.
This cost includes fight was cost will include viral testing of our existing products to be manufactured in the new facility.
He will also include upfront sales and marketing campaigns to make our customers more aware of our new strategic cell and gene therapy work flow offering ultimately seating or products in more clinical and preclinical trials.
This is a big investment, but with huge potential returns we call. This our internal acquisition.
We see the possibility of our cell and gene therapy, offering generating more than $200 million of annual revenue five years from now.
While most of this investment will initially be in the form of capital expenditures there will be a portion of it that will be expensed in the piano.
In fiscal year 20, we expect a piano impact will be a headwind of approximately 50 basis points.
Despite the headwinds mentioned therefore prior year acquisitions foreign exchange in cell and gene therapy investment.
We continue to March down our strategic plan execute on the margin expansion that was part of that plan.
If successful we expect to cover most if not all of these headwinds and hold overall fiscal year adjusted operating margins relatively flat to fiscal year 19.
The timing of these investments as well as the carryover impact of our Exosome diagnostics acquisition will put the most pressure on our margin in the first quarter of fiscal year 2000.
Followed by steady sequential improvement throughout the rest of the year.
That concludes my prepared comments and with that I'll turn the call back over to Dorothy to open the line for questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment. Once again that is star. One if you would like to ask a question and we will take our first question today from Puneet Souda with SVP Leerink. Please go ahead Sir.
Yes.
Thank you for taking the question so first.
On your comments on Europe , I, just wanted to understand your longer term expectations.
For Europe and.
How should we be thinking about Europe and 20.
And could you elaborate if this was largely weakness and.
Specific product segments of the protein segment or is it just broadly across the entire 14 times the second.
Sure need.
Well I think the first in a state wasn't there's probably been a lumpiness compared to last quarter, we had a blog quarter last quarter, there's probably some impact there little but overall you know in fact, we're already seeing a good bounce back this quarter Europe is looking very good.
It is a little bit more of a stronger with a with a the reagent side of the business versus instruments, but instruments, the and it's still early in the cycle for the quarter, we know where they will end up it's a very much a back ended model, but we see large we see high single digit going forward.
It's probably isn't the triple digits, we saw for three years, almost but remember we saw that because of the integrations of.
Of distributors, we did and creating new subsidiaries and then really doing that that that cost synergy cross selling model, but we're really taking share and just scooping up all that business. They should that should have been argued so now we're there it's kind of in our run rate and we've got to grow with everybody else. So high single digits kind of where we're at we're at and I think it's it's looking pretty good and then again so far this this quarter, you're looking a lot better.
Okay. Thank you.
And on.
Sticks.
Specifically with the glucose products. This is a given the continuous glucose monitoring is a new technology that's.
Continues to gain adoption in the market I mean, whats your expectation here for the.
For the.
Segment is mid single digits is still something that you expect longer term more.
How do you how do you view the glucose products as.
Being a strategic to your core.
Business in protein businesses.
Well, they're not that strategic is it some of the business I mean, when I started here was over a 20 million our business since less than half of that now going forward. So we've.
Weve mitigated a lot of that erosion with price controls.
We are the last man standing after US you have to go to China for these things. So there's no way. These large these larger diagnostic companies are going to requalify with <unk> with the Chinese entrants, especially in today's environment. So we're kind of safe. It's it's it's under a 10 million dollar kind of business now for us, it's largely behind us and nonstrategic I think there won't be a lot of growth is going to be kind of a hold your own for a while and steady downward we're offsetting that with other growth platforms.
In that segment, mainly around San Marcos working with those same provider those same customers on whole new ideas.
You know this is the San Marcos acquisition for many years ago was it was a small player remember it had it had over a 180 different five 10-K. So it's it's very strong in the pipeline with these large diagnostic companies with spect in solutions and we're building on that with the credibility of biotech behind them.
We've come a long way I have been talking a couple of years about the strength is pipeline. The trouble is these guys moves slowly there a glacier pace here. There are there other than they are the largest diagnostic companies and pharma companies in the world and they take large orders I know we've talked about in the past again, we had a quarter, where some slipped out into this next quarter. We probably had some pull ahead some last quarter as I mentioned, but you know we're on track for a decent quarter. This quarter already it's the same lumpiness and that pipeline is getting better and better and that it will be ultimately a mid to high single digit overall.
Segment.
Without genomics and you know we're on track for that actually and this this blip this quarter as we've seen it at least three or four quarters in the past at this level and it's bouncing back already it's just the lumpiness of this of this situation.
What is new is that we had some really big.
Order and order comparisons that were pushed out for for the bio specific area and these are these are you know nearly 2 million dollar kind of levels of orders. So I would have an impact and big impact on our overall growth rate and they are already shipping this quarter. So it's a that's a little bit new and that's part of that same segments. So it kind of exasperate stuff.
The look of this division, but really things aren't any <unk> any worsening from being went live with a normal lumpiness. This division. So it's just kind of the way. It is mid single to high single digit growth ahead in the year to year to two to come and what we've got and we've got Atlanta and get these.
These deals kind of moving and they're going to happen there they're specking in there. It's just they're just large companies. They just don't move very fast when they're qualifying new new solutions in a in a regulated world and also.
Okay. Thanks, Thanks for all the details.
Squeeze a last one on on axis.
We saw the draft LCD and given your conversations with Ngs and and different expectations for final LCD.
Do you think.
One test per patient.
Requirement this is likely to potentially change.
Maybe by the time, it's finalized or maybe even longer term.
How are you thinking about the overall market opportunity given that the limitation doesn't isn't isn't plays for that'd be test.
Yeah can you I know you have a little of consternation over this but this has always been the plan. This has always been the model. It's still a 1.1 million biopsies and we tend to get a big chunk of those looking forward.
Did December dates the outside date. The open period is over we're waiting for confirmation of that everything is wrong.
We could be a month or two ahead of December we don't know December should be the outside date.
For the short term the single use will have no impact I mean, we're talking a year or two off before there's any impact and by then we're going to have the additional studies and FDA requirements in for having hopefully multiple you know reimbursement. So that has been the plant always has been the plant and were were more than on track for all that so we don't see any issue with that whatsoever to be honest.
And also the faster you know that the breakthrough status designation, we get with the FDA has been it's they're already they're already.
Reaching out to us offer any help that's what you get with the staff that they want to help this platform on a multi asset. So bladder next in other areas is that this is me a platform. So it isn't just happy so.
We're gonna you know this has been a we're told a record.
A kind of a move you know move with this with this platform with happy you know usually a three to five year kind of process and were under two years and it's going to be the same way the new stuff coming so.
You know five years now looking back it's going to be you know.
It's going to be and so it's going to be something to watch I think is is that as a as a new novel platform that has just done a ton of promise and that's why we're getting recognition. We're getting that's why we got the breakthrough status, that's probably got a.
The L.C.D., we did and the record timing that's why we got NCCN guidelines and we are definitely kind of a ahead of the pack and that guidelines and discussion as well as the statistics. We have the two studies. The data is all there you know for us to submit for F.D.A.. That's in progress from that to a less an impact on that multiple designation reimbursement, but you know a steady as she goes here so.
Okay all right. Thank you.
Our next question comes from Catherine Shield with Baird. Please go ahead ma'am.
Hi, Thanks for the questions.
Just first on try and I had another strong quarter there anything in particular to call out and then what's your outlook for China and fiscal 20.
I will look the same definitely north of 20%, maybe 25 or better we'll see a lot of will come down to whether we can really get a C.D. really let up there they were genomics segment.
Little bit of an issue there with.
Chinese citizens working outside.
Countries on tissue, but we're working through that but.
The basic Arnie scope businesses is exploding their anvil, we're building into that.
That's on top of the core business, which is 20 plus percent are instron business has been very strong this past year.
Some of that May have been a bit of a pull ahead I'd say three quarters ago, starting at all and what kind of went away last quarter on terms of tariff.
Perceptions, which really aren't an issue for us and they buy the way they don't continue to be even with this new round of tariffs as well. So we see no impact our teams are telling as steady as she goes we have.
We have strong government support for our company and our products we are very.
A loan with a lot of what we do and they know that and do they want these in there.
In their pipeline to for for solution for for their citizens Sola.
Looking good for this next year as well, we don't see any impact.
Okay, and then on zone, how many volumes for run rate in the quarter for IP and are you seeing any increased interest following the draft Medicare LCD and then as you look into fiscal 2000, what are your current assumptions for up your revenue and any updated thoughts on a potential look back from Medicare.
We were careful how much how much guidance and given that we do have a lot of competitive pressures as well.
The last two quarters ever since we were putting the guidelines of have.
Notched up are the competition against us in terms of promotions, even giving things away and that's had some impact on our growth rate here, but you know it's been pretty solid I again over 25000 tests that were not reimburse jet is a pretty solid indication.
You know, we're not sure we're going to see a major step up with the reimbursement decision here in the coming month or two or it will be a steady increase in group growth that we hear all kinds of opinions.
I think we are going to see steady growth.
We are investing now into the infrastructure to the sales team in everything else, we because we.
Well. This is this is going to happen, we're going to be reimbursed.
The payers are moving great. The AR collections area have moved up 300% in the last quarter in fact.
So it's all going the right direction, so we're starting to invest.
We're watching our dilution but.
We're going to go after this anda.
I think our our goal from a year ago and the way you got to look at this we kind of lost a year from a year ago alright.
The way, we came out and not understanding revenue recognition like we should have et cetera.
But we're on track no at this point this year and we're going after those same kinds of goal. So the numbers, we gave a year ago or kind of the annual numbers. We should see end of the year again. So we just are going to talk about a much or the number of our salespeople are these other competitive issues just.
Not give a heads up too.
To the other companies chasing this lucrative area.
Yes, Okay that makes sense and then lastly, I just wanted to spend a few minutes on cell and gene therapy.
It's becoming a better focus area for you and you've done a number of acquisitions in this space are there any other technologies you'd be interested in adding to that portfolio and how much of a growth driver do you think this could be over the next several years.
Well Jim made his comments, we see it between a 200 $300 million division, probably five years or so from now it could be a lot bigger potential is massive it's just a matter of how fast can we execute and become real.
As we go along that.
All that new curvy, there's going to be some opex as we because we have to be more visible in the game as well, but well we are being pushed we've been being push for a couple of years by all the big players in this industry about we need your proteins can you. Please can you. Please give us large batches of GMP, which were not known for so we are we are exploding in our growth rate now GMP proteins, but they're still small batch until we get this new factory up.
The buildings purchased were we're moving forward as we speak here on that and you know 18 months now we should be fully qualified in production and.
It will be a handful of proteins not tens of thousands but be all large batches of GMP and also antibody theres others. There is a nice sort of antibodies that are there also be onquest and of course, we're very good at that.
What else can I say about there are other areas, we have four or five major steps network flow.
We don't have the Luca apheresis box, but we are working closely with a with a partner to to move forward with that with nothing to announce yet we don't have a standard around a bio reactor, but we have a great relationship with one of the one of the world leaders in this space, but we are going to largely be a compartmental a modularized solutions. So that we can having a cost advantage over the mill Taney solution out there now that ties everything the one system to a patient in nicely you for three weeks and ends up being very very expensive, we're going to have a better approach and we are I think farther along than anybody else in the world. So it's coming and we're very close to having a full workflow we have well over half it now and they are all generating revenue.
The beam engine piece is going to be important we have a.
We have eight preclinical done we have 12 interested parties we have.
Main indications, they're going to go to clinical sometime this year, we expect so that'll be a big portion maybe as much as a third of that $2 million to $300 million divisional amount.
And of course the quad.
Polymer beads are also part of that work flow they are very similar and they.
They've succeeded in more than a half a dozen preclinical and are being being mapped in as we speak so future is bright for this whole segment and.
We're still hunting for a few more acquisitions to.
Solve these these remaining holes for a complete workflow you that our collaborations, but we're well on our way and even if we get none of that we still have a very good model to generate an awful lot of revenue.
So in a lot of credibility in this space so.
Great. Thank you.
Just GMP proteins, a low will be a 140 million plus five years from now just the protein component. So.
Okay.
And our next question comes from Dan Leonard with Deutsche Bank. Please go ahead Sir.
Thank you. So first question for Jim Jim I, just want to make sure I understand all your forward looking comments in the context of of 2020 did did I hear that you expect double digit organic revenue growth in 2020 and as they think about the more cautious commentary you were making on margins is it does that will roll up into a flat operating margin in 2020 compared to 2019.
Yes, correct on all counts so essentially we do expect to be had double digit growth.
In fiscal year 2020.
I mentioned that called out three specific headwinds foreign exchange carryover of acquisitions and investment in our cell and gene therapy business that will produce about 150 basis points of headwind to our margins next year.
But we as we did in fiscal year 19, we expect our core businesses to continue their march on productivity and gain approximate 150 basis points of margin to offset that so essentially flat year over year on margin.
And then another member Janet.
Sorry, I remember a couple of years ago, we talk a range of a lot last year was a first should we kind of gave an annual kind of guidance and expectation of 10% or better, which we did and we did that reasonably well even given this quarter. This last quarter, we're seeing it again, but we would also if we'd also say that the new range is moved from eight to 12 to more like a 10 to 12 or better and there's a lot of its going to depend on axis on revenue ex is on revenue comes in where we think it could be you know 12, plus but 10 should be like Jim said should be in the cards, even in our core and everything going fitting. She goes at this point. So it's a great time to be here. After six long years. We are finally made it to being we think a double digit grower, so unless some new factory fit competitive or whatever but right now that's where we see things.
And Chuck just another clarification, so when thinking about the OEM timing impact on the quarter and diagnostics was that about 100 basis point headwind to the total company organic revenue growth in the quarter did I hear that correctly.
It's in that range yeah, yeah, that's in the range and if you combine that with probably some pull ahead that we probably weren't RIDEA.
We knew they were last quarter, maybe even a little more than we had 14 plus percent growth last quarter and Eli enlarge it probably should have been 11 or 12 like you guys were expecting then.
And all this stuff, it's we're still not big accompany you know, it's it's it's hard to smooth everything out every perfectly every quarter, so even though you're in the ballpark.
Okay and then my final question on heavy so so could you talk about your thinking around submitting that product to the FDA is I understand is that part of the initial plan. It and then secondly, how are you thinking about operationalizing. The Medicare decision is there any sort of plumbing you need to put in place to get to get.
Get revenue or does it happen in a pretty seamlessly once that LCD is finalized thank you.
Well there is a lot in that lets unpack it a little bit one is we're still outsourcing our collections. It's a really complicated process and we've actually talked to peer companies like exact sciences, and others about where do they do in the beginning and it's a big deal going from cash to accrual, especially private payers and we're still out first thing that would probably do that for some time at some point, we will bring it in but not not for a while yet until we get this under control. We are we are growing our collections in our private side very quickly and so it wont be more new year to all probably.
In terms of the infrastructure there was lot infrastructure. We bought this thing right. So they were definitely ahead of their skis and we tone that back as you know while we are waiting this extra year for reimbursement, we're starting to pull some triggers on submission critical things, especially in this important New York, It's a huge decision as well as regulatory we need more help and regulatory.
And there's a few open open territories and the and there is no.
This is a good economy overall right and there is there is attrition. There is there is some movement not not very big but not outside with normal, but but you know theres a handful positions that are moving too. So we're upgrading those positions as well.
But all in all we feel pretty good about that trajectory and we're at the new leadership, there running the business units been Fabulous and.
Watching things well we have a.
It's a great team there. It's the management is largely new and but there are you know six months to a year and now starting to get their their feed steady and.
You know, it's going Okay, I think I addressed most of it did I Miss any of it.
Well your question thinking on your thinking on the FDA.
Oh, yeah, and the FDA.
Yeah, it's a bit and we were surprised are going to get this F.D.A. designation status. We're trying to actually talk more about what does that really mean, how do you were going to help us is that mean now or is that mean about bladder or the blood stuff and they say, yes on all fronts. They they want to help thats what it means so we did they don't make any promises, though and it's kind of all would you give them they'll they'll speed things up in Greece things and help you and make sure things are correct from a data package whatever it so we're told but.
It doesn't just for it freely give you something it's just a it's more of a a momentum designation I guess that you need help on that if you're going to speed up and move things into the market.
We will submit sometime this year, we're not giving real dates around that.
We have all the data we need our two studies provide everything we need to do all this which we've been told so it's just a matter of.
Filling out forms and packaging submitting.
But we're not we're not providing any more of that for competitive reasons, but it is eminent so.
Okay. Thank you.
And our next question comes from Patrick Donnelly with Goldman Sachs. Please go ahead.
Thanks, Chuck maybe for you just on HPV they'll continue they're nice recovery in the quarter, you just talked through the strength, there and expectations going forward for that segment again no no. We've had the tough comps in the first half how should we think about it going forward.
Yeah.
Yeah, it's back up to a year ago, you know after after this blow out to earn out and we realized we had a big enough I know just how much pull forward and the things they did that really beat their earn out.
So I'm, a little scared that next quarter or two when things kind of flatten out and there wasn't a lot of growth and wondering Jesus.
We doing some wrong or is this not as bigger addressable market, if we thought or or what.
And boy the more we dug in and where you got that mark in the field and we personally on the field and we went out there and dug into it really was nothing like that this isn't this is still a billion plus market just for just for the IC.
Moving to molecular pathology.
Then there is the whole drug discovery side of things and there is the whole diagnostic side, where we're just still scratching the surface. We had record performance this last quarter with Lika.
Our partner they are building a whole new.
Whole new set of indications with us we're in renegotiations or they want to do what they want to longer term deeper.
Relationship.
This now extends to danaher, the parent to which we know quite well.
And we all have friends. There is we're all a small industry of course.
And.
It's all going pretty well that way I'd, we're really happy to see you know.
Almost mid 20% growth here. Both this last two quarters, we see it continuing and that's really not fully understanding what is the potential now with China as we staff up which we're now doing we're staffing up heavily for China.
And ill.
We'll see Europe as you know a couple of quarters ago too was a kind of a redo of there was definitely a lot of.
As we mentioned an overhaul there three quarters ago and that's that's firmly now on the ground again the growth has been fantastic.
And I'm as I told you, we expect probably 20 plus percent growth and if we don't get it will make changes because it's the markets there.
The products real this high plex.
Product is we just launched we'll do over a million dollars. Its first year in the market. We have a relaunch of base scope DNA scope, which which is we've been waiting on for a couple of years has made some great progress we expect to commercialize that near the end of this fiscal year that gives us a whole nother host of applications and partners.
They have been and begging for this so.
This is another platform, it's going to be big so.
Okay and.
Limited tissue is the gold standard right I mean, if you can't get away from tissue ill liquid biopsy is all coming and we're all chasing with different platforms, but tissue still king and this is a solution that is best out there for tissue analysis. So.
Okay, and then I know you touched on M&A briefly on the cell and gene therapy side, but maybe just more broadly can you just talk through the M&A pipeline, you're seeing out there how active you expect to be given the leverage ratio.
Well, we are pretty accurate as last year, and we're still hunting as I mentioned there is there is there some cell imaging the local for recess component and by then the Biorx component those are three or maybe.
Maybe another one or two but we're getting close to not needing much else but.
If we can buy then we'll buy them, they're not nothing up not earning others kind of news, they're not very big you're going to pay a big multiple but they're not they're not marked materially big.
More than likely they won't sell the best ones, where we were lining up we got collaborations of which were in the middle of some right now so trying to get them done, but as I mentioned, even without them.
Even start ranges DMP proteins, it will be a great business you start tacking on the.
The polymer visa quad the beam engine transpose on and by the way the gene editing components, a very lucrative component and as we get transpose on.
Built into the minds of these researcher of away from viral vectors you know, it's going to be it's largely unknown, how big that could get right now.
But you know, we'll see we're but we're hunting thats exactly were hunting, we're not we're not looking for another leg in the stool platform like a protein simple or AC d. right now we're looking for really building out this LNG in therapy as the next.
Major growth platform for the company on top of a city and top of excess element on top of our core reagents, which are all growing so.
Great. Thank you.
And our next question comes from Alex will walk with Craig Hallum Capital Group. Please go ahead Sir.
Great. Good morning, everyone I'd, Chuck do you have any competitive entrants within instruments to disrupt that continued strength in your automated western blot or the automated analyzer systems.
No.
Still alone we're we're doing great simple western is just killing it so.
We're trying not to be too bullish about.
It over 15 or instruments already so it's it's there and we still think that were under 15% penetrated.
I don't think we'll ever get over 50, I think there's just a lot of small labs. It spills are still going through the hand westerners, but.
You know in 10 years.
This is going to all go the way the calculator you analysts. This is the way students are going be trained and no one's going to do in these stupid things by handing were wasting two days at times. So.
That's all great they're simple plex, it's it's the sleeper in our company. This this microplane deal all by itself is 50 million plus maybe a 100.
There is a lot of immunotherapy going on China. They are seeing a lot of cytokine storm. They want monitoring systems. This is a real company built by the Guy who built mind Ray He's investing heavily go into Clinicals. It's a great robot that uses our systems. He has done the panels for us all for us they've got great labs. They they qualified everything they're dealing directly with the China government, which they should their Chinese were not.
And I'm really surprised quite frankly, we haven't seen a whole lineup here in the us to do the same thing I think there are other solutions out there that are similar with this context being one but it's it's a sizable battleship and ill, but we've got next generations of this technology to increase sensitivity within we think we're going to win there too, but it's really kind of a two horse race insensitivity us and Kwan Terex and there's just so much opportunity for these automated immuno assay type of solutions. So.
The new cartridge to 32 by eight is a meaningful scale killer, who we think it's the inks still wed on these things were just launched it but there's going to be an awful lot of interest in that solution being a complex eight and these numbers. This plex Theres No cross talk of zero Cross dock for orders of magnitude of the signal to noise.
It's a one hour you know from from from.
Sample to answer it it's it's the real deal and it's not that expensive it's benchtop. So.
Could be the sleeper, we'll see.
The question you did Nance ask is around ice and ice theres definitely competition and it's come back it's relatively flattish this last quarter, but overall the year, it's pretty good pretty modest comeback.
We have.
We're coming out with new Nuseal, new generations of that here soon.
We'll have a we'll have it on the empower platform here yet this next quarter, which will which is a big deal to be on the Indian power Olin's system in the manufacturing apartments. These large customers, which has really become a requirement. So thats finally done.
And.
No. We'll just have to see but it's also it's a big space and I've got to mention too what we discovered in some of this law is some did it has to do a little bit with the migration of these large customers also moving from their classic pharma medical driven approaches to cell and gene therapy approaches and Biosimilar approaches and Bioprocessing approaches and as they're staffing up for their own cell and gene therapy, which is driving big part us they're looking at different methods of their of their their testing and and guess what the ice platform.
It works it works really well to be involved in the work flow testing you know force LNG in therapy, So we're expecting that to become a big evaluation.
Promised this coming year and Theyve already started so I do think we're going to fix or grow from that in the coming years is also part of this LNG work therapy workflow excellent.
Okay understood and then just following up on Europe .
Any of the challenges there more macro base and expected to last into fiscal 20 or do you view most of the challenges in Europe . This quarter is just tougher comps and timing of orders.
It's mostly that we think I think the days of 13% to 15% growth are behind US we were taking a lot of share building out new subsidiaries, but I think high single digit growth is still there.
The cross selling the synergies we have the portfolio. We have that's the kind of growth we're expecting and.
I think in macro I think Brexit the biggest risk, we're certainly going to get a hard Brexit Brexit now with some with board in place again, that's not a not a really big issue for us materially but.
He might have a leakage effect across all Europe , we'll just have to see what happens I mean, we can't affect that and whatever happens to also happened everybody else. So.
But you know for the last three years, we've been kind of ahead of the pack ahead of all our peers in terms of our results and I don't see that changing too much I think we are going to be right. There. So.
Okay I understand there's just last question from me Congrats on the draft LCD for epic Thats, a big when Jim If you just took and they don't want to get too specific but if you just took the volume this quarter take the percent that could be covered by the LCD and annualize it.
What's a rough range of revenue, we should be expecting over fiscal 20.
Hey, I know you.
Well I'd say is this and.
Our test counts, we've been given to what.
Well, our test count the past couple of quarters, they did increase sequentially.
From Q3 to Q4 by roughly 7%. So it gives you a sense of where the test county, as we've said before that roughly half of that test count population.
His Medicare would be Medicare.
Covered a once we get CMS.
So really in terms of how much of that revenue we recognized in fiscal year 20 will depend on the timing of the actual final draft and resolution, which right now they've stated publicly they're expecting it in December .
And then there will be a cash recognition lag of up to 30 45 days beyond that so our models don't showing significant revenue from.
Up until the second half of the year.
As Chuck mentioned it could be earlier, if that if the final draft approval comes out sooner.
If were we obviously will appeal for.
Tests that were done prior to that release effective date, and the timing and the and the resolution of those appeals could also impact the year positively right now we haven't assumed any any of that actually in our numbers for fiscal <unk> for fiscal year 2000 were assuming that the appeals process will take longer it would likely be a fiscal year 21 of them.
Hopefully that helps.
Okay understood. Thank you.
And as a reminder, if you would like to ask a question that is star one on your telephone keypad, we'll take our next question from Paul Knight with Janney. Please go ahead Sir.
Hi, Chuck or what will be the capital cost of the same pole facility. When do you think it also will be kind of fully online is that like Q4 next year and then what's your thought beyond that that project.
Well, it's roughly a $50 million total hourly that spread out over a couple of years. So its majority of this year, but it all depends on timing how we're doing.
You know it is we're not breaking ground. It is a building or purchasing so it's about retrofitting is building with the new equipment. There are some long lead items.
In there.
Lawful libraries and.
Larger high grade really complex centrifuges et cetera that are over a year and lead times, we've already had those orders then.
We expect.
Probably somewhere October to December next year will be through our initial qualifications and be be issuing lots to customers.
It was originally designed to be a September of next year, but we sort of lost a couple of months in the permitting process here in Minnesota.
Et cetera, but but we're still largely in the game. So think of it over the next two years of roughly $50 million.
What's after that Paul is hopefully.
We just got to build another because there's so much business. We can they can handle it all the site has begun to fall by the way for expansion to the building in the as well as the land. So we could I wouldnt say double up there, but we can probably at a significant.
Increase.
To the capacity if should we need it to three years out.
And then regarding a protein simple I know simple Western you said grew what 50%, but I'm trying to see what did all though what that all of the protein simple platforms together what was their combined to growth in the quarter.
Yeah, we don't give that out anymore, Paul but.
For the segment, we gave this segment but.
You can you know who did the information weve given by these major categories. You can kind of you can kind of get a guesstimate. It's a good number.
Well, you're probably 5% to 10% maybe of the western blot market now.
Oh, we think Rick we've been anchor tenant lease we're underway. We've made that comment of under 15, it's hard to know for sure because there's a lot of gray area, now and where labs.
Draw the line of meeting in spin or not and is stay doing them by hand, but.
You know, it's a billion ish kind of market and.
No.
1500 incidents so far and you look at other.
Other types of platforms and these kinds of labs and were were 10% of the way there probably.
Imagers be good example, you look at all in Okay, alright, and tens of thousands right.
I would guess that everybody who doesn't have one right now wishes they did.
Okay Thats good thats great. Thank you.
They can still get one.
And it appears there are no further questions in the phone queue. At this time Mr. comments I would like to turn the conference back to you for any additional or closing remarks.
Well great. Thanks, Terry we are top of the hour and I appreciate everybody, having a long list of questions and participate in this call will be back next quarter. So thank you.
And this does conclude today's call. Thank you for your participation you may now disconnect.
Oh.