Quanterix Corp (QTRX) CEO Kevin Hrusovsky on Q3 2019 Results - Earnings Call Transcript

Nov. 10, 2019 8:52 AM ETQuanterix Corporation (QTRX)
SA Transcripts profile picture
SA Transcripts

Quanterix Corp (NASDAQ:QTRX) Q3 2019 Earnings Conference Call November 6, 2019 4:30 PM ET

Company Participants

Amol Chaubal - CFO

Kevin Hrusovsky - Chairman, President & CEO

Conference Call Participants

Sung Ji - BTIG

Max Masucci - Canaccord Genuity Corp.

Puneet Souda - SVB Leerink


Good afternoon, ladies and gentlemen, and welcome to the Quanterix Corporation Q3 2019 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions].

And now I would like to turn the conference over to your host, Amol Chaubal, CFO. Sir, you may begin.

Amol Chaubal

Thank you, Lance. Good afternoon everyone and thanks for joining us today. With me on today's call is Kevin Hrusovsky, our CEO, President, and Chairman. Before we begin, I would like to remind you about few things. Today's call will be recorded and will be available on the Investors section of our website. Today's call will contain forward-looking statements that are based on management's beliefs and assumptions and on information available as of the date of this call. We 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 our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The risks and the uncertainties that we face are described in our most recent filings with the Securities and Exchange Commission.

During today's conference call, we will discuss some financial measures that are not presented in accordance with U.S. Generally Accepted Accounting Principles or non-GAAP financial measures. In the press release and in the appendix of our presentation, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to comparative GAAP measures.

We believe that these non-GAAP financial measures provide investors with relevant period to period comparisons of operations. These financial measures are not recognized under GAAP and should not be considered in isolation or as a substitute for a measure of financial performance prepared in accordance with GAAP.

With that I will turn the call over to Kevin.

Kevin Hrusovsky

Thank you very much, Amol. We're going to go through three top items here. First I'd like to talk about the Q3 highlights and then how we are stacking up versus our 2019 goals. And then finally, I'd like to discuss the incredible momentum we have in neurology and the upcoming PPH Summit that will further amplify our momentum.

We start with the Q3 results we're pretty excited to report that we had very strong growth, 41% on a GAAP basis. There was a one-time collaboration revenue last year from Abbott that does in fact when you remove that one-time revenue, our growth was 62% which is a very formidable level of growth. But most importantly, when you look inside to see how we grew it further bodes well for our future. We also had, if you remove the one-time effect of the collaboration revenue, which was very high gross margin we once again have significantly ramped up our gross margin by over 500 bps, so we're really excited about the continued momentum on both revenue top line and our bottom line gross margin improvement. One key factor that I think came up a lot in our last quarter conference call was the HD-X and expectations in Q2 that we would probably have a fairly significant instrument miss and then Q2, you might remember, we had a very strong Q2 and we further pointed out at that time that we have a lot of diversity of instruments and we feel pretty confident that we're going to be able to continue drive an instrument growth. And I think what you're going to find is that we had once again I think each time we've launched products we were ahead of schedule. So we were actually able to launch the HD-X in Q3 and it was a significant momentum build and you can see in a moment just how strongly our growth occurred in instruments. We also completed the acquisition and closed the Uman acquisition of Nf-L by far the leading biomarker for neuro health that we can see around the world that can be viewed in the blood.

We also raised more growth capital. I think we've raised nearly $120 million year-to-date. So we're really excited about having a very strong balance sheet for growth optionality. We also had this continued involvement with all of our key thought leaders around the world in an ECTRIMS, which is a conference focused on multiple sclerosis. We just dominated the meeting. There was 50 publications all coming from Quanterix usage of the Simoa technology and the Nf-L. This is clearly unparalleled level of growth of publications and validation. So I think several of these were from the largest farmers in the world on Phase III trials, which again we did project this for about a year ago that we thought that we would be able to create these kinds of momentum for Nf-L and that's occurring. But most importantly and most exciting for me, is this next item which is that Tatiana Plavina who is an 18-year veteran from Biogen who did a lot of the game-changing Nf-L work and there are a lot of work even for the Siemens agreement that was put in place about a year and a half ago between Biogen and Siemens for a serum Nf-L [indiscernible] a few weeks ago.

So, we're really excited to have her on board. It's going to help us further accelerate our ability to try to go for analytical and clinical validation of inefficient of Nf-L with the FDA. And then finally, we completed just this week actually a major deal with Nf-L with Siemens first of the big three to team up with us to utilize our Nf-L coming from Uman acquisitions is literally two months earlier. And we also announced the technique supply agreement for our antibody.

So, you can see right out of the gate. We planned on this being primarily a defensive investment. But as we also pointed out, there would be opportunities for offense, clearly we're landing strongly on the offensive side. This next slide I think is a pretty important one goes into the growth breakdown. And when you look at Q3, you can see once again across all three categories of our revenue, we had very strong momentum. But when you look at year-to-date I think the thing that is probably most compelling and represents a long-term major growth catalysts is that our instrument growth has been 70% year-to-date. That is a, an up charge from the previous. We had about three years in a row where we were stagnant on instrument growth and we launched a lot of new instrument platforms and form factors. And that is a significant and move on instrument growth and obviously the consumables continue to keep growing.

And then on the left hand side; I just want to point out that gross margin move, which again is somewhat unparalleled unprecedented to be driving year-to-date almost 600 bps of gross margin improvement. Next slide just goes back to the longer-term vision, we said we would disrupt this industry with this technology. And I think you probably have been watching publications coming out around tuberculosis and obviously on the Nf-L for neuro -- neuronal health. And so everywhere you look you see publications coming out a lot of the vision that we've had for five solid years now is to use digital biomarkers to see disease earlier and it's disease cascade and then to see it non-invasively, and that's a see change in the way the healthcare system could be practice because if you can see these diseases long before symptoms, it makes them much more treatable and someday we think preventable. So, this slide is our vision and we're primarily focused on neurology and oncology is our primary targets because those are the diseases that are most lethal and are discovered today very late stage via symptoms and by the time you discover them many times it's too late to do anything about it. So this next slide just shows that the way in which we're a capturing that slide that we just talked about is through what we call sensitivity. It's the ability to see in the blood and to see at a level of sensitivity that no one else in the world can see and by doing so, we're able to get on to proteins at baseline healthy levels and any movement from baseline represents the disease cascades trigger. This is -- we've been talking about this for several years.

This is a very disruptive capability and the Powering Precision Health Summit was founded around best principle that sensitivity can transform the healthcare system and our view here with these pie charts is to show you that we're starting in neurology and we're evolving into oncology with the launch of the SPX. But ultimately, we've always said that we would go back into diagnostics and a one year ago we did get all the rights back from bioMerieux to enable us to unleash and unlock value in diagnostics. Up until then, we could not because it was an exclusive that bioMerieux had. So we're pretty excited now that not only do we have this momentum in neurology now and moving into oncology, but we now have the rights to unleash and create value longer term, and what we consider to be the biggest market opportunity. And Siemens move to do a license with us on Nf-L represents kind of our first major agreement in this IVD landscape since we got the rights back from bioMerieux. So we're pretty excited that we're now stratifying this and this is a non-exclusive deal again showing the leverage capability of our technology, meaning that we still have the rights to license that Nf-L technology to other large diagnostic houses.

Now going back into the research piece of our business. I would like to illustrate that we are continuing to grow. Asia, and Europe, faster than North America, where we've had our traditional largest installed base, and we launched a lot of form factors that we felt would play right into that part of the world smaller benchtop lower price point. And when you look at the customer growth, you're going to see that academia has been growing almost a 100% this year and this is product growth. And this is an important point because this is where our publications come from. A lot of companies don't realize how important publications are to fueling the growth of the business. And so a lot of our form factor designs we're going right after academia to help with those publications because pharma while they create a lot of value, a lot of profitability and a lot of growth for us in our primary users.

Many of the academics are on their scientific advisory boards at those pharma customers and are guiding them into how to utilize these biomarkers for drug development. So we see this as a very forward looking way to grow the longer-term value creation of the company. So academia growth has been pretty significant. Now overall revenue year-to-date from products is about 50/50 split between academia and pharma. And then when you look into disease categories you can see that the neurology is still a very significant piece of our value creation and that's our focus. And we know oncology is got a much bigger longer term opportunity with all the liquid biopsy excitement that there is, with many of the companies in the landscape and we know that many of these companies are looking for blood based markers even companies like Exact Sciences who have built an incredible franchise based on measuring free DNA and store have talked a lot about the need to someday migrate to a blood-based system and we think that that's further validating a lot of our capability by having the most incredible capability to see sensitivity in blood.

So, this next slide is our strategic roadmap, we start with publications in the Powering Precision Health Summit, which is coming up again in November in Barcelona, is the way we incite and create a lot of inspiration for these publications. You can see that they continue to ramp very positively and the number of biomarkers being run in our systems continue to ramp as well. And we do have a home brew approach where customers can design their own protein assay with our technology and that actually creates a pipeline for future growth.

The accelerators where we run services and actually create demand for our instruments to get paid for. It's our highest gross margin business right now. It continues to grow very nicely. And you can see now we run 81 Phase I, II, III trials in those facilities and that's a significant ramp. In the instrument category, you can see where our growth actually back in 2016 was negative, and then 5% and then 48% and now you can see we've ramped that up very productively for future growth of consumables on the right hand side.

And I think that there was questions in the last two quarters and we tried to illustrate that when we saw this huge ramp up of our consumables year-to-date in 2019 versus previous years. We knew we were going to be growing to 40% , 50% level. But this significant step-up was partly due to a major trial that was being run by Novartis and we did explain that then. We're trying to illustrate this with the shaded area here. But overall when you look at that consumable growth we've also been upgrading our instruments in the field. And so we knew that 2019 was going to be a more productive utilization just because we've been improving these instruments coupled in with the one-time effect. So you can see is a very steady growth and acceleration of growth in our consumables, which again is a great testament to the technology actually being used. The next slide just illustrates again we've got three sources of revenue.

We're on Slide 10 instruments. We've got now three of them HD-X, SR-X and SP-X. And then assay kits we've got plates in the bead based. And then finally the accelerator services are three revenue sources. And again, we're really proud on the next slide that we were able to launch early the HD-X which is and then unparalleled ultra-sensitivity machine that's leveraging close to 10 years' worth of experience and the productivity improvements coupled in with its flexibility and temperature control, we think set a whole new standard for delivering disruption and a tech -- in a technological form factor that is reliable and this is key and we began shipping in Q3. In this trade-in program we're doing everything we can to accelerate that.

The more HD-1s we can get out of the market and replacing with HD-Xs we know HD-X is going to create a lot more consumption of the consumables. And so we're doing everything we can with a lot of prudent investments to try to get that installed base changeover could help -- it could put some pressure on gross margins for a while, but we think it's a very intelligence investment to kind of keep this of engine going for transitioning our installed base. And we know the early access with several of our customers on the HD-X in Q1 and Q2 was very favorable. So we're really excited.

In the next slide, it's just to repeat that we've shown each time. What is it we're focusing our investment fund designed to kind of get better at, and you can see we're continuing to focus on multiplexing menu expansion and the overall economics of our technology and sensitivity will always be our focus. And the next Slide. Slide 13 shows all the strategic goals that we laid out for this year. Starting with neurology then oncology and then strategically moving into diagnostics and the potential that we have longer term for diagnostics and then our financial performance, as well as going for 100x improvement in sensitivity to go after the next-generation of proteins that we already have been able to identify the cerebral spinal fluid. Across all five of these categories, you can see we're in green. We've had another incredible year year-to-date on hitting every one of these key goals for the year.

Next slide. Just repeat the fact that a lot of the secret sauce of our technology in the way we've deployed it in research is to help drugs get approved by seeing disease earlier you're able to then get a drug under a lower dose and less toxicity to be effective more so then if you catch the disease too late. And this is leading to a 300% increase of probability of a drug being approved, if it gets a Phase I approval if they use biomarkers. And you can see on the right hand side, the CROs are all diving on this. And just one CRO alone has had over 650 clinical trials for drugs. The next slide shows you all the logos of the companies really most of this has been over the last 24 months that have now seize the technology and trying to utilize it to help both progress drug development and drug approvals, as well as better understand how biomarkers are affected by different drugs. And the FDA is actually issued guidance to support this and they are now supporting biomarkers as being a better way to get drugs approved into reverse symptoms in the area of Alzheimer's, you probably watch the Biogen announcement where they lost a lot of value several months ago when they said that the aducanumab beta amyloid anti-beta amyloid drug was being pulled because data was not sufficient. But when you look at a broader set of data included earlier disease and mild cognitive impairment you start to see that they are now very bullish on that opportunity.

And so we think it further validates they're one of our largest customers. The importance of utilizing these technologies in the drug development processes. Next slide just illustrates that there's a lot of abundant markers that you may not need our technology for but by using our technology you can increase the overall quality and lessen the false pauses and false negatives. And you can also from a very small sample get an answer and then you can multiplex. And so our overall goal is to move from the left side of this, which is our research based over to the right side, where we are actually running this for trials to get drugs approved and then ultimately, we think there is a clinical opportunity where the dollars are largest. And so that's we're tapping on is going to be helping us as well as the different investments we're making around trying to get our biomarker starting with Nf-L clinically validated.

The next slide just shows you how much excitement there is in the pharmaceutical industry for the Nf-L. There is 46 active clinical trials, and you can see that we're really honed in on three areas where Nf-L can play a role. It's primarily right now multiple sclerosis, but ultimately it's going to also be an TBI. There's two active trials right now where Nf-L are co-primary endpoints for drugs for concussion. And then also Alzheimer's. We think ultimately is going to be a interesting opportunity for neuronal health and the impact of Alzheimer's on neurons in the brain.

The next slide just shows that there were several Phase III trials at ECTRIMS and the actual specifics of the drugs that we're utilizing Nf-L. The Slide 19 just isn't a repeat slide, it shows you that 100% of the publications that are done in blood are based on the Uman antibody pair that we now own and have just licensed to both Siemens and Techne. And in addition no, I'm sorry we license at the Siemens and we are supplying it to Techne and we did supply Siemens as well in Q3. But on the right side, you can see that we actually for several years look for antibody pairs to had the specificity of Uman and we could not find it. So we're really excited to leverage this around the world to help patients with mental conditions around the world with the technology and already talked about the Siemens, which is the next slide and that important announcement, but it is interesting to note that there is 1 million patients with MS just in the U.S. and there is a recommendation at someday they will be testing twice a year for Nf-L to determine whether the drug is working. So that's already just with MS could be a pretty formidable market and that's why the Siemens and others were teaming up with them with very attractive economics because of what we have is a proprietary antibody pair that proprietary pairs allowed us very attractive economics in a way we're navigating and negotiating these agreements and Siemens is an incredible positive partner.

We're really excited about that build out. Next slide just shows someday, we think that there'll be routine testing done for looking for Alzheimer's long before dementia. You might have saw the game changing seminal trial that showed that they could see Nf-L elevation 16 years before dementia and Alzheimer patients. And so we're pretty excited how these types of early cohort biomarkers can play a role someday and not only screening, but then managing whether the drug is working.

Now, if you really want to learn a lot about this. This next slide and my final slide is around the Powering Precision Health Summit and we are inviting investors. I already know several key investors that have decided to make the track over to Barcelona as well as some analysts. We had last year. I think 18 speakers. This year, we've got over 40 speakers. And we got two different concurrent tracks one on neurology and one on oncology. We expect almost three times the attendance that we had last year. So this is pretty formidable and a pretty exciting that we now have an advisory board for PPH made up of industry experts that are guiding the agenda. And you can see all the sponsors on the left that are making this free of charge for most of our attendees. So this is the way in which we create a lot of momentum very rapidly for the opportunity to utilize our technologies.

So with that, I'd like to turn it over to Amol for a little bit deeper dive into the financials. Amol?

Amol Chaubal

Thanks, Kevin. I'm going to provide some additional financial details about our Q3 2019 performance and we'll be referring to Slide 23. As Kevin noted, revenue in Q3 of 2019 was $14.9 million compared to $10.6 million in Q3, 2018 which represents 41% revenue growth, excluding the impact of $1.3 million revenue recognized in Q3 2018 in connection with the termination of a licensing agreement.

Non-GAAP revenue growth for Q3 was 62%. Product revenue grew from $6 million to $10.7 million, an increase of 80%. This was driven by 82% growth in instruments, and 79% growth in consumables. Service revenue grew from $3 million to $4.2 million, an increase of 39%. Year-to-date total revenues are $40.8 million, a 53% increase. On a non-GAAP basis year-to-date revenue growth was 61%. As stated previously, we are not providing revenue guidance. Shipment of HD-X ahead of our Q4 expectations and stronger adoption momentum led to greater Q3 revenue than we anticipated. As stated in previous quarters our goal is to deliver meaningful growth each quarter while continuing to build backlog for future quarters. Gross margin in Q3 2019 was 47.1% and includes the unfavorable impact of $0.7 million relating to Uman acquisition related purchase accounting adjustments, which are non-cash adjustments. We expect similar quarterly Uman acquisition related purchase accounting adjustments going forward subject to movement in acquired inventory. Prior year Q3 gross margin was 52.8% and was favorably impacted by the $1.3 million revenue recognized in connection with the termination of the license agreement. Our non-GAAP gross margin excludes the impact of non-cash, acquisition related purchase accounting adjustments and the license agreement termination and provides investors with the relevant period-to-period comparison of health stations.

Non-GAAP gross margin in Q3 2019 was 51.8% versus 46.2% in Q3, 2018. The 560 basis points increase over prior year was due to volume leverage and productivity gains in our consumables manufacturing. We believe we have a significant opportunity for gross margin expansion in the future beyond by Q3 2019 performance as we scale our overall business, reduce product cost and continue to drive the mix to more consumables revenue. I'm excited to report that trade-ins for the HD-1 instrument are outpacing our expectations while this may create a near-term unfavorable impact on gross margins. It is a very compelling investment to drive future consumables growth and excitement around our technology.

Operating expenses totaled $17.3 million in Q3, 2019 and included $1 million in transaction costs and integration expenses associated with Uman acquisition. The balance sheet is in good shape as of September 30 with approximately $113 million in unrestricted cash. During Q3 2019 our cash balance increased by $41.3 million, driven by $64.5 million in net proceeds from our August follow-on offering partially offset it by $14.5 million use of cash to close the Uman acquisition plus our P&L loss, excluding $3.1 million of non-cash items such as stock options, depreciation, amortization and working capital and others of $1.9 million, primarily driven by accounts receivable due to revenue growth. Weighted average shares outstanding for EPS totaled $26.6 million for Q3 2019 period at the end of Q3 2019 shares outstanding were $28 million. Overall, we are pleased with our Q3 performance and are committed to delivering solid 2019 results in line with expectations.

I'll now turn it back to Kevin.

Kevin Hrusovsky

Thanks, Amol. We are sitting with a very interesting opportunity ahead of us. We've got an incredibly experienced leadership and management team as well as a lot of employees that have been working with us for many, many years, many of them now coming from the pharma biotech industry. We redirected the business into research to eliminate the regulatory and reimbursement risk of diagnostics and that has enabled us to really for the eight straight quarter now that we've been public.

We've been able to significantly grow our business and that growth has accelerated as investors have actually started to help us with our growth by coming to PPH Summit and further referencing and linking us up with pharma biotechs that they own positions and they would like for those companies to get their drugs approved. So, we have created, we think a very interesting opportunity where we're very early on in the penetration level less than 10% for neuro -- for neurology alone.

And we're really just beginning in a market that's three times the size oncology. So the first step in this, in our minds was defining a market that was not fraught with a lot of risks and we think we've created a market opportunity for the next several years, it's not fraught with those risks. And we've been executing we think fairly flawlessly and even ahead of schedule on most of the key KPIs that we are focused on.

So the experienced group that is honed in on this is very motivated and passionate, that some of the best employees that I've ever worked with in my career, many of them have been with us for many years and other companies, but I must say that there is a chemistry that's been created here that is truly igniting and going after something that we think could change the world and that's the way health is practice, particularly if we could put cancer and Alzheimer's in MS and ALS in our rear-view mirrors.

So with that, what we'd like to do is open it up for Q&A.

Question-and-Answer Session


[Operator Instructions]. Your first question comes from the line of Doug from Cowen. Your line is now open.

Unidentified Analyst

Hi Kevin, this is Subbu Nambi on for Doug Schenkel. Kevin now that Uman Diagnostics has been part of Quanterix for several months. How are you thinking about the opportunity for revenue synergies? Have you been able to cross sell Simoa based instruments to legacy Uman customers? Additionally, how has Uman revenue tracked relative to your expectation?

Kevin Hrusovsky

Great, great question. We didn't buy Uman for the short-term revenue opportunity. We merged with Uman based on what we consider to be a very long-term significant opportunity in diagnostics. But most importantly, we bought Uman because we were buying most of what antibody production they were making for our own kits for Nf-L and we wanted to protect this incredible evolution of the Nf-L franchise within Quanterix. Today over 33% over a third of our revenue is linked in some way to Nf-L.

And so making sure we protected that supply for the existing revenue growth was the primary reason for this move. Now with that said, we didn't anticipate there being much revenue beyond what we bought from them. But we have had some pretty productive developments that we were able to land in Q3 that did give us a little bit of revenue beyond the revenue that comes with our Simoa kits. So we don't actually granulize and show those revenue levels. Amol could actually maybe speak a little bit cleaner to this, but I would say that we do think going forward, there will be opportunities to grow the Uman revenue beyond what we expected, because of the cross-selling opportunity. So going forward, it's still pretty small part of our company in a part of our business and again primarily what this has done is created significant gross margin improvement by backward integrating into the supply of the Nf-L for the existing Simoa franchise. That's where a lot of the gain is and I think we committed to a couple of hundred basis points of improvement on an annual basis from that backward integration, but we are beginning to see revenue as well that's profitable.


Amol Chaubal

Just to add to that. Right. I mean Uman revenues by itself are very small. For Q3 Uman's revenues were 400,000 but again as Kevin mentioned, a big chunk of it is things that we've created as part of business development activities for Uman's asset and again in large scheme of things, they are very small. In terms of gross margin expansion, as Kevin suggested we will have gross margin expansion impact of integrating Uman. We've always said about 200 basis points, but please note that we had inventory when we acquired Uman and it will take us some time to believe that inventory through Q3, so you will start to see that impact from Q4 .

Unidentified Analyst

Got it, that is really helpful. And if I could ask a second question, can you provide more detail on the Siemens Nf-L license and supply agreement. It does not appear that Siemens is using Quanterix system to develop Nf-L clinical assays, is that right? if so, are there opportunities to -- and if so, are there opportunities to place your system that Siemens down the road and then more broadly, are there types of IVD deals we should expect you to pursue?

Kevin Hrusovsky

Yes. Those are three good questions and to start Siemens does have a fairly formidable installed base of about 10,000 instruments and Siemens as well as Roche and Abbott have primarily in the area of a license in immunoassays they've primarily been single plex as opposed -- as opposed to multiplex. And so, we clearly want to get as fast in IVD validation and clinical validation of Nf-L using our antibody pairs as possible. We think it's bodes well for the world, but also bodes well for Quanterix shareholders because that investment can be very significant to breakthrough with an IVD approval and Siemens having this large installed base. Our goal here would be to hope that they can achieve some level of sensitivity on that existing installed base based on the way we've engineered the antibody pairs for both specificity and sensitivity. So our goal here is to work with them to try to have them get validated and clinically relevant an IVD kit for Nf-L onto that installed base. We also believe that the other diagnostic houses would be well served to advance their own positions relative to Nf-L and we would certainly be open to additional contracts because again this is non-exclusive, and we think that this is going to be a good thing for Quanterix as well as for the world.

Now, I would also point out that one of the key things about sensitivity is that we're on the bleeding edge of what's necessary. We're getting ready to run with collaborators in Europe a 20,000 population study between ages 7 and 70 on our Simoa technology looking at Nf-L in blood and having our sensitivity is necessary we believe to get good clinical discrimination for the seven-year-old because what happens is the younger you are, the less neurons that have died. And so we know that there is a curve that as you get older your neuronal health gets worse and you do with age have neurons to die and your Nf-L levels then did elevated and we've already seen us through some seminal game changing publications from Jens Kuhle and David Leppert who both will be presenting new data at Powering Precision Health Summit in Barcelona on August. I'm sorry on November 19.

This is a very important part and they were actually running this trial this cohort trial of 20,000 to understand this elevation. We actually think though Nf-L is not specific to various diseases. Any type of way that you're neurons die it could be through concussions. It could be through Alzheimer's, it could be through MS, it could be through ALS, it could be through Parkinson's. All of those different neurodegenerative diseases, as well as the traumatic brain injury can damage neurons and kill neurons that then elevate your Nf-L levels. The challenge is that Nf-L isn't specific to tell you which of those diseases or is it traumatic brain injury that's created the elevated Nf-L.

So we believe someday there'll be a panel where they'll have other markers that will be specific to the various diseases that would be run with Nf-L. Now here's where the challenge comes in is as you multiplex you lose sensitivity and that's where we think someday our Simoa level of sensitivity is going to play a role to allow the complete panel in the algorithms for the complete panel. Now we wouldn't say that that's what you should be buying our stock based on today, because that's what we would call diagnostic opportunities that we are starting to invest in very carefully, but there is plenty of return in this research area, because we're so embryonic in that growth, that growth mode for research.

There's plenty of returns in our mind in research, where we don't have the regulatory reimbursement risk. But while getting the benefit of the research mode and looking at multiplexing in the research it's going to set us up through the different opportunity in a different avenues for panel someday for neurology and for neuro health. So yes, we do think that there is going to be an opportunity with the engineered antibodies that we have for Siemens to be successful for some level of use cases with the installed base. But to get the broad use cases that are ultimately going to be available with sensitivity and multiplexing you will need our technology, we believe, to achieve that and that's why we want to continue collaborating with the diagnostic houses that we know have the interest and long-term sensitivity for panels.

So hopefully, that gave you some of the insights you were looking for.

Unidentified Analyst

Absolutely. Thank you so much.


Your next question comes from the line of Sung Ji from BTIG. Your line is now open.

Sung Ji

Thank you. Thanks for taking my questions. Congratulations on the quarter. So firstly, it's nice to see that the trade-in -- is trade-ins are outpacing your expectations. Just curious what's driving that. You talked about, you have some programs in place wasn't sure if you uncovered certain value proposition for the value propositions, for the, customers that you weren't aware of as they are trading at a faster rate, and as you look out over the next two, three years, what percentage of your current HD -- HD-1 installed base do you think would replace that with the NextGen platform?

Kevin Hrusovsky

Yes, great questions Sung Ji and thanks for the congratulatory comment. We basically have always been very conservative and that's part of we think the value of our management team. We've always tried to be very create expectations that we know we're not going to surprise negatively. So in this case, I think we knew that the HD-X had incredible game-changing capability, not just in significantly increasing the reliability, but also in temperature control and even enabling magnetic bead loading that ultimately will help us further enhance the sensitivity of the instrument. So, what we have found.

I think, is that as we've started to articulate these benefits, we really have been getting a lot more interest and I think the fact that we ran this use case with several of our top users to test out the HD-X it gave us data that further validated just how game changing the HD-X was and I think that as we start to teach the industry just how formidable of an improvement this represents many customers at times don't use our technology, all the time, and they were cautious using it and fear that they might have some kind of an issue that they couldn't manage and that would lead to losing samples. And one of the things we're really honed in on with our user base with the HD-X is never let just lose samples. That's really our key focus and it's not to say that they won't, but to-date, we've had incredible results and not having these samples be lost and it creates confidence then and that word spreads quickly.

And I think that with Powering Precision Health Summit coming next week going to be an oversubscribed and with so many customers wanting to hear firsthand from all these users and we've got so many users now that are going to be presenting. We think we're at a critical inflection point of opportunity where the HD-X we think will continue to cause a lot of interest and excitement. And we think it's in everyone's interest for this investment. If there is a slight impact on gross margins, by having the trade-ins. We actually think that this is a very smart investment for creating consumable pull through later on and plus great references for the way we sell is through a lot of referenced selling.

So, I don't know what percent will ultimately convert of the installed base to the HD-X. I think it's all going to be something that we have to test for a while here before we'll make any kind of projections. We would love to see the more we can get the HD-1 out in the more HD-X is in and it helps us in many different ways. We've been holding our customers' hands with a lot of technical support personnel because the HD-1 at times needed extra support. We think the HD-X is actually not going to require as much supports. So in one way we're going to improve the overall intensity of the support that we have to provide but then more importantly if the instrument delivers the kind of usage cases it's going to bring through more consumables. So everywhere you look, we think it's a smart investment to get the trade-ins and hey if half our installed base by the end of 2020 is converted over to the HD-X. I will tell you right now that we would be delighted, it would be one of the smartest things we could get, we could strive for. So we're hopeful for those kinds of change-outs, but again we don't want to set up expectations and how do you feel like we're not getting the conversion that you would like. We think that at this point we know it's happening at a much quicker pace than we anticipated. And that's what we really think it's good for everyone involved.

Sung Ji

Great, that's very helpful. And then it's also great to see such strong growth in the academic setting, was curious, do you have a sense of whether you're replacing or displacing some of the conventional technologies that are being used or do you think your technology platform is additive to kind of what the researchers are looking for?

Kevin Hrusovsky

Well, I think Sung Ji you as the Powering Precision Health Summit is further spread the word, around the sensitivity in the way sensitivity can be translated into incredible benefits for the customer. We've already talked about less invasive early detection of disease. But the ability to get an answer, from a very small sample. Could you someday have a sample as small as a blood finger prick that you could then dilute up and use and Simoa to get an answer from such a small sample. Those are the types of things that we know we've got use cases. In fact, last year PPH there were a lot of presentations on using blood spots and poking out a small fraction off of a cardboard blood spot, which today every child [indiscernible] which I -- now I'm proud grandfather.

So, I know what this is like, but they have a heel prick and they will create blood spots for every child born. And then later on if you could just simply punch out a little small circular hole into a vital and then put solution in it and dilute up that blood spot all the side you could transform the way you transfer and ship samples. Right. And so these are the kinds of things that people didn't really think about when they thought about sensitivity, but it is game changing because if you can start to get answers from dried blood spots you change the whole logistics of the way samples can be moved around the world. So, you'll see it Powering Precision Health there'll be presentations on a lot of scientists using dried blood spots. And then in addition we find matrix effects that can get in the way. Even for Nf-L If you look carefully at the latest publications, you'll see that several of our key neurologists that are running these for MS patients routinely now in Europe, they're actually diluting threefold to eliminate matrix effects and they're able to discriminate at the low end of the of the Nf-L levels better by this dilution, so sensitivity to allow dilution is also creating we think a game-changing opportunity. So, all of these pieces we think lead to the opportunity to really transform the HD-X technology into the next generation of opportunity.

Sung Ji

Great, thank you. And then lastly from me, on your consumable revenue side, obviously you're continuing to see strong growth there. Just curious, do you think. I mean if it's still early, but do you think that with the launch of the HD-X and also just continued strong growth in your consumable business do you any thought in terms of how you're thinking about consumable pull-through for your platform. Is it still kind of I think in the past, you talked about a third of the instrument revenue on an annualized basis, but could we see that kind of move up higher, going forward?

Kevin Hrusovsky

Yes, it's funny, we went back and we did an analysis after the last quarterly call around that specific metric. And we have been way, outperforming that metric of a third of the revenue and there was some level of one-time effect of that large Novartis trial that we've now tried to make sure everyone completely understands and we said it in the past, but we want to kind of further reinforces. But even without that and when you remove that we're outpacing that 33% rule of the investment. And so, 40% is something that I think has become a whole new norm for us and we believe that as we implement the HD-X even though it's a higher priced instrument. We think that maintaining the pull-through of that 40% is going to be the type of goal that we're going to be striving for even at a higher price point for the, for the HD-X instrument.

So we're going to keep driving a lot of different programs to keep our consumable. Today for instance and yesterday, we have a thing called the Simoa success which is a key component of working with all of our users and user group meetings to talk about all the advances that we've made on these technologies and these advances will further allow utilization. So, everywhere we look we are seeing very positive momentum. The one thing that we are going to keep an eye on in 2020 is as we trade in an HD-1 for an HD-X there'll be maybe a three month period there where will have to do that trade in and will that have any specific level of impact for any one customer. We know we're going to be able to continue driving the one third despite even that kind of phenomenon. The question is can we even keep going at the 40%. But we are going to be mindful that the transition and trading will have a small effect as we are timing those transitions.


Your next question comes from the line of Mark from Canaccord Genuity. Your line is now open.

Max Masucci

Hi, this is Max Masucci on for Mark. So now that Uman is integrating I guess do you see other opportunities for M&A. If so, what types of deals? And can you talk about any particular areas of investment you plan to target with the recent financing?

Kevin Hrusovsky

Great, great question, Max. We're not, we're not in any way stating we're becoming an M&A kind of driver here, but there is no question. We've got a platform here that is going to disrupt healthcare and as we start to view the tentacles of opportunity that this kind of disruption can create, whether it be in research, where you might have other complementary product lines that go into the same landscape where you're selling into. And you could leverage your kind of sales channels or if you look at the technology and research and the fact that today we're honed in on proteins and we know proteins are disrupting but there is a complementary piece here and which is DNA and RNA. We're not really doing today a lot DNA and RNA but it's credibly complementary to a complete understanding of the OMIX of the body. And so we know that there are today, a lot of DNA, RNA opportunities that are complementary to our protein.

Now for us those represent opportunities for M&A leverage in synergy. But that's not currently our focus because we've got so much organic growth opportunity. What we're really looking towards is what can we do to accelerate the penetration of our current technology base. And so things like Asia we're honing in on advances and trying to accelerate our position in China and Asia because it's very, very small right now, but yet there is so much dementia issues going on across China right now and we know that there is huge research projects to try to get neuro health understood in Asia and we're not even tapped into that yet. So we want to make sure that we start to tap into Asia. We also have watched very carefully the evolution of our services business and some of the large deals that lead to companion diagnostics, which is the gateway for us to get into clinical diagnostics and by bringing Tatiana on from Biogen, we're really going to be honing in on what ways we can advance the overall strategic model of these deals that lead to companion diagnostic, which creates significant follow through utilization of consumables.

So, to the extent we can cut across with FDA clinical validation. We think it creates a much more lucrative research market opportunity for rescuing drugs, even in the area of neuro and you just watch companies that have failed across the board in Alzheimer's disease and now you see Biogen talking very bullishly around aducanumab that is creating, I think the whole new resurgence of opportunity for earlier mild cognitive impairment cohorts and even maybe before mild cognitive impairment. So, we want to look at the research clinical trials sector, which we think is very robust, as well as Asia as two strategic areas that we could advance our current platform. And then secondarily, start to look at complementary technologies to what we have with our platform such as DNA, RNA such as other products that can be channeled into the same discovery opportunities in research, development opportunities that we're currently in. So hopefully that gives you a sense. We're not focused on M&A, but we have, as you know, a very prestigious board of leaders that have been very successful with M&A over the years. And so we are trying to make sure that we are looking for ways to accelerate this opportunity that starting to see a reach that's much broader than most people thought when we started to build into research.

Max Masucci

Great. And I think you took 7 SPX orders last quarter, I guess SP-X orders look in Q3, our most SP-X placements to customers that are new to Quanterix or existing customers that might already have an HD-1 or HD-X system is when you go into a customer to convert in HD-1 or your AAPS also pitching the SP-X?

Kevin Hrusovsky

Originally, Max we said that we would try to place 10 instruments in 2019 of SP-X, because it's a brand new product in a whole new market segment. And our view was that this platform is something that is got entrenched competition primarily, I would say companies like Techne and MSD and Luminex currently play very productively in the oncology field. So penetrating a segment where you have entrenched competition is very different than when you're disrupting like we've been doing in neurology and being that we're only 10% less than 10% penetrated neurology this HD-X opportunity end up being a pretty formidable opportunity for us that we could see our way clear to accelerating the launch of the HD-X. So I do think, our sales force continues to focus productively on the SP-X. We don't actually guide to these numbers or we actually state granularly what we've done. I think we did talk about the fact that there were seven orders right out of the gate. Just to give everyone a sense that this is a very productive opportunity for us, one that we already know that for the year, we're feeling very comfortable that we're going to hit our expectations, but in general, I would say that we still see this area as one of the, bigger areas of opportunity.

And it's not just oncology. I would call it oncology and inflammation, because if you look at inflammation, it really is the immune system and it's the cytokines, and many of the cancer drugs, our immuno therapies. And that's really where we're honing in and the SP-X is going to have an incredible opportunity. And one of the things that we have also found is that in our accelerator services we're getting a lot of new orders and a lot of momentum that we probably didn't expect for this Planar SP-X technology. So in a way, it's kind of a leading edge way for us to validate and create demand. So a lot of the growth that we're seeing in our accelerator is actually coming from us launching the SP-X as a product. So we're pretty excited about that opportunity, because we know that always precedes the placement of instruments. So for 2020 we remain very bullish on augmenting our neurology sales with oncology/inflammation sales with the SP-X.

Max Masucci

Great. And then last one for me. So congratulations to Dr. Plavina on the new role. Can you just touch on why now is the right time to make the higher your expectations for the role and why you think you've made the right hire? Thanks.

Kevin Hrusovsky

Yes, Max. You're asking very good questions. And I've been very close with the Biogen team including Al Sandrock, their Chief Medical Officer who just also got promoted is now running all of R&D. In fact the last Powering Precision Health Summit that we had in the United States. He was on the panel, and you might remember some of the comments he made to get picked up by Bloomberg around how he felt our technology could absolutely disrupt Alzheimer's longer term. But what we're seeing happen here is this stuff is accelerating quicker than most of us thought and for Tatiana to be willing to come to us. We thought that was an itself a big achievement, but I think what we have found since he has been here for just maybe a month is she is so driven and so passionate by the culture that we have here and the ability to affect the world more so almost in a position where we affect all the pharmas and all of the biotechs than in just one company.

So we have this incredible relationship with Biogen and I think they're actually very happy to see that she is on our team productively helping further advance MS, as well as Alzheimer's in all of these categories that now she can spread across all of pharma. We think this is the time because of the, on slide in the kind of tsunami wave of MS publications for Nf-L and owning Uman and then getting our diagnostic rights back, there's three different events that have occurred there. It's like the moon's lining up, you get the rights back a year ago from bioMerieux. You then acquire Uman that has this incredible specificity for the Nf-L antibody pair, and then you on top of all that have this tsunami wave of publications showing the clinical validity of this technology.

So, when you add all that up we felt like this was the moment to try to bring that capability on our team and Tatiana is just a delight to work with and we're just so excited with the reach that she has. She will be at Powering Precision Health as well as all of the pharma biotechs. So it's a great moment we think to go for clinical validation with the Nf-L working with our customers and there is a lot of data sets out there with customers that we could we think leverage and exploit as part of our campaign to get Nf-L to help the world with neuronal health. By the way my long-term goal is everyone in the world should know what their Nf-L level is, because if in fact you start to have some neurodegeneration or you're playing soccer you just seen all the new reports of women in soccer, you saw the reports last night on NBC around cheerleaders in the number of concussions and the amount of trauma that's being created just in every sport and around I would really want to know what my Nf-L level is of every child at some point and so someday, we're going to work towards that vision that everyone ought to know their Nf-L levels because if something is getting in the way of your neuronal health and you're above the curve of where you should be for your age, what's going on and should you get yourself out of harms way. So we think that someday there's a very significant opportunity for health screens, as well as drug interactions with Nf-L to advance the world in neuro health.

Kevin Hrusovsky

Yes, thanks for the Powering Precision Health sponsorship too. We really appreciate that we just said that to Cowen as well. Very much appreciate that .


Your next question comes from the line of Puneet from SVB Leerink. Your line is now open.

Puneet Souda

Hi, Kevin, Amol. Thanks for the question. So first one is on consumable. I think it was touched on briefly before but I just wanted to get a sense from you in terms of the trials that are currently ongoing. What's the expectation for further more trials to come into that. I mean it seems like the increase in consumable revenue was about $0.5 million it had, it was, essentially flat from Q1 to Q2, but then increased again this quarter. I just wanted to get a sense from you as to sort of that contribution? And what's your expectation of the timing of the current trials, when would those trials be completing and if there is any expectation for near-term trial additions into the consumable revenue?

Kevin Hrusovsky

Yeah, you know clearly trials are pretty important opportunity and it starts with Phase I trials are very small. And then you have Phase II and then ultimately there largest trials are Phase III. And we did have a very significant Novartis trial early in the year, which we've commented on and we've also continue to advance the reliability of our HD-1 that's out there. We have done a lot of things to improve its performance. And so, yeah, you're talking about a quarter-on-quarter growth, but I think the way to keep looking at this is year-on-year growth. I mean we've been running almost doubling on a year-on-year basis and a lot of that is because of, we think the beginnings of a trial sequence of interest that is going to, we think continue. So we're very bullish on trying to drive trials and feel like that's a big piece of our future opportunity.

Now, we're not going to guide to that it's -- we don't actually guide. But I would say that we've always said that as a long-term growth horizon even though the denominator is getting bigger. We have, we had said going into 2015 and '16. We felt that long-term growth of 40% was achievable. And on average, we think that consumables should be outpacing the growth, the average growth. So when we look at 40% total growth back in those years we always assumed that we would see stronger consumable growth and we probably would see slower instrument growth and then we would feel like the services would be kind of on that 40%. And if you look at this year is kind of play it out this way, we're seeing the strongest growth in consumables. The thing that has surprised us, probably more than in many of the investors is just how significant of an instrument growth, we've been able to create this year, which again is a catalyst for future growth. And so people don't buy instruments to have them sit, they buy them to use them.

So we're very encouraged by the instrument growth and your question is that on, we will be very much focused on trials as being a key to our consumable growth ramp and it's not always going to be steady and even you know you have surges because of trials. And so when we look at some -- one of the key things we did last quarter, as we looked at and averaging a four quarter averaging and we could see like the underlying growth was significantly improving when you do the averaging and I think that's a good way to ensure you don't get tripped up on any kind of models that you might be building Puneet.

Puneet Souda

Okay, thanks for that. And then on, I wanted to get a sense from you from in your conversations with pharma, what's the expectation for protein and peptides markers or significance of protein and peptide markers versus the genomic markers, which are dominating the pharma conversations our pharma CDX's and other a companion diagnostics and other products that are getting out in the market. I know you're seeing growth in neurology. I just wanted to get a sense from you the applicability of 14 peptide markers broadly using Simoa platform. What's been the conversation there and what's your expectation here of taking share away a little bit from the genomics? Thank you.

Kevin Hrusovsky

Absolutely. And I think Puneet that one of the roadblocks to utilizing proteins historically is the sensitivity and DNA became everyone's exciting kind of focal point for investment funds because they were able with PCR. They were able to increase the sensitivity of what they could see in the body. But the way they did that was they amplified it. They amplified the PCR, they amplified the DNA and RNA using PCR which create some buyers misses some 80 buyers misses. And then my last company that we did do a 10x kind of value creation was Caliper Life Sciences, we've built the DNA libraries for most of alumina.

And I think you're aware that our founder of this company also was the founder of Alumina and he like myself have a tremendous interest and what the protein represents because in a way, if you can get to the sensitivity of baseline understanding of the protein in a way, it's much more phenotypic because the identical twin studies or what I like to look towards and that is that they are born with the same DNA profiles. But yes, one of them grows up to have a very different profile -- a protein profile because of environmental factors in the way they live their lives and that is the key we think to why proteins are so much more phenotypic. And by applying sensitivity to them, we can now get to the same level of sensitivity that you have with DNA with protein. And if you look at Roche, Siemens and Abbott most of their franchise, a big piece of it has been based on a license and proteins.

And so we know proteins are very phenotypic for CN disease. But what we haven't been able to do is use proteins to see health and by having sensitivity, we can get down to the levels that show health and then movement from health shows you very early stage disease movement. So we actually think that someday, there is going to be some very profound liquid biopsy opportunities that are not just going to be based on genomics. But also in molecular but they're going be based on protein. And I think you're going to see a lot of companion diagnostic opportunities in protein. One of our, great customers is rules based medicines at Myriad. They've run over 650 trials, Phase I, II, III [indiscernible]. Many of them are in autoimmune in -- immune type deficiencies again looking at cytokines. And so I think that you're going to find the protein is going to be tremendously capable to help discriminate disease from health earlier and it's going to become a good adjunct and complementary to DNA and now you're asking will it someday displaced DNA, will it someday replace molecular?

I don't think I would ever see totally replacing it but I think it will be very complementary and how far and what it's reaches is something that it's too early to tell, but I can tell you the level of adoption that we've been able to create with basically no revenue. five years ago. So what we were able to do right now with this consumable pull through from pharma, biotech, which is outpacing what you see in molecular. So, I actually think that brought we are on a very strategically differentiated pace of growth and adoption that the protein is enabling with the sensitivity of the protein. And I know you're proteomic person yourself a Ph.D Puneet . So maybe I have you give a presentation on this, because I think everything I've said here, I know agrees with what your base belief system is. So anyway. If you want to comment please do.

Puneet Souda

No, I appreciate all of your comments Proteomics 2.0 is coming. So it will be interesting to see how you participate there. So I appreciate your insight to there. And if the last one if I could, you know you ask around Uman. I think some of that is already covered, but just wanted to get a sense of the existing number of sort of contracts that Uman had prior to acquisition. We saw one with Biogen, Techne we saw another one with Siemens here and wanted to get a sense of what we should expect to further contracts here in the near-term with Uman and other potential other contracts that will be renewed? Thank you.

Kevin Hrusovsky

Very good question and I would say that most, by far we were by far the largest customer. I think over 50% , of their antibody output was coming to us to make our Nf-L kits. And so our sensitivity coupled with their specificity and sensitivity created a real significant opportunity to clinically discriminate many of these biomarkers in neurology but ultimately, we think, and a lot of these other fields that we've been, we've been commenting on. I don't think that there was a lot of contractual work prior to us acquiring them. The Siemens was beginning, there was a major announcement by Biogen 18 months ago that Biogen was teaming up with Siemens to launch a serum Nf-L test.

If you recall, that was a game-changing announcement and what was interesting was all of the data was based on Simoa that led to that deal. And at the time we didn't have diagnostic rights. You might recall we had teams up with bioMerieux who doesn't really do neurology so much. And so we were somewhat caught in a relationship that didn't allow us to produce opposite these neurological opportunities. And so I think the Siemens opportunity because of the installed base. And I would look at Roche similarly, they've got I think a 70,000 installed base. I would love to see some of these biomarkers that we can engineer like Nf-L on the instruments and then ultimately, when you get the panels our Simoa technology, we think will be become a big key component of what will be required. So even though there wasn't a lot of deals that were in there. We felt the Techne was very important. We think that's a great company, we believe in them, and so we wanted to complete that deal right away; that was again done after we own them.

And then, Siemens -- I would bet that there might be two or three more in the next year. We are very careful on how we set up those deals. We want to make sure we're capturing a lot of value and we're very pleased to say that we're capturing a lot of value in these deals and we feel like that's an important piece to the equation because we'll be continuing to channel Nf-L via our Simoa and use cases that we know these other channels can't get to and we want to keep pushing the edge of science to create those use cases. And that's key for us with Simoa but then there is a great way for us to create value, we think through some of these other deals and we'll be very careful in the way we structure them.


I am showing no further questions at this time, I would like to turn the conference back to Kevin Hrusovsky for closing remarks.

Kevin Hrusovsky

Thank you very much. Hey, it's been an absolute pleasure to be working with Amol on all these, but Amol you've been with us now how long?

Amol Chaubal

Seven months.

Kevin Hrusovsky

Seven months and I got to say that across just about every aspect of our business, we've been scaling it and we've been culturally building out what we think can really disrupt. And I do believe any of the investors that can attend Powering Precision Health you'll be able to see a really clean opportunity to what we think the future holds. So, thank you so much for all your support and we'll be talking to you at the end of the Q4 period. Thanks a lot.


Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may all disconnect. Goodbye.

Recommended For You


To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.