Good day, ladies and gentlemen. Welcome to the Quanterix Corporation Second Quarter 2019 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 given at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference is being recorded. I'd now like to turn the conference over to Amol Chaubal, CFO of Quanterix. You may begin.
Thank you, Tiffany. Good morning, everyone. Thanks for joining us today. With me today on the call is Kevin Hrusovsky, our CEO, President, and Chairman. Before we begin, I would like to remind you about a few things. 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. These risks and uncertainties that we face are described in our most recent filing with the Securities and Exchange Commission.
With that, I will turn the call over to Kevin Hrusovsky, our CEO, President, and Chairman.
Thanks a lot, Amol. Today, we're going to go through the agenda that's up on our website. I'll describe the strategic and financial progress that we're making that's occurring on just about every front. I'll provide some very specific commentary regarding the Q2 results and how that stacks up versus the goals we've set for the year. I'd like to end my remarks just describing the real important progress that's been made around transforming neurology and the way our technologies are interacting with healthcare. Let me start with just the highlights for the quarter. You had 57% revenue growth, which for the first half, that's 60%. As you can see on the right-hand side of the graph, we've continued ever since going public, where we have a lot of investors supporting us and helping us in our business development efforts.
Many of them own pharma biotech companies that are trying to get their drugs approved, that plays right into what it is our technologies can achieve. Having owners in our company that also own pharma biotech has been very productive in the overall business development initiatives. We also are really excited about the progress that we're making on gross margins, this does not include any of the Uman benefit. Once again, we've delivered a very strong 500 basis point improvement in our gross margins. For the first half, it's nearly 600 basis points. I think it's 580. We've continued to scale our executive team. We brought in Amol as well as John Fry as General Counsel, Amol as our CFO, and we've recently brought in three key commercial leaders, two of which I've actually had a lot of experience working with in the past.
We acquired Uman very productively. We're able to use about a third of the consideration that we paid in stock, which was a real nice benefit for our cash preservation. We also did announce that we were launching the HD-X a little early, ahead of schedule, as well as the SP-X. Both of them were launched and we're feeling really productive around their launches, and it's an important part of our continued growth as a company. We also just moved into a very cost-efficient global headquarters, almost 100,000 sq ft. We were able to combine all the personnel from our Uman acquisition of about 18 months ago with those from the Quanterix team. We're all together now in this center for biomarker disruption and innovation, so we're pretty excited about that. We also had a really strong showing at the recent Alzheimer conference.
We actually ran a dinner session where we had four top thought leaders. I gave a summary of where we're going as a company, and then we had a panel discussion that I moderated. It was standing room only, and there's a buzz at most of these conferences now in neurology around the possibility of using biomarkers to help in the drug approval and even use it for potentially rescue. The next big one is going to be in Stockholm, and it's ECTRIMS coming up, and we'll talk a bit more about that in a moment. We've also just continued to have a lot of third-party peer-reviewed publications, which continues to be an important part of our advance. This next slide illustrates a little bit more breakdown of the revenue. You'll hear more of this from Amol. That top-line overall growth is a very strong trajectory that's continuing.
We would say that when you look at the right-hand side, what's most notable here is that our consumable growth once again was above that 40% level that we expect will be the overall average level of growth. This is, I think, the third or fourth quarter in a row where we've really been driving at very strong consumable growth, increased utilization of our instruments, as well as a new growth catalyst of placing instruments. As you can see, we've got instrument growth again this quarter. I think that's the third consecutive or maybe potentially fourth consecutive quarter of growth after having three years of basically flat growth. We were placing instruments at a very regulated pace. Since launching these newer platforms, we're now starting to see a really nice uptick in our instrument volume, which later on translates into consumables, which is a good forward-leading indicator.
We also saw that the recovery of our lab services growth. We've always been growing there, but we really are trying to stay at this 40% level as well, and you can see that we had a really strong quarter. That's also a leading indicator and barometer because many of those that use our lab services do studies and they ultimately then buy technology. We've made that a very profitable promotional component of our business. We're making great margins on our lab services, but it's yielding a lot of downstream instrument placements. It's also where we're exploring a lot of the opportunities for companion diagnostics as we continue to evolve our pharma services offering, looking for ways to make drug approvals and then ultimately monitoring patient performance opposite those drugs.
We actually feel our lab services business is where a lot of that strategically is going to play out. At the bottom, I think it is interesting to note that for the first half now, consumables represents almost half of our company, that has got the biggest gross margin opportunity as we continue to evolve. You can see that our growth of consumables in the first half has been nearly triple digit. Just to remind everyone, the overall path that we have as a company is that today, when you look at the healthcare industry, to diagnose cancer and neurodegeneration particularly, they don't discover it until there are symptoms. By the time you have symptoms, you're in very late stage in the disease, these are very lethal diseases.
A lot of our high-level premise is on the right-hand side of being able to see disease much earlier, much less invasively by using the exquisite sensitivity that we have in our technologies. We're going to now further explore that on this next slide. It's a slide we've used in the past, but the Y-axis just shows you the invasiveness. As you reduce invasiveness from biopsies and cerebrospinal taps, I think that these cerebrospinal taps are very painful and they're very expensive and invasive, and you actually can create infections. Most patients will never even allow them to take, even when sick, a spinal tap. To see head health today in the CSF, the cerebrospinal fluid, it's a very invasive procedure. The red area in that box on the left is what today's technologies can see.
That's why most of the diagnostics are in highly invasive approaches. Down at the bottom, you can see blood and saliva. Then the disease on the X-axis, when do you detect it? Again, the red area is today's detection capabilities. It's long after symptoms that you're picking up cancers and neurodegeneration. The blue box is what our sensitivity does to this slide, and it allows us to start moving cancer and neuro into much better, earlier diagnostics with less invasiveness and cost. That is, we believe, a game changer for the longer-term value creation of this company. The next slide is a systematic roadmap of what we've been deploying. We actually moved out of diagnostics about four years ago when I joined, four and a half years ago, and said, "Let's redeploy in research where there's no regulatory reimbursement risk.
Let's establish a lot of publications and third-party peer review publication and validation for the technology in these research markets. When we started, the research market was around $1 billion, and we actually believe that this research market can continue to evolve into much higher numbers as we keep opening up new biomarkers that couldn't be seen before, particularly in blood. We ultimately do want to return to diagnostics, and you can see that that's about a 5x-10x value creation opportunity by moving into diagnostics. On the right-hand side, we're starting with neurology and research. In research, we've got both products and we've got these services, pharma services. The second bubble is where we just launched into oncology.
You can see oncology, the gray area, is about three times the size of the blue area. We actually think we have a best-in-class way now with multiplexing through the acquisition of Aushon to get at great oncology research, particularly for immunotherapies, where it's very important to be able to know early on whether a therapy is going to either work or kill the patient, so you can decide what measures should be taken. Then on the total right, you can see the largest bubble is the diagnostic. The blue area there is where we hope to disrupt first in this diagnostic area, which is in neurology, and that's where a lot of the acquisition of NfL plays into it. This next slide just shows you the ways we are breaking down and stratifying our growth, so you can see it for the first half.
Most of our growth, most of our company right now is in North America, but you can see we're growing very nicely in Europe and Asia, and we're building out those estates. From a customer base standpoint, we're 60% pharma, and then we're lesser academia, but we've been working hard with the new product placements to increase the growth in academia, and you can see we're having good progress there. Finally, you can see that we're now 97% in neurology and oncology, and you can see the beginnings of the swipe for oncology, which is the next wave of our opportunity. This next slide 10, is really a metric. It's for all of you out there that really understand how to drive businesses from leading indicators. We want to showcase that we've really spent a lot of time.
We are the lead sponsor, and I'm the founder of a third-party nonprofit called Powering Precision Health, where we try to inspire scientists to do third-party studies to validate the technology. You can see now that we're close to 600 third-party peer-reviewed publications on the left-hand side, and you can see the domination of neurology and oncology. The second category are the biomarkers that are being deployed inside of our technology. Many times we offer a home brew kit where customers can actually use whatever antibody pairs they want to source and look at whatever protein they want in a home brew framework. We still collect a lot of money and have good profitability on home brew testing, and it's a big piece of what our pipeline of future markers are.
NfL, three years ago, was a home brew over in Europe, and it now represents 20% of the value of our company. We're really excited about the 20% of the revenue of our company. We're really excited about the prospects of these biomarkers continuing to increase with the publications. You move into the accelerator, which is our services business, and you can see that we have continued to grow that and the red line represents the number of phase I, II, III drug trials. You can see we continue to ramp that up now that we had the acquisition of Aushon that gave us the CLIA Lab. The instrument placements, you can see that we were pretty flat for many years, and then all of a sudden, we started to see it spiking up in 2018 and 2019.
We've seen some real nice growth. On the right side, you can see this consumable build-out by quarter, and it just continues to ramp very nicely, and you can see the growth versus the prior year. In the last, I would say five quarters were north of 75% growth. The next slide 11, just as a reminder of what we sell. We sell instruments, we sell assay kits, which are the razor blades to the instruments, and then we do the services. Now we've got HD-X and SP-X on the instruments now launched. The SR-X we launched last year. You can see that we have different assay kit platforms as well for each of the different types of instrument platforms and then the Accelerator on the right.
This next slide is one that many investors have asked us about over the years, and when we first launched our technologies and talked about the need for sensitivity, many of the competitors said, "Well, there's no need for sensitivity." Well, we got involved with Powering Precision Health and had all these scientists validate that earlier detection as well as less invasive detection coupled with eliminating matrix effects and being able to get answers from very small samples are all major benefits of sensitivity. Our sensitivity advantage versus competition has significantly evolved our position, but then we also automated it, created a dynamic range, and then we now are moving into multiplexing with our multiple platforms. I think three or four of our competitors have exited over the last three years, but we still are showing the slides.
You can see how this evolves and how our competitive platforms still have major advantages, we're going to continue to evolve those advantages as you can see on this next slide, which basically is the goals that we set going into 2019 that we were going to establish. By the end of the first half, we've actually advanced most of these goals at a place where we're way ahead of schedule. We're really excited about our neurology penetration. We're excited about the beginnings of oncology penetration with the SP-X. Strategically acquiring Uman plus continuing to have a lot of third-party validation of our NfL we'll talk about. In the financials, we've had growth not only in the top line, but also in our gross margins ahead of our original expectations. On the technology, we are continuing to pursue 100X advance.
The next slide gives you a sense of what it is about our technology that makes it compelling to pharma. Over on the left side, you can see the toxicity and efficacy are huge issues for many of today's drugs. In efficacy, Don, for cancer particularly, you're talking about very low levels of probability that a drug is going to work. In the area of neurology, it's just as bad. There hasn't even been an Alzheimer's drug, really, that alters disease progression be approved at this point. When you use our technology and you get a phase I approval, there's a 300% increase based on estimates from pharma itself and biotech of the probability increase that you'll get a phase III approval. On the right side, you can see the rapid ramp out of our technology with CROs.
These are the Quest, the LabCorp and others that are utilizing the technologies as well as Rules-Based Medicine. The FDA on slide 15 is now providing guidance saying, We actually encourage you to use biomarkers to get drugs approved because we think you can get drugs to be approved with less dosing, which makes them safer, and they're going to be more effective if you can see the disease earlier via biomarkers. The next slide just shows how rapidly our installed base has ramped up over the last couple of years, and we have a very broad distribution now of use cases, and most of those customers, many of those customers, come to our Powering Precision Health Summit to give us the opportunity for reference selling.
This next slide just shows that from the standpoint of when you have a biomarker that you have launched into the research markets, it's got analytical validity, and that is creating a lot of interest and a lot of excitement. Companies like Illumina are primarily playing in the research markets. We are primarily 100% there today. As we get clinical validity and you move from the left to the right, the value of your markers go up. NfL happens to be one that we're the only ones that really can see it in blood, effectively and repeatably, and with a lot of third-party peer review validation. That is one of the key markers that we're going to keep trying to move to the right, working with the FDA. You can see on the next slide, the number of publications using NfL is growing astronomically right now.
In ECTRIMS, which is coming up in Stockholm, the next one, I would expect you're going to see it further eclipse the 40 presentations that were in the spring ECTRIMS. On the right-hand side, you can see a lot of companies with active trials utilizing NfL, primarily for multiple sclerosis at this point, but there's evidence that it can be utilized in many other neuro diseases. The next slide just shows you that if you look at the publications in CSF and blood, you might have a total of about 500 publications. Most of those are using Uman's NfL. When you look at how many publications there are only in blood measuring NfL, you'll find out that 100% of the publications are using Uman's antibody pairs and also Simoa, by the way. That's key to our acquisition.
We spent 3 years trying to come up with antibody pairs that could relate to Uman's. You can see that when you look at blood and CSF, Uman stands apart from all of the other redacted places that we looked for those antibody pairs. What's exciting for us is when you look at the next slide, we see really 3 shots on goal for our current focus. Obviously, MS, because there's already 15 approved drugs, $22 billion of value out there that NfL is starting to help patients see whether or not that drug can be effective or not. There's new trials based on that, obviously. We also are real excited about also Alzheimer's and the beginnings of seeing disease 16 years before dementia was recently read out in a publication from Europe.
TBI is another area where we actually have primary endpoints currently underway. On the Alzheimer's front, the next slide, you can see that there's been bad news from Biogen on Aducanumab, but there's still continued interest. Obviously, it's 50 million patients. There's a lot of undiagnosed Alzheimer's, and there's the beginnings of us being able to see in blood, as mentioned by the CNN report on NfL, but also on beta-amyloid. We've got area under the curve of 99% on phase I technology, which we think someday can really provide a very non-invasive way to see beta-amyloid and amyloidosis early in that disease cycle.
The next slide we used at the recent Alzheimer conference, there has been a lot of failed drugs, but you still see companies like Eisai going after anti-beta-amyloids, and we actually believe that biomarkers can actually represent a platform for rescuing many of these drugs at a later time. What I'd like to do now is turn it over to Amol to dig a little bit deeper into the financials. Amol?
Thanks, Kevin. I'm going to provide some additional financial details about our Q2 2019 performance and will be referencing to slide 23. As Kevin noted, revenue in Q2 of 2019 was $13.5 million, compared to $8.6 million in Q2 of 2018, which represents 57% revenue growth. Product revenue grew from $5.2 million to $8.8 million, an increase of 69%. This was driven by 77% growth in our consumables business and 53% growth in instruments. Service revenue grew from $3.2 million to $4.8 million, an increase of 50%. Year to date, total revenues are $25.9 million, a 60% increase. As previously stated, we are not providing revenue guidance. Stronger adoption momentum and a small level of favorable timing in our consumables business led to a greater Q2 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 Q2 was again very strong at 51.2%. Prior year Q2 was 46%. The 520 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 our Q2 2019 performance as we scale our overall business, reduce product costs, and continue to drive the mix to more consumables revenue. As communicated in our UmanDiagnostics acquisition webcast, we expect this acquisition to expand our gross margin by about 200 basis points starting Q4 of 2019. Operating expenses totaled $17.4 million in Q2 2019 and included $1 million in one-time due diligence and transaction cost expenses associated with UmanDiagnostics acquisition.
As discussed in our UmanDiagnostics acquisition webcast, we expect to incur $2 to $3 million of one-time costs associated with UmanDiagnostics transaction and integration in 2019. As we discussed in our Q4 2018 and also Q1 2019 earnings call, we expect operating expenses to increase from our Q4 2018 baseline of $14.6 million as we look to continue to add to our commercial organization and other key areas of business, including resources to support the development of diagnostics strategy. In Q2 2019, we raised $48 million net through our ATM facility.
The balance sheet is in good shape as of June 30th, with approximately $73 million in cash, of which $1 million is collateral for the letter of credit we issued to our new building owner as a security deposit. Please note that we will use or we have used $16 million of this cash balance to close the Uman transaction in Q3 2019. During Q2 2019, our cash balance increased by $38 million, driven by $48 million ATM raise, less P&L loss, excluding $2.2 million of non-cash items such as stock options and depreciation, and $1.8 million increase in accounts receivable driven by revenue growth. Weighted average shares outstanding for EPS totaled 23.2 million for Q2 2019 period. At the end of Q2 2019, shares outstanding were 24.9 million. Overall, we are pleased with our Q2 performance and are committed to delivering solid 2019 results in line with expectations.
With that, I would like to turn it back to Kevin.
Excellent. What we'd like to do is open up for questions and then maybe make a final remark post questions.
Ladies and gentlemen, at this time, if you have a question, please press the star, then the number one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from Puneet Souda with SVB Leerink. Please proceed.
Yeah. Hi, Kevin. Thanks for taking the question. First one, quite a few things happened in the quarter in terms of both acquisitions and new product introductions. HD-X, I was hoping to get a view on when the product is shipping out, and if you could elaborate a bit on the trade-in program and how broad that is. My question is around customers who can potentially hold back purchases in anticipation of the next HD-X platform. I just wanted to get a better understanding of that, and how are you addressing that with the trade-in program?
Sure. Thanks, Puneet. Basically, we do plan, and what our original view on all this has been is that we will be shipping the HD-X by year-end. We do believe that we're going to see HD-X revenues in Q4, was the commitment that we've made. We actually have a couple early access beta programs underway right now, including our own Accelerator, a couple external and then one internal. My view is that there are folks that are still trying to buy HD-1s, but I think it's in everyone's interest for them to not buy an HD-1 moving forward, given that the HD-X is a far superior product. We think it's got not only significant advances in the reliability, but there's three incredibly important functionality advances, and one of those functionality advances is magnetic bead loading of the beads onto the array.
We had on average about 15% bead loading prior to this advance. We think that this advance with software ultimately will allow bead loadings of around 80%-90%, even maybe 90% plus. When you start driving bead loading, it's going to lead to even greater sensitivity. We are committed to get to another 100x in sensitivity to further build our lead versus any competition that's trying to catch up to what we've done here, because we can see a major market opportunity for even advanced sensitivity, given that there's a lot of proteins being identified now, subfraction proteins, modification, translational modifications in cerebral spinal fluid that we know a lot of pharma biotech would like to see in blood. We're working very judiciously and aggressively to advance the overall sensitivity.
We don't think there'll be any more HD-1s sold given all these significant advances with the HD-X. We did continue to see growth in our instrument volume and revenue in Q2 despite what you're describing, and that is, would someone wait for the HD-X? Certainly, there could be folks that would've bought in Q2 or Q3 that are deferring that to a later date, and I would say that we will start shipping HD-Xs in Q4, for sure. We will certainly be in full-fledged revenue generation, starting the latter part of Q4, but moving into Q1 for sure. Anyway, I hope that gives you some color on this HD-X.
Okay. That's very helpful. Thanks. Another question on consumables. Correct me if I'm wrong, but I'm seeing a sequentially flat revenue here, and I'm not sure if you've covered that already, but is this more of a seasonality or something else that we need to keep in mind in going ahead into 2020 as well?
Yeah. Seasonality obviously is very important, and we are seeing a lot of pickup in trials, some big trials using NfL. We do see continued favorable timing that has allowed us to ramp up at this level for the last two quarters. Overall, you can see we have a very strong trend of greater than 50% growth. We expect that that is going to continue. What you have here is very big levels of sales for our consumables, and so our year-on-year growth, this represented 77%. The seasonality effect is big, but we've also had some favorable timing
Okay, thanks. If I could ask a little bit of longer term, given the growth you're seeing in the segment and with HD-X launching and with Uman being in-house, I just wanted to get a sense of the longer term trajectory. I think you've always highlighted close to 40% or slightly more than 40% long-term CAGR. Is that something that you believe you'll continue to have, or could we potentially see some growth beyond that? Thank you.
Obviously, Puneet, we are very committed to execution. As you know, we've got a team of leadership. I think there's about 65, 70 people in our company from the old Caliper, and we never have missed guidance or expectations and that type of thing. We're really bullish on making sure we continue to not overpromise and that we continue to overdeliver. To that end, I would strongly recommend, as I have in the past, not significantly ramping up models beyond this 40% level of revenue growth as we look forward. I would also say the denominator keeps getting larger, right? Achieving the 40%, we went into 2017, 2018 and went into 2019 talking about that same number. We've never missed on being able to achieve that, even though the denominator is getting bigger.
We're very bullish on our ability to achieve at that, and we've got a track record for having done that. We think it's in everyone's best interest to kind of keep things in control. It's still best in class growth rates. We know we're delivering at a level of growth that's somewhat unprecedented in the industry, and we're doing it without the regulatory and reimbursement risk, and we're doing it with a lot of repeatability and sustainability. This is the seventh quarter that we've been public, and I think everyone was thinking, "Okay, three quarters we see, but normally these companies like this, they go through their fourth quarter, and then they start to really disappoint." We've worked really hard to continue our growth, and as you can see, it's actually continued to stay at levels above 50%, let alone 40%.
We're very confident in that 40% longer term level, and that's the kind of way that we would recommend that people think about us because it's best in class, and we're driving, as you can see with that level of revenue growth, really significant gross margin enhancement. Now we've further forward integrated or backward integrated into some accretive gross margin opportunities with the Uman acquisition. We stated that on a full-year basis, we see 200 basis points of overall company improvement by that acquisition. We're pretty excited about what we would consider to be low-risk ways to really move very rapid growth, somewhat unprecedented levels of growth, with really ramping the gross margins with a lot of repeatable consumable business out there.
Okay, great. Thanks, Kevin.
Thank you. Our next question comes from Doug Schenkel with Cowen. Please proceed.
Good morning. Just to start with a couple of questions on the top-line growth outlook. Kevin, you're tracking well ahead of your revenue growth outlook for 40%. As you look at the second half, I just want to make sure there's no factors you'd point us towards that you would tell us to be mindful of as we update our models that would essentially be in the category of things that would prompt you to deviate from what has been a really strong first half set of results.
Yeah. I think that what I've noticed over the last year or so, Doug, is that investors, and I suspect it's because of great analysts and yourself as well as the others that have been on this call thus far and those that will be on it next, you guys, whatever you've done, you've been able to get into a very detailed understanding and a lot of granularity into our businesses, and I think you've been able to keep investors very well advised to our growth prospects. That's something that's what you do. That's your thing. From our vantage point, because investors have felt pretty comfortable with this 40% long-term position, I'm saying in this call, we're not changing anything, right?
As I've encouraged in the past, please don't start to ramp up expectations based on us continuing to grow at levels greater than that 40%, because the 40% is something that we've always felt really good about, and we know best in class growth, and we don't want to, in any way, create risk profiles for investors. It's important to us to kind of manage what we consider to be a pretty damn good productive opportunity for value creation with lower levels of risk. That's why, Doug, we would encourage that we're not changing anything in this call relative to those outlooks.
Okay. That's helpful, thank you, I think. In terms of just the quarter, your instrument revenue declined sequentially, but still grew a healthy amount year-over-year. I'm just wondering if part of this is a function of you essentially moving folks from HD-1 to HD-X.
I guess building off of that, should we expect instrument revenue to actually accelerate in the back half as you get HD-X out there with more gusto and gain momentum on SP-X and SR-X?
I think the way I've talked about this in the past, Doug, is that when I look at that longer-term opportunity for 40% growth of bigger and growing denominators, which really starts to further create a differentiation of what we've got here, what we've said is that we feel like that growth trajectory is probably going to average 40%, but you'll probably see instruments on the lower side of that, and you would see the consumables potentially on the higher side of it. I would track services probably more around the 40%.
If you were to look at a profile, it would say that you probably will see instrument growths south of 40%, but obviously positive, you would see consumable growth north of 40%, and certainly sometimes big trajectories, and you will see the services maintain that kind of That's the way we would have you think about the longer term. We don't guide, but that's the way I would encourage you to look at this going forward. On the instrument side, you're right, we're eclipsing significantly those kinds of expectations. What you have there is a whole lot of catalyst, growth catalyst on instruments right now. We've got the combination of SP-X and SR-X and maybe a tailwind or a headwind that you might see that you were describing, Doug, is that you saw this concept of HD-1 to HD-X conversion could represent some level of headwind.
I think that there is a chance that it could. We still feel very comfortable with these long-term growth trajectories. You might see movements from quarter to quarter, but in general, we're seeing a level of interest and excitement for our differentiation. Now we're seeing a lot of competitors exiting, which is further fueling our ability to achieve a lot of what we said we were going to achieve. We probably wouldn't have predicted some of the exits of some of the competition. We're pretty firmly feeling very good about all aspects of what we've launched, and HDx was launched early. SPx was launched early. That's everything in our execution is a lot of times you do read about companies missing. We've been not only on time, but we've been ahead of schedule. HDx we will ship in Q4.
Will there be a little bit of an HD-X/HD-1 hiccup in Q3? I don't know. I think we've got plenty of other things that we've got working that are going to make that a moot point opposite the expectations that we're setting.
Okay. Super helpful. Just pivoting to consumables for a minute. The annualized annuity stream continues to track above your target for about 33% of the instrument list price. That ratio has been the target historically, you've traditionally and consistently tracked ahead of that at least for the last several quarters. With that in mind, can you first just talk about what really is driving the upside over the last quarter or so? Recognizing what you described earlier in terms of just, I guess, what my interpretation would be, comments on just kind of guidance and modeling philosophy. I just want to make sure there's nothing you're seeing that would suggest you're on the precipice of dropping to what would still be a pretty impressive ratio, but something closer to 33% versus what we've seen, which has been better than that recently.
Yeah. Doug, I think you're asking an important question. I'm going to provide some visionary comments here, and this is key to this execution path that we're on. What we're trying to do, Doug, is to have an equity that is actually really incredibly performing and executing with really kind of stellar growth levels and gross margin expansions, but yet we're pioneering, and so we're totally offering something to the world and to these healthcare markets that disrupts the way they practice. If you can start to see disease earlier and see it less invasively, you're talking about a phenomenon that is almost magical, right? We're bringing to the market in a democratized way, instrument platforms that get placed around the world. That takes over $100 million of investment to kind of get those instruments to work.
That's where a lot of the competition was never able to democratize its instrumentation platforms, this capability of sensitivity. They could sometimes approach it, almost get to maybe 10X less than us in sensitivity, but they would require you to send a sample to them, and they would run it in their central labs. The concept of democratizing this around the world and these instrument platforms was a very bold vision. We know that our technology doesn't work all the time, that it's a pioneering approach. Similar to when Illumina early on, it's not easy to get this technology to really advance. We've actually been a little surprised by the level of usage of our technology despite some of the issues.
We have some, I'll call them Pareto analyses that are somewhat encouraging, actually, where we've got maybe four or five top users consuming a large portion of utilization. They might be running at levels of utilization to your number, you're talking about 33% of equipment value. We've got a lot of companies that are running over 100%. We've got a lot of companies that they haven't broken through the inertia of these pioneering technologies. A lot of why we're launching product lines like the HD-X and the SR-X are ways to start to move these middle-tier customers into utilization levels that we know they want to be in, and they're desperately trying for it.
We actually think it's a fairly low-risk execution around ramping our consumable over the next couple of years by just making our technologies much more usable and repeatable and easier for customers to use and get a broader distribution of high use levels. Could we end up with use levels significantly above where we are? I think there's a shot at that, and that's why we're being cautious as we're rolling out platforms like the HD-X that we've put a couple of years and probably $50 million of investment around making sure we're creating a precise technology. I think it's going to yield greater consumable utilization. I don't see any downside at this point.
The 33% feels very solid. I think that everything I'm seeing, if we complement that with menu expansion and create other markers that people are interested in, there should be a lot of headroom of opportunity here for consumables. That's actually why I'm so bullish on this play. That's why we're working hard around launching new instruments, because of that usability that it creates for the consumable pull-through.
Okay. Last one, Kevin, just a cleanup. I think you guys noted a couple of times in your prepared remarks that there was some order timing that benefited Q2 revenue. I just want to make sure I heard that right. If so, could you quantify how much this was and what revenue line specifically did this impact? Thank you.
Great question, Doug. That's probably my conservative nature to want to make sure that everybody understands that a lot of companies are routinely saying that they missed because of timing, and we like it when we are always saying part of why we're way overachieving is sometimes due to timing. We think we've got time working for us right now, Doug, and that we're ahead of the game, and we're creating great visibility in the way we manage backlogs and the way we manage a lot of aspects of our forward-looking visibility to our revenue streams. I think you're going to continue to hear me when we have major beats over what expectations were. I think you could always look in and see places where timing has advantaged us.
I think in the area of consumables, we got some large trials that have been being run in the first half of this year, NfL trials, which, by the way, could spawn a lot more NfL trials because a lot of those are going to get published, and they're pretty game-changing trials. With that said, when I see those large trials happening with a lot of robust volume, I want to make sure that we are appropriately categorizing that we obviously, for maybe the sixth quarter in a row, we're beating this 40% long-term vision. I just want everyone to not get out of control. There was some timing benefit in consumables, and I would say that we still feel very confident we're going to be delivering really strong consumable growth moving forward, but there could be some level of timing.
You might end up seeing it as the year goes on, that we continue to get advantaged by customers diving on our technology. Now that we own NfL, we actually are seeing new opportunities where we didn't really expect this NfL UmanDiagnostics acquisition to be as much offensive. We thought there was plenty of justification just for defense to make sure we continue to get a good, solid supply of these antibody pairs. If competition would have gotten control of UmanDiagnostics, we could see that that could have been a real threat to the value creation opportunity that we see ahead of us. We acquired it primarily for defensive reasons. What we're finding now that we've owned it, there's a lot of offense.
There's a lot of ways that we can actually get these technologies into our competitors' hands and further advantage our own value creation without impairing our value creation on the Simoa side. We're pretty excited about looking at UmanDiagnostics not just as defense, but also as offense.
Okay. Thanks, guys.
Thank you. Our next question comes from Sung Ji Nam with BTIG. Please proceed.
Hi. Thanks for taking the questions. Just another one on the HD-X platform. Quanterix has a significant install base of HD-1. Kevin, is there a reason why the majority of the install base will not be ultimately upgraded to the new platform? Could you maybe talk about what your expectations are over the next couple of years in terms of the replacement? I think I'm not sure if I heard your answer to Puneet's questions earlier about what the trade-in program entails.
Yeah. Great question, Sung Ji. We basically do want to convert most of our installed base over to HDx in the coming years. We wouldn't consider this in something like the next few months. It would take, we think, a couple of years. What we're doing is going to where things are most strategic and trying to make sure that we get those high-volume, most strategic customers first onto the HDx because of the volume opportunities that it represents in our consumables. What we see there is an economic that creates an incentive for them to trade an HD-1 in, where they get relief on the HDx by trading it in. We also feel like all of the positive features of the HDx creates a lot more excitement for why they want to do that as well.
Someday, I would think that you'll see at least 50% of our installed base converted over. Will we ever get to 100%? I don't know. I have belief that it's possible. It's possible too, that some customers will decide just to keep running the HD-1 and feel that they've gotten a lot of comfort with it and they don't want to convert over. I think there's a big opportunity missed by them, and so we're going to be working hard to help make sure they see that. I don't know if that answers your question.
Yeah, that's very helpful. Just another question on the consumable. Sorry if I'm not getting this, for the quarter, the significant growth and other year-over-year growth that you saw was largely driven by your high throughput customers. Is there a reason why we shouldn't anticipate, why we wouldn't see kind of continued strong pull-through from your high-volume customers over the next couple of quarters?
Yeah, we actually feel very confident that the high volume users are not only going to keep buying at a very strong pace, but many of them have insufficient capacity for what they currently see in their future. We actually are viewing many of our larger users in a way that we actually see potential for more placements. We're pretty encouraged by that. We don't really see anyone right now that has reached a level of usage that says that there isn't significant headroom of opportunity. That's encouraging, and I think that when you're pioneering like this, there's so many ways that people decide to start using your technology, and that's why publications are fueling a lot of the excitement, because each time a publication issues, it causes all the researchers to see a new way to use this disruptive tool.
The reason we invest heavily in some of these different conferences as well as like Powering Precision Health Summit, is that it gives us a chance to showcase through the actual scientists that are running those trials. They stand up, and they present their data. It helps to further create excitement for the use cases when our customers are the ones providing the reference selling approach. We have a very large reference selling model, and that is the best way and the most advantageous way to grow these businesses. We feel very confident about the high-end users. Most of our focus right now is turned to getting these lower volume users to have a technology that they believe in and trust and don't feel like they're going to lose samples and that's a big opportunity with the HD-X as well as the SP-X and the SR-X.
Great. Just lastly from me, Kevin, you talked about a strong showing at AAIC. We're starting to hear more efforts around blood-based diagnostics development for early detection of neurodegenerative diseases. Was curious, are these efforts that we're starting to hear coming out of AAIC as well as others, are they competitive in nature to what Quanterix is trying to do? If these might be actual opportunities for you guys going forward?
Great question. My view is that they are opportunities because one of the interesting thing is many of the companies that have data that is compelling relative to seeing Alzheimer's early in blood, they actually attended our dinner, and we invited them there. Many of them have technologies that can get there one-off, the challenge in this is having a scalable economic. The greatness in our technology is that we've reduced a very tried and true long-term historic assay category, the ELISA, into a digital ELISA, which allows a much better economic and a much better scalability. We also think that because we can see everything they can see, them seeing it and creating interest in it is a great thing for us because it's further evidencing just how big of an opportunity this can be.
I mean, Roche recently made some comments that there's 50 million Alzheimer's patients out there. We got to find a way to see this earlier. There's so much that goes undiagnosed. We know that nobody's going to want a cerebral spinal tap or a lumbar puncture in order to figure that out. These advances, we think, represent a monumental opportunity for our technology. We aren't asking people to buy our stock based on that because that's a next generation diagnostic that we're working towards. We think there's significant opportunity to get a lot of value creation without even going there, but we are going there.
It's just that we don't want you buying it based on us going there because there's plenty of value creation, we believe, in the research markets where there's no regulatory reimbursement risk, and we still encourage, and you can see the rapid ramp that's occurring in that category. Everything we do in that category to rapidly ramp it is creating more validity and more confidence in that next step when you do get to diagnostics, and this gets back to the scalability of our technology. We now got it deployed over 350 places around the world, and that learning curve around democratizing and creating scale is a very important learning for a pioneering technology.
Great. Thank you very much.
Our pleasure.
Our next question comes from Max Masucci with Canaccord Genuity. Please proceed.
Hey, guys. Thanks for taking the questions. The stock is down. It's a little confusing because you reported another strong quarter. I think one of the reasons the stock is down is related to the fact that consumables did not grow sequentially. According to my record-keeping in my model, this is the first time this has happened in a couple of years. As we think about what happened in Q1, you put up a huge 124% year-over-year growth rate in consumables in Q1. I guess, Kevin, as we think about your comments about timing, did you see a large number of work and projects run in Q1? Is that the difficult comp related to timing? I think you had other comments about Q2 lumpiness as well.
I would say, Max, if you averaged out the Q1, Q2, you see a pretty reasonable curve of trajectory that further is accelerated versus what we have been doing. I think that the comments on timing were primarily made in Q1. If you go back and review, we did talk about that Q1 125% growth not being what you should expect moving forward. No one did, by the way. I know we significantly beat expectations in the category of consumables. Don't misread this. We're significantly beating expectations, but we're also creating the next generation of opportunity with a lot of our instrument approaches that we're taking. I think that Q1 was the timing topic, and it did create some of this issue that we're seeing relative to what you're calling sequential growth.
We would always say that it's important in these types of businesses to look at seasonal growth, and the reason is because there's different types of capital budgets as well as operating budgets that are placed at different periods. You do see from quarter to quarter in these types of businesses, you do see seasonality. We do encourage always to be looking at how did we do versus last time, Q2, and there you can see we grew 77%, which is still significantly above the trajectory that most people would have expected for our Q2. I think we're really in a pretty good place relative to that consumables trajectory. Again, I'd say we're staying conservative. We feel really good about the timing of future trials as well.
We can see a lot of big-ticket opportunities in consumables, and we have a lot of backlog management that's possible in these other categories too, which is great. You really can't build backlog in consumables because you got a lot of demand that requires a lot of that purchase pattern to occur in the quarter. That makes us cautious, but yet, our performance over the last, I would say 18 quarters, has been incredible in this category of consumables. While we're doing it, we're also significantly ramping up the gross margins, and we are further cementing things like the NfL franchise, which that is a lot of the future growth in consumables, and that is not in one company. That's across the board. All these publications that are coming out is creating a lot of future growth in that category.
I think we see consumables being by far the easiest category for us to continue a very strong growth trajectory over the next, I would say, couple of years.
That's helpful. I think one of the competitors that has exited was Singulex, I think they closed about five weeks ago. Do you guys have a sense of what their ballpark install base or revenue business was? Presumably, that would be a nice opportunity for you. Do you know where those systems were placed, and have you started going after them?
Yeah. They basically had evolved themselves into mostly in the category of cardiac, Max. They have spent a lot of time focusing on troponin as being a future biomarker for heart health that they view as being a much more productive biomarker than cholesterol. A lot of what they had done over the last several years was build an instrument position that they ended up divesting, and then they built a services business where they were running these in-house, and then they were subsequently divesting pieces of that. They tried, I think, going public a couple of times, but they couldn't sustain with what I'll call services and lack of the ability to really keep placements going with consumables, the ability to really, I'll call it, find investors that felt that there was the right risk profile for building their business.
Where we have, in our case, we started with instruments with a lot of placements. The services business was more of an afterthought that we utilized primarily for promotion of selling instruments, we turned it into a very profitable business. You're absolutely right. There are opportunities for Singulex. I wouldn't draw a lot of attention to them because they weren't that large of a competitor. I would say that it is a telling example though of our model at work where we automate as well as we provide dynamic range, as well as we provide the ability for our broad menu, and we do all that with this exquisite sensitivity that can be deployed not just in early disease detection and less invasive, but also allowing you to eliminate matrix effects even on abundant markers.
We're starting to now move into cancer, where there are markers sometimes that are abundant, that have a lot of matrix effects, and they're trying to get an answer from a small sample. They didn't have the breadth of capability and technology to go after that. We would say that most of that business has been dropping over the last two, three years. There wasn't much revenue left in it when they closed. Historically, their placements probably are around a couple hundred of instrument placements in different pockets of the world and their different platforms, and they did sell off some of those assets earlier. Then the service revenue at its peak was $50 million in revenue, is what our estimates are for that troponin cardiac business that they then broke up and kind of spun out.
Great. Thank you, Kevin. That's it for me, and I'll see you tomorrow.
Sounds great, Max.
Thank you. Our next question comes from Tycho Peterson with JP Morgan. Please proceed.
Hey, thanks. Kevin, I want to go back to kind of the competitive dynamics for a minute. I know you guys, for Alzheimer's, have the Nature publication. I think, you've come out and said that you need to pair NfL up with other biomarkers. Can you talk a little bit about how some of that development is going? Some of the alternatives are leveraging mass spec technology. Just curious, in the long run, how you think about that, competitively, given what we've seen from WashU and bring them in some of the other efforts.
Yeah. Great questions, Tycho. Starting with the multiplexing, what's amazing about our technology is that if you talk to some of the leaders out there, like an Al Sandrock, who's Chief Medical Officer at Biogen or Lilly or Novartis, these companies that are using our technology, they don't know where the field's going to go in neurology, and so every day there's other biomarkers that are being found that could further create specificity to a disease category. Right now what you have is strong sensitivity of NfL, but it's not specific to any one disease. It basically says, if you've got neuronal damage, then it measures it. There's a lot of different ailments. It can be concussions, it could be Alzheimer's, it could be Parkinson's. There's a lot of different diseases that get impacted by neuronal damage.
That is an incredible measure that we think is going to be needed across the board futuristically and looking at non-invasive early detection head health. Now, we see a lot of movement now into areas of inflammation of the brain. Can you augment that NfL marker with inflammation markers that might reveal certain categories of disease? Can you augment it with tau? Because you're looking at a specific type of Alzheimer's patient that's got tauopathy. You're looking at beta-amyloid, and there's two different beta-amyloids, there's a 42 and a 40. Those proteins have shown the most ability to clinically discriminate Alzheimer's. A fourplex of those, as an example, is right now a very hot product that we offer.
There are changes being made by the FDA to actually have categories for tau, categories for beta-amyloid, and then categories for neuronal health. They're actually building categories in the FDA around biomarkers, and we have a fourplex that kind of goes at all four of those categories. We're feeling really good about that part of the progress and the ability to do sensitive measurements because you just don't know how much sensitivity you're going to need, and you don't want to switch platforms later. Anyone that is wanting to look at futuristic multiplexing for neurohealth wants to make sure they've got the sensitivity on their platform to get at other markers. That plays, again, into our advantage. Tycho, the second question you asked, if you could just repeat that. The first one was around the multiplexing.
Well, just curious, some of the other platforms are leveraging mass spectrometry technology.
Okay. Yeah
particularly the WashU one that the Times wrote about.
Perfect. Yeah. C2N is a WashU kind of spin-out. We really like those guys a lot. They've done some incredible work on understanding the metabolisms of different biomarkers, and many of the pharma companies have utilized them. Again, using a mass spec, and I'm on the board of 908 Devices, and that's a company where we're reducing to a handheld mass spec because it's such a complex, expensive technology that it's harder to get it into a scalable platform. That's the key to our technology is the scalability of it and being able to see the same things that they can see and more, we actually think bodes well for relationships with companies like that do have relationships with pharma that are trying to evolve their scale. We could represent that opportunity. In fact, C2N has one of our. They own a Simoa.
We actually see these use cases being very productive, and we believe that it's getting more and more attention because I think the field of Alzheimer's has been very restricted in many respects, not just because of not seeing the disease long before symptoms, but also because of the pain that the cerebral spinal fluid sample required. That lumbar puncture is expensive, invasive, and it can create infections. There's a whole lot of problems with it. By opening up this ability to see it in blood changes everything for the way that the disease gets researched. We actually feel like our investments that we continue to make in our platforms and our menu for 4-plexing against the most important biomarkers in neurology, is important. We have 17 or 18 now, and Synapse is another category.
SNAP-25 is another category that is futuristic, but you need our sensitivity to not only see it in CSF, but to see it in blood.
I'm curious if you could update on any IVD partnership discussions you're having now. I know last quarter you said that you've had decent interest from some of the traditional IVD companies. Is there a chance we could get a deal in the back half of the year?
Yeah, I would never rule out an opportunity for a deal in IVD. I would say that we probably learned a lot of lessons, Tycho, in the deal that we had with bioMérieux. It took us four years, basically, to remove ourselves from that arrangement that was an exclusive. By doing so, we feel like we've unleashed a new way to interact with large diagnostic houses around the possibilities of what Simoa represents. I do think that it remains a strategic goal for us in 2019 to advance an IVD relationship. I think we've previously announced that there was a blood screening deal with Abbott and some other works with Abbott, and I happen to think that Siemens and Roche are also incredibly productive diagnostic houses that we've had interactions with and want to continue to understand how we could benefit their large distribution capability.
I think Roche has 70,000 instruments out there, and Siemens probably has 10,000. The challenge with bioMérieux was they were infectious disease. They weren't focused on cancer and neurology, which is really where we see the biggest disruption occurring with our technologies.
Last one, just can you update on sales headcount? I think you've talked about adding 40 people for the commercial ramp, in particular around HD-X and OUS. Where are you in the build-out?
We have a combination of the way we look at sales, Tycho. We have number-carrying pure salespeople, but then we have PhDs that are field application technologists that are a part of that commercial organization. We are evolving at about 30% a year, and the total headcount that we have in our commercial organization now, Amol, I'm thinking it's probably somewhere around 70-
Yeah, I would say that.
people at this point. We've added three leaders I mentioned in my remarks that are really the predecessor to bringing in the next wave of sales personnel. I think we feel really good that we've got the right leadership in place now to further scale that. We've added, I think we're up to 14 number-generating salespeople, and we're going to continue to evolve that. We find that it's a real productive investment to add salespeople, we're actually also looking at ways to even further accelerate commercially, the ability to even grow faster with different sales approaches and models. We wanted to make sure we absorbed all of the execution dimensions of our current model before doing that. A lot of that was the instruments.
We wanted to make sure we had instruments that when we sold them, we knew that they were going to get used and they weren't going to create a lot of burden on FSEs and field service applications because they're hard to use. A lot of our investments in instrument platforms will actually precede the investments we have in sales because we want to make sure when we scale, that we're scaling with instruments that are scalable and creating the right trajectory on consumables and instrument revenue growth.
Okay, thank you.
Thank you.
Thank you. I am showing no further questions at this time. I would like to turn the call back over to Kevin Hrusovsky for closing remarks.
Excellent. Yeah, appreciate it. We will be at the Canaccord Conference tomorrow. I think Max mentioned that. Excited to further build out the success that we've been able to show. This has probably been a real key indicator for us of somewhat of an inflection point the first half of this year, and our ability to really deliver growth across all three business categories at the level that we've been able to do further creates our confidence and our ability to keep this trajectory accelerating. We're feeling really good about all aspects of our execution right now, including the integrations of the two acquisitions that we've done that we think were both very accretive acquisitions. In summary, we think a category-defining, unrivaled sensitivity and technology that we know is best in class that we're using to disrupt with a lot of this growth.
We have a very methodical market penetration strategy that we think rewards investors for being in research where we have a very low risk profile of advancing the type of growth trajectory that we've been seeing. We also feel like we're linking together DNA and RNA. There's many publications of possibility given that the SP-X can actually do DNA and RNA that would adjunct our protein, and that we think better links disease across this liquid biopsy opportunity, and that's what we're recently launching into. Also key to this is the validation. We've got 19 of the top 20 pharmas now using the technology. We are sponsoring the Powering Precision Health, which we see a lot of growth of that attendance. We also see 800-plus Phase I, II, III trials already completed.
We think it's the fastest adoption cycle we've ever seen in pharma biotech, and we now have over 550 third-party peer-reviewed publications. All of that is further fueling, from a metric leader standpoint, the longer-term value creation. We have a strong razor-razor blade model, which gives us great visibility to our growth, and we also feel like we've attracted an incredible management team and team overall that are some of the best in the industry that have a lot of experience in creating value, but creating growth for value. We appreciate your support and look forward to further discussions in the future. Thank you.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.