Quanterix - Earnings Call - Q1 2018

Transcript

Speaker 0

Good afternoon, ladies and gentlemen, and welcome to the Quanterix Corporation First Quarter twenty eighteen Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be followed at that time. I would now like to turn the conference over to your host, Mr. Joe Driscoll, Chief Financial Officer.

Sir, you may begin.

Speaker 1

Thank you, and welcome to the Quanteris Corporation Q1 twenty eighteen earnings conference call. I'm joined today by Kevin Hersovsky, our CEO, President and Chairman. Before we begin, I would like to remind you that 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 uncertainties that we face are described in our most recent filings with the Securities and Exchange Commission. With that, I

Speaker 2

will turn the call over to Kevin. Thanks a lot, Joe. We had a very strong first quarter. We're excited that the new product that we launched, the SR X, its first commercial quarter. We did have revenue, I think, of 15 instruments.

Joe will get into some of the details and granularity. We also had a record level of quarterly consumable revenue and instrument placements. The combination is very positive for future business. We also closed the Auchan Biosystems acquisition, which was a tuck under primarily for technology. We'll talk more about some of the gains that we are already beginning to see as a result of that acquisition.

Most importantly, we have over 100 neuro publications now on our technology, Samoa. And there's an overall number of peer reviewed publications that help validate our technology of greater than two fifteen. We now have over 500 plus Phase I through III trials being run primarily by our CRO customers and 18 of the top 20 pharma biotechs now are enjoying the use of our Samoa technology. Most importantly as well is that there were some favorable macro trends for biomarkers in both the FDA and the NIH. First, at the FDA level, we'll talk and comment on this, but there's an increased interest in using biomarkers for approving drugs and NIH continues to increase their investment for dementia and head health investigations.

As evidenced by the NFNIH biomarker consortium, we are now finalists for measuring biomarkers that are looking at neuroinflammation. There's also a fairly significant advances occurring in the ability to measure multiple sclerosis with biomarkers being used on our platform. And we're finding that very intriguing and important for future growth. We're going to describe that in more detail in a moment. We also because of the positive developments with the FDA, our pharma services with the acquisition of Auchan, we're able to start moving down this path earlier than we originally conceived.

And so you will see that we are further reinforcing sales of services, which ultimately lead to instrument sales, which will be shifting our mix more towards services, which is a higher gross margin part of our business and ultimately has even longer term strategic benefits, which we'll describe in more detail in a moment. On the financial side, we did do 7,500,000 of revenue, which was 41% growth versus last year's Q1. Most importantly here was that we in our highest margin part of our businesses, we grew them 60% and that's led by neurology and those higher margin businesses now represent 60% of our overall total revenue. So that's a very good indicator for mix effect on margins and growth. Our installed base continues to grow productively and our average consumable consumption per instrument is achieved at our $50,000 target and even slightly above our target for the first quarter.

Pharmacademics, we did grow pharma 48%, academics 33%, but we had a really strong 2017 in academics. So what you are going to see is a shift, a little bit of a shift towards academics with the launch of the new smaller instrument platform, which is consistent with the assumptions we had going in. By acquiring Auchan, it was a minimal financial acquisition, but there are some ongoing expenses in both COGS and in our operating expenses that Joe will further detail as a result of that acquisition. These are expenses that longer term are going to create a lot of returns for us, so we're very encouraged by those expenses, and we'll describe them in more detail. And our expansion does continue.

We're up to 157 headcount inside the company. We have two or three strong partners with another 100 or 200 individuals working towards our business. The 31 that we've added primarily has been in the commercial organization. So just to re summarize the Auchan acquisition, there are some immediate benefits, namely we have a CLIA lab now that we can run these pharma services. We also were going to need to move into a more expensive larger facility, which we've now been able to defer a year or two by utilizing the Auchan facility.

So now we have two buildings. They're really about five or ten minutes apart. So we found that to be very efficient. They also brought with them a menu of 200 assays where we had 80 assays complete for our Samoa technologies. This is going to allow us to build out assays much more rapidly with that head start of their 200.

And we've brought on to our team some of the top innovative leaders in the world from Auchan are now on our team and have signed contracts and are really excited about all aspects of being part of the merged company. A little bit longer term, the pharma services, we do expect to see revenues in 2019 kicking in from those major trials. By 2020, we also see the opportunity for moving into companion diagnostics from those trials and also launching some additional instrument technologies from the combined companies of Auchan and Quanterix. And then finally, we're really excited that this new Auchan planar platform, while it's lower cost and has greater dynamic range, we also feel it's going to give us a really important opportunity for point of care entry and also directly into IBD to the extent that we want to have our direct IBD presence. So the next slide just shows all the companies that have either bought the new SRX platform that we mentioned.

The SRX was launched in Q1 and these are companies either have bought it, have already got it installed or shown interest through different demos that we're currently conducting. The next slide just illustrates the continued growth of 40% overall and you can see that we have consistent first quarter growth, the 7.5% versus 5.3%. And when you look at the overall mix, it's encouraging to see that our services are now about 33% of our company, and we expect that, that mix will probably continue to evolve based on some of the positive developments with the FDA and our sales force. I wouldn't doubt that we'll be at 38% in the latter parts of this year, up from 33%. But product is continuing very strong with a combination of consumables and the new instrument platforms.

North America still dominates our overall channel for the moment, but we do expect Asia to start to tick up with the new platform, which is being launched in Q2 in that region. We also are seeing a better fifty-fifty type mix between pharma and academia with this new technology being launched. Neurology and oncology are our focus and both have moved the needle nicely in Q1 versus last year. Neurology is up, I believe, five percentage points as is oncology. So we feel really good.

We're getting assay sets now in both of those categories. The next slide just shows you that if you look at the accumulated instrument flow, 2017, we were about 135 instruments and at the end of 2018, we're at 196. So we have been increasing that instrument installed base by about 45% over that twelve month period. And our overall product revenues are up 38% and our services are up 56% going from 1.6% to 2.5. This next slide is just a very interesting slide.

We had been mentioning that we think about a third of the instrument sales that we make will in fact translate into two consumable sales. And we just did an analysis looking back over the last three years of our instrument sales and compare that to where we are with the target of 33% being an ongoing revenue from consumables. And our actual for 2017 actually beat that by four percentage points. In our last twelve months, it's even beaten it by more. And we have continued to see very strong growth over 60% in the consumable landscape.

So it's encouraging and we feel like this is a major fuel for our future as we continue to build out assays. The next slide I've showed before, but it really is a build slide that shows how we got into this business by winning the NFL General Electric Head Health Challenge twice based on data that was published from the NIH on soldiers that experienced concussions from blasts as they were blast victims in the war, the Iraq war. And they were able to see tau in blood that was an indicator of those concussions. And from there, we started to see a lot of new publications issue and the movie Concussions came out and we were on Good Morning America describing our ability to see concussions and blood with these biomarkers. And our Swedish partner, Henrik Zetterberg is the actual neurologist discovered Nf L, neurofilament light and that then led to another round of publicity from Quanterix around the Nf L marker and then a lot more publications.

And then that led to most of the pharmaceutical companies over the last eighteen months acquiring a position into our biomarkers. And then when you add on to that the moves that are being made by the FDA, particularly for Alzheimer's to use biomarkers as an indicator for drug approvals as opposed to just reversing dementia, starts to add a lot more fuel and alignment to the timing of what we're doing and importance of these neuro biomarkers. And so this next slide just summarizes the FDA initiative to encourage biopharma to identify and incorporate promising biomarkers into trial design. This is a major advance we believe by the FDA and Scott Gottlieb to further allow drugs that can show mechanistic indications using biomarkers to get approved even if it's long before symptoms. And so if you can stop these diseases when they're very early stage and it's much easier to put the rate put out the match of a disease when it's early stage.

And so some of these drugs might work on early disease when they don't work on late stage disease. So this is a pretty exciting advance. And in addition to that, they are also allowing what we call adaptive trials to be done with these biomarkers and they did recently approved Banyan's traumatic brain injury test as a biomarkers, two different biomarkers in blood that was approved as a indicator to rule out the need for using a CAT scan. So it's pretty exciting that biomarkers and blood for neuro are beginning to get approved. And then finally, the dual pathway of working between the FDA and the CMS to allow LDTs to actually that are approved using FDA level of protocols could actually potentially get CMS Medicare reimbursement much sooner.

We think all of these developments in both regulatory and reimbursement bode very well for the build out as we start to move from Phase one to Phase two growth. This next slide just shows you on MS just how many publications in the surge of publications that have occurred in the last twelve months utilizing and showing disease activity, drug efficacy and monitoring and relapse severity in prognostics using our Samoa Nf L biomarker that has to be viewed at very low levels of abundance and so it requires our sensitivity. And there's growing mounting indications that this is not just going to be for MS, but for many other neurodegenerative diseases. And so we are working really closely with many academics as well as pharma biotech to incorporate these biomarkers into panels that they're finding very attractive and it's a big piece of our future growth. What I'd like to do is just briefly expand across to show now that we have Auchan's CLIA lab, these are some examples of Phase one, two and three trials and the number of samples in each of those phases.

You might have 10 to 100 samples in a Phase one, one hundred to 500 in a Phase two and greater than 500 samples in a Phase three. And the ability to use biomarkers across each of these phases further allows economic approaches by the pharma biotechs to getting drugs approved with a much higher probability of achieving that. And I wanted to show this next slide that I did redact, but it just gives you a sense of some of the top pharma biotechs primarily in the area of neurology. These are mood disorders, asthma, MS, Alzheimer's, primarily the focus of these companies working with us where they are seeing the opportunities for Phase one, two and three trials. These are some of the representative projects that we're working on and several of them, I'd say half of them do see companion diagnostic opportunities downstream.

So we're very encouraged by these developments and we're further building our sales force accordingly to really begin to harvest many of the drugs that are in Phase one, two, three trials, not only in neurology, which this slide is primarily focused because that's where most of our focus inside of Quanterix is, but also for oncology and autoimmune and many of the other disease categories where many of our other CROs are currently running trials using Simoa for those other disease categories. So what I'd like to do now is turn it over to Joe for a bigger a deeper dive into the financials. And then Joe, at the end, I'll make some final closing comments around our overall strategic alignment with moving forward.

Speaker 1

Thanks, Kevin. As Kevin noted, revenue in 2018 was $7,500,000 compared to $5,300,000 in the prior year, which represents 41% revenue growth. Product revenue grew from $3,400,000 to $4,700,000 an increase of 38%. The main driver was the increase in consumables revenue, which continues to increase at a significant rate. Also, service and other revenue increased from $1,600,000 to $2,500,000 and this continues to be a major focus area of our business going forward, especially with the CLIA lab, which we acquired with the Auchan transaction.

Note that we also achieved 14% sequential growth from 2017 to 2018. As stated previously, we are not providing revenue guidance. The favorable timing of certain deals led to greater Q1 revenue than we anticipated. This timing difference does not change our full year revenue trajectory and expectations. Also, as Kevin noted, our mix is changing towards services due to the sales force emphasis on services with customers and the positive recent developments at the FDA.

This is a meaningful shift for our short term and long term financial performance. In the short term, it enables us to drive revenue growth in a high margin category. In the longer term, it also drives revenue growth due to the number of repeat customers in this segment, plus it leads to instrument sales in many cases. The net result is that our overall revenue expectations for 2018 have not changed, but we project a shift of $400,000 to $500,000 per quarter from product revenue to service revenue for the remaining three quarters of twenty eighteen. Our goal is to deliver meaningful growth each quarter while continuing to build backlog for future quarters.

Quarterly estimates for 2019 should show consistent percentage growth rates for each quarter over the comparable 2018 quarters. Also, as Kevin noted, the Aushon acquisition, which can drive significant value creation for us in the future, has resulted in certain one time charges in addition to an ongoing impact on cost of goods sold and SG and A. The overall impact is estimated to be an increase in COGS of 150 basis to 200 basis points per quarter and $500,000 of SG and A per quarter. The main drivers of these increases are costs associated with maintaining the Auchan CLIA lab, the infrastructure required for printing planar arrays, which we want continue to develop this technology the headcount acquired from Auchan, which we believe will accelerate major initiatives in new product development, assay development, CLIA services and other critical corporate objectives And finally, as Kevin mentioned, the facility that Auchan operates in does increase our costs in the near term, but it will enable us to handle our growing expensive space, thereby saving us millions of dollars in facility costs and capital expenditures over the next several years. Gross margin percentage in Q4 and Q1 was approximately 42.2%.

Prior year was 44.2%. This decrease was primarily due to purchase accounting adjustments related to the Auchan acquisition and the fixed costs of running the Auchan CLIA lab. We have a significant opportunity for gross margin expansion in the future as we scale our overall business, reduce product costs, improve manufacturing efficiencies and drive the mix to more consumables and service revenue. R and D plus SG and A expenses totaled $10,300,000 in 2018 versus $8,400,000 prior year. The main drivers of the Q1 increase include acquisition costs related to the Auchan transaction, including legal, accounting, severance and other transition costs increased headcount and related spend in sales and marketing, including a new European sales leader and a new senior leader of assay development and strategic marketing as we continue to drive the commercial growth of our business the first full quarter of public company costs and finally, the Auchan personnel and facility costs, which are incremental to the prior year SG and A.

The balance sheet is in good shape as of threethirty oneeighteen with approximately $65,000,000 in cash. This gives us the financial resources to accelerate the growth in the business as well as look at acquisition opportunities. Q1 cash use includes the Aushon transaction and acquisition related costs in addition to debt reduction and our first quarter of public company costs. Weighted average shares outstanding for earnings per share totaled $21,800,000 We project the weighted average shares to be in the range of $22,000,000 to $22,500,000 for full year 2018. Overall, we are pleased with our Q1 performance and are committed to delivering solid 2018 results in line with expectations.

I will now turn it back over to Kevin. Thank you

Speaker 2

very much, Joe. I just want to close by saying a lot of the vision for our company and what we're doing is really being driven from the Powering Precision Health vision and Summit that we conduct annually in the Boston area. This year, it's going to be on December 1112. And this is independent of Quanterix. I actually founded this as a way to make sure that all of the thought leaders in the world, particularly in oncology and neurology coupled with the politicians as well as investors, they all get an opportunity to intertwine with the opportunity to change the way healthcare is practiced with technologies and Quanterix is by far the most disruptive technology with its biomarkers capability to see disease so early.

So this summit is going to be one of the top summits that we've ever held and we're really excited. We already have 30 plus speakers that have accepted and we expect that they'll probably be over 70 speakers by the time we get to this summit and it will be invite only and we've already got many folks that have asked to be invited. So if you're interested, please let us know. And in closing, I would say that our market continues to be a market that we feel there's a significant opportunity. We've talked about in past calls and past presentations four phases of growth.

The first two phases are primary research focus where there's very little regulatory or reimbursement risk and Phases three and four are when we move into IVD and into consumer precision health. Those phases do have more regulatory barriers and reimbursement, but we're going to systematically move into those phases by starting with research and we have a very strong opportunity over the next couple of years in this research segment. And the execution inside of that starts with us having strong validation of the technology, which the publications, the pharmas that are buying our technology and using it, as well as all these third part, all these drug trials that are now being utilized helps validate the technology. We have a very strong razor razor blade of visibility into our growth, which allows us, we think with a top notch experienced management team to continue to traverse the value creation in a very predictable way. So those are our comments for our first quarter.

We'd now like to open it up for questions.

Speaker 0

Our first question comes from the line of Doug Schenkel with Cowen. Your line is open.

Speaker 3

Hi, good afternoon. This is actually Chris on for Doug. Thanks for taking my question. I was just curious if you could clarify with the 15 SRX placements were incremental to the five you placed in Q4 or is that the total placements now?

Speaker 2

That would be incremental. So at the end of Q1, we had 19 placements.

Speaker 3

Okay. And then can you just give us an update on the order trends for SRX and your placement expectations for the balance of the year?

Speaker 2

Yes. We remain encouraged by the fast start of the technology. We don't actually provide guidance, Chris, to what our expectations are for the number of placements. But my sense is that the level of sales that you're seeing in the first quarter, there's a very good shot that that's going to sustain itself.

Speaker 3

Great. And then maybe just we found a few of your existing HD-one customers have also purchased SR X. So I was just curious if you could share the split of SR X placements to existing customers versus new customers.

Speaker 2

Yes. My sense is when we first designed the product, we thought that this was primarily going to go to only customers that don't have the HD-one. And so we've been positively surprised that about 20% to 25% of what we've been selling are in fact going to HD1 customers. And so I would think that most HD1 customers, I think there's about 175, 180 of them out there right now, at some point will benefit from having one of these SRXs for assay development reasons if for no other reason.

Speaker 3

Got it. And then just for my last question, I was curious if you could talk about the efforts to expand operations in Asia. I think you talked about launching the SR X in China in Q2. Just curious how much market development work or investments you need as you prepare for launch in Asia?

Speaker 2

Yes. I think for us, we want to make sure that Asia being the furthest from our concentric ring here in Boston, just from an overall service and support, anytime we have a new product, we just don't want to get out there prematurely. So I think we still feel that we will be launching that in Q2 in Asia. Sales, my sense is you really shouldn't see any material sales until Q3, Q4, but it is something that we still feel is on plan.

Speaker 3

Great. Thanks for taking my questions.

Speaker 2

Sure, Chris.

Speaker 0

Our next question comes from the line of Sung Ji Nam with BTIG. Your line is open.

Speaker 4

Hi, thanks for taking my questions and congrats on a good quarter. I was wondering for the ASHA on assays, it sounds like they're being used in the CLIA lab already. Are they commercially available as kits as well?

Speaker 2

We do have the ability to provide them as commercial kits, but they really would only the way that they're currently configured would only work on one of the early stage OSHAWN imagers. So you can't, for instance, today, take one of their kits and supply it onto one of the Simoa platforms and actually vice versa is true as well. So the first step that we're taking is to look at the antibody pairs that are being used by their assays versus our assays and try to get some commonality and to rationalize that supply base so that we can get a very common set of antibody pairs that are being applied to both sets. And so our view was that when we bought Auchan, most of 2018, we would deploy the capabilities of Auchan in our accelerator services. And so you're right, that is where we're currently deploying it.

But there are going to be some examples, we think, where there could be a customer or two that we will find that would utilize the current assays from Auchan, but that's not a focus for us right now. We're not trying to sell their assays at this moment. We would prefer to get these rationalization done and prepare the foundation for stronger growth in 2019 and 2020 utilizing common antibody pairs.

Speaker 4

Okay. That's very helpful. And then it sounded like you talked about some new product launches incorporating Austin technology over the next few years. Has the acquisition of Aushen kind of changed your near term product development strategy in terms of making enhancements on the HD-one as well as SRX? I think you talked about a few enhancements throughout this year.

So should we continue to anticipate them this year? Or has your kind of near term strategy shifted now that you have obviously new

Speaker 2

So it's a good question, Jung. And I would say that there's a couple different dimensions to product development roadmap. One of them would be assays, where we talked about the commonality of antibody pairs, but there's also this thing called multiplexing, where they've been very advantageous in being able to multiplex and they've got technologies and abilities to evolve our multiplexing capability faster than what we would have been able to do on our own. So some of that technology will go into our product development activity for assays. So you will see us redeploying and accelerating some of the multiplexing approaches in our company with their technology.

The other side of it would be that they do have some interesting planar technology approaches, which we're deploying inside of our service organization for this quarter and probably well, for sure, for the rest of the year. But we could, from that, discover the ability to complement our current product line with some of their products that have basically been shelved for the last year and a half. And so as we're deploying them inside of our services, we've been very encouraged by the engineering robustness, the lower maintenance dimensions to it. A lot of the things we're seeing there, we're going to carefully measure and that could lead us to having some instrument implications to our continued product development as well. But for the moment, we are not announcing any changes to our plans for both product of assays as well as instruments as a result of the Auchan acquisition.

At the end of Q2, I think that's when you'll learn our final assessments of the implications that we think that that's going to have on both the products of assays and the products of our instrument roadmap.

Speaker 4

Okay, great. And then if I could maybe squeeze one more in. Maybe could you talk about kind of you talked about the top 18 of the 20 pharmaceutical companies as customers. And obviously, you're continuing to expand that through the accelerator as well. And so I was wondering, are there do you think there is significant headroom in terms of are there a lot of opportunities for growth within the pharma within the biopharma segment going forward, not just within the existing customer base, but also new customers in that

Speaker 2

regard? Yes. One of the things we're trying to do is do some calculations of what percent of drugs in neurology and oncology today that are in either Phase one, two, three trials are utilizing biomarkers and if they are, are they utilizing Quanterix biomarkers? And I think that assessment continues to give us incredible encouragement that we're just beginning to tap into the opportunity that we may only today be touching less than 5% of the drugs that could benefit from our technologies. And so that's causing us to want to deploy more sales force activity on using our services on those drugs that are already in the pipeline that could benefit from some level of stratification.

And some of the new FDA approaches even with adaptive trials, where let's say that a drug only gives you benefit 10% of the time and based on that they decide that they're not going to approve the drug, but then there's some biomarker that could differentiate the 90% that it didn't work on from the 10% that it did work on. Adaptively applying that biomarker starts to then yield the opportunity to get a drug approved that couldn't get approved before. So it's those types of opportunities that we really want to quickly seize with our capabilities in the Accelerator Lab of both our technology and the newly acquired Auchan technology. And we know what happens is that that normally will lead then to them buying an instrument downstream from the original contracts that we do with them. So to that end, we think it's a smarter investment for us to be shifting more and more of our selling resource into selling services because of the long term impact that that's going to have strategically to our business.

So to that end, I think that even though we have 18 of the 20, I recently had one of our top pharma services salespersons, they did an analysis of just the companies that are currently using us. If you look at the drug trials that they're having that aren't using us, the opportunity just there is enormous. And so getting broader penetration where there's already proof that our technology works is an easier place to start. And that's how we're trying to set up overall algorithms for driving our lead generation. We've got sophistication occurring around lead generation opposite going first where we were already proven and then look at those opportunities to enhance those drug trials.

So hopefully that helps give you the perspective and that's why I wanted to show that pipeline today because those are real examples of where these drug trials can really move the needle quickly and we think it's going to be to everyone our investors as well as our customers advantage to get there with services first.

Speaker 4

That's very helpful. Thank you so much.

Speaker 2

My pleasure.

Speaker 0

And our next question comes from the line of Puneet Souda with Leerink Partners. Your line is open.

Speaker 5

Yes. Hi, Kevin. Could you give us a sense of the backlog that's forming on SRX and HD-one here through the first quarter? And just in terms of how the marketing teams have gotten out and trying to push the product, obviously, there was stronger growth here in pharma. So could you just elaborate on that a little bit?

Speaker 2

Yes. We don't provide granularity on backlog, but I think Puneet, you know that that's something that my interest is to make sure we never miss our growth objectives and our trajectory. And so we continue to build backlog in areas that we think are really important. I would say that the SR X is the newest product. And because it's new, I would say that the backlog is probably at a stronger level on it than it is the HD-one, but that's just a qualitative commentary.

I should also point out, Puneet, that we have we don't want this to become a priority focus, but we're now beginning to see opportunities where customers will buy a significant quantity of consumables over the first year and even sometimes as long as a three year contract. And in those cases, we will be looking at deploying a rent more of a kind of a reagent rental approach where we know we're going to secure significant returns over a one to three year period for the consumables. And so that starts to blur a little bit the product line of instrument versus consumables. And that's part of why we are trying to kind of show this at a product level to make sure that we are capturing it. And you can see that that growth is very robust.

And even if our instrument growth, even if we didn't have any reagent rentals and we just use instrument growth as a kind of a surrogate for future growth, even if it's flat, we see 40% kind of levels of instrument unit growth occurring with our accumulated installed base. And so even flat instrument growth creates a tremendous driver for future revenue growth because of this consumable pull through that we're experiencing at greater and greater levels every quarter and that only gets better as we further build out our menu. So hopefully that helps give you a sense that, I would say instruments are important to us, but they're the least important focus right now for us compared to services, which we know will lead to instrument sales. And we also feel that the consumable menu growth is a way to demonstrate the real value for what we've got.

Speaker 5

Okay, thanks. And then a number of peers have reported strong growth in just immunoassays overall in just the last quarter. One of your larger customers had a great quarter too. Just trying to understand, is it are you seeing something change in the core market? Obviously, you guys are focused more on the sensitivity and you'd likely to see more growth there.

But is the core market growth also helping you through the quarter or was it largely the inbounds are largely coming in because of the sensitivity capabilities that you have?

Speaker 2

Yes. Unfortunately, we're not a broad based player yet, Puneet. We still are, I would say, 90% to 95% benefited by where there's low abundance. And it's going to require multiplexing to really gain and garner the benefit of a broader base market move into immunoassays. I would say in general though, I would agree with you, immunoassays should have a whole lot of factors that should drive it positively.

I think that this whole concept of what we do at PPH was creating the vision around seeing disease earlier less invasively is fueling the liquid biopsy segment as well as many other segments where they're now trying to find the earliest stages of disease and blood with these new analytical tools and the immunoassay, I think has a lot of opportunity to really benefit that whole vision. So again, we feel like we're not benefiting from the broader move yet of immunoassays. We do think we will with multiplexing and we do feel like we have a lot of reasons why people are going to want to buy from us once we move into that arena, particularly better data quality through dilution of samples to eliminate matrix effects. So we feel like we have a lot that will ultimately bring value to our company and the investors in the broader markets, but we're not really benefiting yet from those.

Speaker 5

Okay, great. Thank you. And then just the last one for me. In terms of the overall sales rep, if you could just remind us where you stand currently and I don't know if you provided that already in the call. And maybe just in terms of the push in marketing over the next two quarters or so, what are some of the focus areas for you?

Speaker 2

Yes. So the biggest thing that I would say in this whole area is marketing and the role that we're investing heavily right now in what I'll call lead generation algorithms that are really honing in on where we think that market sits versus what we've been able to at this point penetrate. We see great opportunity to be penetrating in these drug trials and the best way to do that is with services where you can go in there and provide value immediately to those pharma customers. And so we've got a lot of marketing effort right now around honing in and using algorithmic almost AI intelligence to get at where those leads are. Now that marketing investment is going to start to pay dividends at the end of Q2.

And so while that's going on, we're continuing to configure and train and develop our sales organization to be able to sell into that pharma pipeline. And that's a little different sale than just selling instruments. And the old instrument salesperson has to change their capabilities and elevate and become more scientific in the way they approach the pipeline. And so we're putting a lot of investment in that reconfiguration of that selling effort. And so the actual numbers of salespeople are probably going to go up 33% this year, which is maybe four people.

But there's a couple of PhDs for every salesperson that goes with that. And so most of our headcount build is in that selling application commercial organization and it's primarily being focused at these areas that I'm mentioning and that's going to get the biggest boost at the end of Q2 when those systems for lead generation will be complete.

Speaker 5

Okay, great. Thanks for that. Congrats on the quarter.

Speaker 2

Thank you.

Speaker 0

Our next question is from the line of Michael Peterson with JPMorgan. Your line is open.

Speaker 6

Hey, thanks. Kevin, I guess just circling back on some of your commentary on biopharma, can you give us a sense of how much of the SRX placement mix was biopharma versus academic this quarter? And it doesn't seem like that launch has had any impact on HD-one sales, right, to the customer base?

Speaker 2

Yes. My view is that the SR X is probably got more like a 60% academic, 40% pharma versus what we have been seeing in the HD-one is almost the opposite of that. It's more like 40% academic and 60% pharma biotech. So we're seeing like a switch occurring there. But there's more pharma buying the SRX than what we probably would have initially anticipated.

And that's primarily where those HD-1s have sat. I don't think we've seen any material shift from the outlook that we had for HD-one for 2018 based on having the SR X. The opposite could be true is that as we start to penetrate with a lower cost, smaller footprint instrument, it could lead to HD-one interest and opportunities. And we have seen examples where we've gone in and we have explained we've gone in based on their knowledge of the new SR X. We've gone in and explained it.

And when they found out that the HD-one was fully automated, they elected to not buy the SR X and to buy the fully automated HD-one. So there's no doubt that we can't quite get the I wouldn't I don't want to be caught with someone saying, Oh, well, your mix was a little bit off. And as a result, we don't think you're growing the way you should because I know at a product category, the fuel is there and we're it's just exactly how that mix is going to shake out, we don't know. But what we are seeing and believe still is that on average, a third of our instrument sales are going to translate into a recurring consumable high margin revenue stream six months after that instrument sale. And so we still believe in that kind of algorithm.

Speaker 6

And then I guess thinking about companion diagnostics, what does the funnel look like for deals similar to what you did with the DESTENNA genomics? And can you just talk a little bit about what you see as your competitive advantage around companion diagnostics? And has the view there changed at all based on some of the data at AACR around biomarkers?

Speaker 2

Yes. So this area of companion diagnostics, I don't want to get our investors buying us based on it yet because to me, it's still fraught with a lot of, I'll call it regulatory and reimbursement potentially challenges and even like pharma motivations. And so we watch a lot of companies that have bet so much on their companion diagnostic pipelines and that we don't want to be one of those companies yet because we don't feel we're far enough along. All we really want to show is that all of the research Phase one, two, three trials that we're running, we're trying to start to categorize which ones of those the customers have said to us, they really believe that there's going to be an opportunity to move patients into their drug with some kind of companion diagnostic or they're going to be able to measure whether the drug is having a desired effect. So all we're doing right now is registering.

I do think that that still feels very robust to me, feels like it's going to be a great Phase two growth area for us. So I'm excited about those prospects, but it's too early to put too much meat on those bones. DESTENNA is really an attempt to move over into the claic acids with single base pair resolution. And I would say that's very much in the infancy and it's not a focus for us, but it is something where we do have certain customers wanting to look at NAT nucleic acids as opposed to just proteins. And so we do view that it's got to have a role, but it's still very early stage.

And I would say that we don't have anything right now from a drug trial standpoint or pharma services standpoint using DESTINA and or nucleic acids. We've got some academics that have shown interest and are starting to explore it, but we haven't had any strong adoption yet from pharma biotech, which by the way, there's not a lot of pharma biotech adoption of many of the nucleic acid companion diagnostics in general. It's an area that we're probing and trying to learn. I think that we have watched how rapidly the protein adoption has occurred throughout pharma and we're very encouraged by that. So we don't want to deviate too far from that.

If there's going to be companion diagnostic opportunities in proteins, want to make sure we capture those.

Speaker 6

All right. And then last one, just on the menu expansion priorities. Can you update us on timelines for the six plex oncology channel? Maybe if you mentioned that, I might have missed it.

Speaker 2

Yes, I actually removed that from the slide. Ernie actually had that on my cover slide. I didn't think there was that much interest, but we are launching that in Q2. So we have a strong belief that that is in fact going to get launched in oncology in Q2 and we have good data. Now that will not be something that could be run on the HD-one initially.

The first round when we launch this is only going to be for the SR X, but we do believe by year end for sure we will be able to run that six plex for oncology on the HD-one.

Speaker 6

Okay. Thank you.

Speaker 2

Sure.

Speaker 0

Thank you. And I'm not showing any further questions. So I'll now turn the call back over to Kevin Ruzofsky for closing remarks.

Speaker 2

Thank you very much and we appreciate all the support out there. And anyone that's interested in getting involved with our Powering Precision Health Summit, please let us know because as I mentioned, it's going to be limited space invite only and I think you're going to find it's going to be a game changing summit. So other than that, thank you very much for everything that you've done for Quanterix and we'll speak to you at the end of Q2.

Speaker 0

Ladies and gentlemen, this does conclude the program. You may now disconnect. Everyone have a great