M&A Announcement

Jun 26, 2019

Good day, ladies and gentlemen. Welcome to the Quanterix Uman Diagnostics Acquisition Conference Call. At this time, all participants are in a listen only mode. Later, we'll conduct a question and answer session and instructions will follow at that time. As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Kevin Ruzovsky. Please go ahead. Thank you very much. It's a pleasure to be here today. Just wanted to provide an update on a pretty important strategic move that we made today. I believe most of our analysts are represented on this call and a few investors. Got, Amal Chabal, our CFO and Steven Russovsky, our IR Head on the phone as well for the Q and A section. And please, we would encourage you to consult your regulatory filings before making any investments in Quanterix. Basically today I'd like to go through a slide deck that is up through NASDAQ as well as on our website. Two primary agenda items. Number one is just updating you once again. Most of the slides I used during our third quarter conference call for the first item, just are gonna repeat those, put this into context. And then secondly, some specific slides around the Umon Diagnostics acquisition. So let me begin on slide four. As we've been pointing out for the last couple years, our primary focus is to shift today's highly invasive and late stage disease detection into what we would consider to be low invasiveness to non invasiveness and early detection, going from the left to the right. Slide five is a slide that we've used for the last couple of years. It basically shows on the left hand Y axis the invasiveness of testing. And you can see here that a lot of the testing today is biopsy for cancer and spinal tap for neuro health. And that's a very invasive procedure. And a lot of times there's a lot of imaging, CAT scans, which also particularly for brain traumas, it could be as much as 300 to 400 times the radiation of a chest x-ray. So there's a lot of invasiveness even through imaging. But then, down at the bottom of the Y axis you can see blood and saliva and urine being what we would consider to be less invasive. And what happens typically with diseases and even healthy positions is that the further you go from the disease that might be centered like in a tumor into what we consider to be the vascular structure in blood, saliva and urine, the lower the biomarker concentration. So whether you're diseased or healthy, you typically would have a significant reduction in the concentration when you look at those biomarkers in blood versus looking at it in a biopsy. And then on the X axis you can see that, another key point to our vision is being able to see disease earlier. And today, particularly for cancer and neurodegeneration, these many times, cannot diagnose it until it's very advanced, very symptomatic disease in stage four. Many times in neuro, you actually don't understand and see it and get it diagnosed until posthumanist autopsies, particularly for like CTE, chronic traumatic encephalopathy. Many times you can only detect it posthumously. So the key here is that as you move earlier into the detection of the disease, the biomarkers are lower concentration. And when you're healthy you've typically got very low biomarker levels. So a lot of our focus is how do we get less invasive testing to reveal much earlier detection. And you can see here the red squares is today's detection levels. But illustratively the blue boxes is what we can do with quantarics. And now with Uman we can even further advance that because Uman brings some pretty important diagnostic capability to the Nf L neurofilament light marker, providing greater sensitivity and specificity. On the next slide, slide six, you can see that, about four years ago, four and a half years ago when I joined, actually redirected the business into research where there's no regulatory or reimbursement risk as a way to create a lot of peer reviewed validation and third party validation in publications around the technology to create a real groundswell of validation before going into the higher risk diagnostics where you do have regulatory and reimbursement risk. So we've been participating in a billion dollar market that's expanding as we move into oncology as well as into pharma services to as much as $4,000,000,000 But ultimately the dark green or light green you can see is a diagnostic market which can be as much as 10 times larger than the research markets. But the risk profile is greater as well. So you can see on the right hand side of the slide we're evolving from primarily a neuro position both in pharma services and in selling direct products and instruments and consumables to the marketplace, to that middle bubble which includes oncology. And that was the recent launch of our SPX products that are moving us into oncology. But then the far right is, the largest opportunity diagnostics. And we are not playing in that today. We were playing in it fairly significantly when I joined via a partnership with Beomere U. We've now gotten all those rights back. And we've moved almost 100% of our business now into what we call research. And this is the beginning of diagnostics through pharma services where we are running clinical trials. So the next slide, slide seven, is a newer slide that we've been using the last few presentations that we've given. Again on the left hand side you can see, bottom left of that Y axis is what we would call early detection and low invasiveness. And then top, when the biomarkers are high concentrations, late detection, and requires a lot of invasive biopsy and lumbar puncture. And where SOMOA has been playing is at the bottom half of this axis. And at the bottom, on this, what we would call the X axis, we're showing the ability to go from research, which is where we're playing today, smaller dollar signs, into diagnostics and trials is the clinical validity step that we're trying to evolve into. And today, as you've watched our business over the last couple of years, we really had hardly any NFL revenue, three years ago. And through Homebrew, we were able to get that marker established and it's now representing as much as 25% of our business. And you can see Nf L is something that we're starting to see many clinical trials. And that's where we sit today. And we ultimately believe that longer term it can disrupt neuro health detection and diagnostics by seeing neuronal health in blood non invasively. This is a fairly significant breakthrough. So the combination you can see of SOMOA and Uman Diagnostics presents a pretty interesting strategic opportunity for us to continue to evolve. And it also gives us a lot of control of this very important antibody pair. So on slide eight, just to repeat, for the last four years you can see we've gone basically from no revenue back in twenty thirteen-fourteen. And we've systematically been growing our revenues. And when we went public about six quarters ago, we've actually further accelerated our growth because many of our investors own positions in pharma biotech and they're actually helping us with leads to create opportunities for our technology to help drugs get approved through the FDA. So many of the trials and the way our biomarkers are being deployed, many of our investors have a win win scenario of owning us plus owning the biopharma companies and trying to get us introduced. So it's expanded, we think, our sales and commercialization efforts through the IPO process. So we've been very happy to see the step up. And you can see here, the last quarter that we did do, a presentation was our first quarter results, which are in purple, which was 64% growth. And you can see our product growth in that quarter was 100%. So we really have a very strong consumable and instrument sales volume. And we've had a pretty strong inflection point the last three quarters. We've actually had very strong instrument growth. And for the three years prior to the last three quarters we basically were flat on instruments. And so that was a key catalyst for future, what we'll call growth value creation. So the next slide is a real important slide. We've used this in all of our presentations to basically show that we use publications, third party peer reviewed publications that really stemmed from the Powering Precision Health Summit that we sponsored. It's an independent, nonprofit organization that, we basically sponsor and create a lot of interest, through the thought leadership groups in both cancer and neurodegeneration for running the technologies from Quanterix and other companies to actually do third party peer review publications to validate. And you can see those publications now. We have over 500 of them. And that's led to over two eighty six different types of biomarkers now across those different diseases. And neurology is by far the strongest, but you can see an uptick there in oncology. And there's a lot more markers in oncology. And that's why we acquired Umon about eighteen months ago, is to give us multiplexing capability. And that new SPX that we just launched does in fact have a multiplex up to 10 plex, which helps us in cancer. So you can see that the publications in the biomarkers lead then to our Accelerator Services business where we actually run trials. And you can see the number of trials that we've been running continues to increase up to 53 phase one, two, three drug trials now using, our biomarkers in house. And you can also see here, the continued ramp, primarily in virology in house. And then that leads then to instrument sales. And you can see that we continue to place a lot of instruments. And those instruments primarily are in neurology, but we're starting to see some oncology pickup. And you can see that the inflection point of growth of 70 so far in 2019 on instruments. But then on the right hand side, you can see that we've had about 100% triple digit growth for the last several quarters. Some of that is timing, but it just further ramps up as you can see a very consistent volume increase. And there's a lot of strong execution here with team of people that basically, I think 70 of the folks in our company right now worked in my previous company that we did something similar to this was Caliper Life Sciences and then into PerkinElmer. So there's a lot of execution capability that's leading to this build out of our consumables which is where most of our profitability lies and it's got the biggest inflection point for growing. And Uman directly fits into consumables because it is the antibody pairs for Nf L that fit right into our consumable kits. And so this is somewhat of a backward integration of one of the most critical ingredients, in our overall portfolio. And so slide 10 just shows you just the rapid ramp over the last three, four years of all the different companies that now have installed base positions with us of our instruments and or are using our technology through our services and accelerator. Slide 11, again is a repeat where we are showing our goals for 2019. And you can see we're solid green in all five categories right now. Again, like last year, executing with a lot of precision. In neurology where we're less than 10% penetrated, we continue to wanna ramp up our assays. And this is where Uman fits right in because it's for neurology, where we've been experiencing 7% growth, in Q1. Second category, oncology, where we just done the SPX launch. We're just now beginning to move into that category. A lot more competition there. That's where Luminex and MSD and Techni sit. So we don't expect to be really fast ramp in oncology, but we are very disruptive with our sensitivity, particularly for immunotherapies when you're trying to understand whether they're being effective and or safe for the cancer patients and approvals of those drugs. And from a strategic standpoint, we did get all those rights back from BioMarieux, and we are looking continue to evolve our LDT and then IBD partnerships in 2019 and continue to have another 50 phase one, two, three trials. And we mentioned here that M and A could be a key area of our focus this year. And here we are in the month of June announcing that we're acquiring Uman Diagnostics, the critical antibody pair company. And you can see that in the financials. Longer term, we don't provide guidance for the year or short term. But longer term, we feel very comfortable with the 40% growth and we've been out flipping that the last six quarters. But also our gross margin improvement, we feel we can continue to evolve that about 300 bps this year. And instrument growth for the first year, we're really planning to have very strong instrument growth. And you can see that Q1 we out clipped, those goals. And then finally, we announced at the JPMorgan conference that we would bill for another 100x. And this is important because as we do Nf L, and you need the sensitivity for Nf L, particularly if you're gonna dilute samples and get good repeatability, by doing another 100X we can actually look at isomers that are subsets of the total different protein categories. So these, protein, modifications are an opportunity where today's our sensitivity can see them in cerebrospinal fluid. But as they get into the blood, they're about 50 times less abundant. And so going another 100x in our sensitivity is gonna enable further stratification of various neuro diseases as well as oncology and further allow us to get earlier in the disease cycle. So pretty excited about that, evolution planning for a 2021, launch of the 100x. The next slide is again a repeat that just shows that the drug industry has a lot of challenge around toxicity. Many of these drugs are very toxic. And the higher the dose, the more toxic they are. So the earlier you can fight a disease, typically the less dosing that you need, and that makes the drug a much safer drug. And it also allows drugs to be more efficacious if you can get a disease much earlier, long before symptoms. And so those two categories, toxicity and efficacy, are what the primary driver of the biomarkers are. And there is third party proof from the biopharma industry that if biomarkers are utilized, you get about a 300% increase in the drug approval rate after getting a phase one approval, the percent chance of getting a phase three approval. So that's a key evolution for the industry. And that's where a lot of our growth for the next several years in research, without the regulatory and reimbursement risk, lies. And you can see on the right side there's a lot of our instruments that have now been positioned. That CROs, the Quest, the LabCorp, the rules based medicines. But in addition we continue to evolve our own trials in house. All right, then slide 13 starts to evolve this back into what we would call the neuro side. You can see that oncology with the whole focus on liquid biopsies is a key area. You see the Guardians and, you know, a lot of different, GRAIL, a lot of different companies are honed in on liquid biopsies. And so the molecular side has evolved and it's past the, what we would call the embryonic stage. But CNS where we're playing today with Nf L is still very embryonic. And even oncology proteomics is very embryonic. And that's why we're really at the beginning of a life cycle of opportunity. The next slide, slide 14, just shows that there's a lot of different possibilities of biomarkers in the brain that can reveal Alzheimer's and reveal MS, Parkinson's, ALS, CTE much earlier non invasively in blood. And those are a lot of where much of the research grants are going today to fuel our growth. And the FDA has further evolved their position and have issued guidance saying that they would actually like the drug industry to use biomarkers. They feel that it's an opportunity, particularly where there's never been an Alzheimer drug approved that modifies the disease. This could be a chance to see the disease long before dementia when we think some of these drugs could have efficacy. So rescuing drugs in the neuro landscape using biomarkers is a real significant opportunity. And Nf L ends up being at the base of that big opportunity. So the next slide just shows you this Nf L surge. There's three basic shots on goal that we're focused on right now. MS, where there's an 18,000, cohort normalcy trial that we're going be running to just look at Nf L, normalcy. And then there's been a 17 site analytical validation. But in the area of MS, today there's 15 approved drugs for $22,000,000,000 and there's a lot of new drugs that are coming in. And there's 46 different trials occurring in the MS landscape and overall Nf L landscape trying to utilize Nf L neurofilament light as a secondary surrogate endpoint to help these drugs, on their approval cycles. We also see TBI, there's several trials underway with drugs for traumatic brain injury that are utilizing, Nf L as co primary endpoints. And we just recently were, showcased on CNN, some researchers in Europe. I'm actually in Europe right now. I'm in Sweden and Stockholm. But, there was a fairly significant, ability through a trial to see Alzheimer's sixteen years before dementia and symptoms using Nf L. They saw elevated Nf L levels in familial Alzheimer patients, which is only one percent of Alzheimer patients. But they were able to see it sixteen years before dementia. And that created a lot of interest in seeing the disease cycle much earlier which could lead to attractive drug approval profile for Nf L. So the next slide just shows you just the rapid ramp of Nf L and the number of publications from all these pharmabiotechs across primarily MS. But there's been an explosion in almost all of these publications are utilizing not only the Uman Nf L pair, but also Simola. It's the combination that creates the specificity from Uman's pair plus the sensitivity of quanterics. And slide 17 just shows you that we continue to evolve the publications, the markers, and the instruments in neurology, as we pointed out earlier. And slide 18 shows that it's just not for MS, but we're seeing a lot of new publications in Alzheimer's and ALS. And you can see on the right hand side that these disease categories are much larger than MS. And so we actually think that there's a lot of opportunity particularly in Alzheimer's. So then if you go to slide 19, this was taken today, this picture. This is all of us holding our lucky buckeyes. It's a good luck charm in front of the Umbond facilities here in Umea, Sweden. And you can see a couple of the founders. One founder's on the right. He's an immunologist. And he was actually a professor of the third person from the right, Nicholas, who's the CEO. And then there's another founder in the back. But this group basically discovered these clones that almost all the publications are based on their pair because of their specificity. So it's a pretty exciting company that's focused, very focused on Nf L. And that's a key area of what we wanted to secure our supply given that it's been such a big ramp for our company. But we also see an incredible opportunity as we've outlined with the future emergence of neuro. And then, slide 20 just outlines some of the key components of this. We're paying $22,500,000 of which $16,000,000 is cash and $6,500,000 is equity based on the last ten days of trading value. So that's a very efficient use of equity and it's a trend that we think bodes very productively for us as we continue to always look at M and A as possible scenarios to further advance and accelerate our strategic ascent. But the publications we're going to show you in a moment, it's pretty significant. We also feel like there's a chance to really move into a $10,000,000,000 neurodiagnostic market. And we know that the large players, the Roche's, the Siemens, the Abbott's, all have tremendous interest in trying to get to neuro diagnostics, particularly if it can be done non invasively in blood versus CSF and cerebrospinal fluid. So this gives us some additional in house antibody development, which is a new capability. You may remember we brought Dawn Matun in about eighteen months ago. I was on the board of Cell Signaling, one of the top antibody companies in the world for several years. And Dawn was, in that company. It's one of the top quality antibody providers in the world. And she joined us eighteen months ago further advancing our overall understanding and ability to do the kind of deal that we did today. And I think the key point here financially too is that this deal will on average over an annual period give us a couple 100 basis points of overall company gross margin advance. So this is accelerating our crossover. It's a very profitable business and that's a key piece to our use of proceeds. So slide 21 just shows you that if you look at all of the publications in the landscape, three eighty two of them, are actually based on Uman's NFL, and 112 are non Uman Nf L in the area of CSF and blood. But if you go to the right, which is the key breakthrough here is being able to test brain health in blood. 100% of those publications using Nf L, for neuro health depiction is basically using the Uman antibody pairs. And I think probably 90 plus of those are also done in Quanterix's instruments. So that combination really has what's unleashed that capability on brain health and blood. So slide 22 just as a summary. Quanterix, we've worked very hard building a lot of democratization of instrumentation that has a strong consumable pull through. And we've been using sensitivity and we've been creating automation around that, focusing also on multiplexing. The customers, we've built a major global commercial organization. But we've got this ecosystem called Powering Precision Health that we're the leading sponsor of. It's an independent nonprofit that I founded, but it's linked. We have, the last one was in Amsterdam, and the whole the whole summit was almost dedicated to NFL. So in today's press release, there's a link in there that will show you a five minute summary video. I think Mark Massari is on this call. He was actually in that video as well. But it showcases most of the leaders from around the world describing this Nf L franchise and what it's gonna do for the world. It's a pretty compelling piece that, we feel like those leaders, those thought leaders are really leading that charge. Then on the right side you can see this epitope specificity and sensitivity the Nf L antibody. It's a world leader. And they also provide other diagnostic firms, with this Nf L. So we're pretty excited about that. And primarily being used in CSF today, but they've got the ability to move it into a lysis for just what I'll call just more traditional, immunoassay technology. And then at the bottom, I think when you add these two things together, it gives us the ability to really bring hope to millions of patients worldwide where neuro health is becoming a major focus in most countries, given the dire state of neuro health that's occurring. And with the onslaught of Alzheimer's and the aging demographics, particularly in The United States, this is a big area of NIH focus. And being first in blood with this technology is important. So we did want to summarize on slide 23 the financial benefits. Primarily we've mentioned those being mostly around gross margin enhancement, but accelerating cash flow break over. But we do think longer term there'll be some growth opportunities stemming from this. Secondly, just securing the supply of a of a key ingredient represents 25% of our company today, and our valuation was very much, I would consider not to say that it was at risk, but we wanted to shore up and make sure that we didn't have any risk profile around that value creation that we've been able to achieve. And then the strategic value for future clinical opportunities and then just reinforcing our Quantaris Nf L strength given the value of what we think the future holds and the number of trials that are currently underway using Nf L. Slide 24 just shows you that over the last four or five years since I've been here, I redacted this slide to remove the names of all of these different competitors that do have antibody pairs for Nf L. But you can see that most of them you cannot detect them in blood using their antibody pairs. And that's what really differentiated Umon. The combination of Umon's specificity and our sensitivity puts us up in that upper right quadrant. And we were using Samoa for all of these different trials of these different dots that you see. But none of them were able to break into what we would consider the important blood area of opportunity as Oman has. And so slide 25 is just a summary that summarizes that we don't expect that the revenue in the short term is going be material here. This is mostly a backward integration, but it will be, we think, in 2020 through 'twenty two. Annualized gross margin expansion is a couple of 100 basis points before purchase price allocation. We do have a lot of inventory that we're bringing onto the balance sheet. So the real benefit of this probably hits mostly in the fourth quarter once that inventory is worked off. And that's why I think on a full year basis, you're really only getting about onefour of that 200 basis points. And then we also see an ongoing increase in operating expenses to support this. Even though it is very profitable, we do want to continue to build that out with our R and D and SG and A to build that franchise. And we do think there'll be 2,000,000 to $3,000,000 of integration costs associated with integrating this. I did want to also show you our new facility. Some of you have heard about it. It's a 100,000, 92,000 square foot. It's a center for biomarker disruption. And we will be having a major open house with all of our families joining us from around the world to better view this facility. But we moved in about four weeks ago and our timing couldn't have been better given the expansion of what's occurring. So the last slide would be our typical strategic summary slide where it's broken into two components. And one of them is disrupting a market is the first step of commercialization. Empowering Precision Health and a lot of the sponsorship of that summit coupled with our ability to get publications in these markets truly started to validate this. And then how you execute and having good visibility of your growth really depends on how much razor razorblade you can create. We've created a very strong consumable flow which is helping that execution. The rating of center is validation. And 19 of the top 20 pharma now are using our biomarkers. There's been over 800 Phase I, II, III drug trials. And now we have over 500 publications really validating this technology. So I will end there, open up the lines if there's any questions. Really appreciate getting on the call and wanting to make sure that each of you have a chance to understand the positioning. So, we'll open up and see if you have any questions. Thank you. You. And our first question comes from the line of Sung Ji Nam with BTIG. Your line is now open. Hi, thanks for taking the questions. And congratulations on the deal. A few clarification So starting with I'm just trying to figure out the trying to reconcile this, you know, what you said about this not contributing meaningfully to revenues. So, basically, is Quanterix the largest customer, was Quanterix the largest customer for Oman up until now? Or Exactly. We, by far, were the largest customer, and, I would say represented all all of their growth primarily. So that's that's the key component of this. And, you know, that it's you know, I would say that it's by far the most material component of their revenue stream, and that's that's really what we're backward integrating into. Okay. And then do you did you say you expect to keep the operations in Sweden? And and then if so, how many employees do they currently have? Yeah. It's a small group. That's why I think the profitability is so high. I think, I met with all of the employees today. I think there's, you know, less than 10. And, most of them have been around this for quite a while. So it's a very specialized group. And they're very focused on the brain. And they're currently very focused on Nf L. And I think we see some expansion opportunities both in using Nf L for supply to other areas, even competitors that might be trying to establish Nf L positions. We would, at this point now with the ownership of this important supply chain, we will work to further the field. We think that there's a massive opportunity to further the field even through other channels other than just our own. So with time I think we would see that as an expansion opportunity. And I would also think that there might be other markers that we think beyond Nf L that having some in house antibody capability is going to give us some, beginning ability to look at some of the more, advanced publication landscape where there's some markers of interest to further hone sensitivity and specificity utilizing some of the same techniques. Okay. And then lastly from me, you talked about this deal potentially accelerating your cash flow breakeven timing. Have you guys talked about, you know, when you might be able to achieve cash flow breakeven? Yeah. We we have been kinda vague on that. I think that the reason is is that we just don't know how far we might accelerate certain levels of commercialization depending on how fast we can create adoption. And we've been creating adoption at a much faster pace since being public which has been a very encouraging sign. And so how we invest in our commercialization investment could dictate that timing. But I think by, what we've roughly said is that the 2021, we feel for sure we would be positive. And we would like to try to get to a positive position for full year 2021. And potentially then in twenty twenty fourth quarter, which is typically a high revenue quarter, we could have some level of crossover just at a quarterly level. And Amal, you're on the line, and I know you're in a different location than me, but you might want to comment on this as well. Yeah. No, I think you summarized it well. That is what we aspire towards and plan towards. Okay, great. Thank you so much. Absolutely. Thank you. And our next question comes from the line of Doug Schenkiel with Cowen. Your line is now open. Hey, good afternoon. This is Chris on for Doug today. Thanks for taking the questions. Hey, First one for me, is there I guess is there an opportunity to generate revenue synergies? I mean it seems like Uman sealed Nf L antibodies and ELISA kits to researchers and pharma customers. Could you go after those customers who are using ELISA kits and upsell a Quantaris instrument? Yes, you know, I think you're hitting it, Chris. There's multiple shots on goal how you can take a move like this and exploit it to to accelerate commercialization. And so, having a new window into the market from the antibody supply vantage point has been really a remarkable component of the due diligence period, which we got done with basically this week. And, Nicholas, who will be reporting me directly, has been, he's their CEO and he's the commercial arm as well. And so not only with the research landscape but I would say that we're also very encouraged by the diagnostic landscape. And there have been announcements already made in the public sectors regarding certain third party, I'll call them diagnostic houses, IBD houses having a lot of interest in serum Nf L. And they're working with companies like Biogen and Novartis and others. And so there has been I think one press release where Biogen and Siemens actually did a press release regarding their real interest in evolving the Nf L capability across the Siemens large installed base. So we'll see how that evolves. But I wouldn't limit it to just research. But absolutely right. Can you sell some instruments because of what we can do with the Samoa technology for sensitivity? No doubt. Can we further advance the whole concept of our own services now that we can be further forward integrated and backward integrated into supporting customer trials and making sure that the quality that we need for those trials is all managed under one house, I think that that creates another advantage. The industry has been looking for us to scale Nf L. Many of the pharma biotechs are utilizing us. And they didn't really see us as an IBD opportunity at any point. But as we've continued to, increase our valuation and also increase our growth and now our reach into antibodies, I think it gives us the ability to have more strategic options on how we evolve our own business. And so I think everywhere we look for the the amount of value that was necessary here, and the Uman team is, like, second to none. We've been just so impressed with all their employees. Our employees have been since I've joined, they've asked, like, is there any way we can team up with Uman? And it's, you know, taken some time, but we've really gotten our cultures aligned and set. And I think Powering Precision Health was really the place where that greater purpose of going after Alzheimer's and MS Parkinson's. Going after those ailments with a lot of neurologists around the world issuing publications on both ours and their product assets is enabling we think this opportunity to further leverage like you're pointing out Chris, the commercial channels. Got it, thanks. For my follow-up question, and apologies if I missed this, but what is enabling Uman to be uniquely capable of producing this antibody? And is their antibody production process something you can leverage to some of the other markers you currently have on market? Yeah, you know, the first thing I will say is that one of the the very strategic things they did was they built a position of trade secret as opposed to IP, which means that I'm sorry. Let me restate that. They created a trade secret IP position versus a patented position, which the patent could expire and this could be easily reverse engineered. And so by achieving the clones that they were able to achieve and hitting the epitopes the way they've been able to hit it has been the real breakthrough. And anytime you are building antibodies and you're utilizing animals and or ways to produce them, it's hard to get to the right actual clones and get to the right sequences. And they've been able to achieve that. And that has been an important, asset for them that you know, basically we now have in house. And so can that be replicated? We don't know. I think there is some science here. There's some art. I think another area that they've been shown a lot of promise is in the ELISA itself. What other ingredients do you put with those antibody pairs in order to make the overall antibody pairs more specific and more sensitive? And they're evolving in that landscape as well and so are we with Simoa. So I think there's going be a lot of sharing of information to see how we can leverage for Nf L but then look at other markers. And we know that there's some other really important markers that the industry is starting to move into around things like the synap area, which is related to the neurons, but it's another area of function that there's some markers that could be really productively evolved. But getting a lot of their magic of sensitivity and science and having in house now Don Matun and our team building up their capability, I think it's given us a lot more perspective around the importance of antibody engineering as part of the overall, sensitivity cascade. Getting our number, our 100x, may not come just via instrumentation. It could also come via antibody engineering and assay design. Got it. Very helpful. Thanks for taking my questions and congrats on the deal. Thanks a lot, Chris. Thank you. And our next question comes from the line of Tycho Peterson with JPMorgan. Your line is now open. Hey, thanks. A couple of strategics and then one or two in the model. But, you know, you've been using them for three years. So, Kevin, can you just you know, why now this is the right time to acquire them? Can you talk about, you know, building out additional antibody development capabilities with them? And then, you know, is there any not antitrust, but any risk here, you know, if you stop supplying antibodies to Nf L antibodies to others? Is there any kind of risk of blowback? Yeah. I I I would say, you know, that you've asked three pretty important questions there, Tycho. You know, number one, why now? And I I think my answer would be because we couldn't get it done earlier. It takes time. Culturally we've got one of the most disruptive cultures in the world. Our employee base has this ability to do what we call speed of trust and create courage to kind of get into areas that have never been achieved before. So you're truly disrupting. And we've got this culture that it's vital that when we do an acquisition that we spend a lot of time making sure that culturally we can make things work. And so we bought OSHA on eighteen months ago. And immediately we kept all of their employees. And they've been integrated and here we are launching this past month the SPX. So culturally we've been spending a lot of time at Powering Precision Health Summits with the Uman team as well as with most of these thought leaders around the world. The Henrik Zetterbergs from Gothenburg or the Jens, the Young's Cooley, and the David Leppard. These are the leading neurologists around the world that are driving at, this NFL as a way to see neuronal health very non invasively. And today for, like, MS, it might be two years before you'll get brain atrophy or a lesion showing up on a brain MRI scan that there's belief that within a few months to maybe a quarter you would be able to detect in blood. So it can revolutionize even today's treatments for MS as part of the cascade of the way it's being deployed. So I think it's really been making sure that we had the right valuation, the right economics, the right timing because we were launching a lot of instruments. We didn't wanna mess up execution. And so now is a good time for us and for them. The concept of blowback, you know, my view is is that we're actually creating an opportunity for broader supply for and the Umanza, the small company, that many of the larger companies were even having trouble figuring out how best to deal with them. And so because they were so small, they couldn't link in like we can. And we've got this commercial organization that we actually think that NFL can play a major role in in in CSF and doesn't need our Simoa technology to achieve it. So there are gonna be ways that we're gonna be trying to further evolve the Nf L supply even to what people might have called competitors in the past. We really don't view competitors the way a lot of other companies do. If we can create value for them and us, those are win wins. And so we don't see this being, a negative but a positive. And then finally getting them all under one roof so that the antibodies are also then linked up to the assays and the instrument for many of these trials. Most of pharma wanted that all kind of controlled and linked up so that it can create a better quality supply into diagnostics. So we feel really good that just about every front that you ask, we feel pretty positive around where we sit. And then just a couple on the model. You mentioned inventory. Can you quantify how much inventory you're bringing on board? How do we think about the growth profile the context of your 40% year over year sales growth target? And then how do we think about the trajectory of that 200 basis point increase in margins? Yes. What I'll do is I'll let Amal talk about the inventory and also the gross margins. And maybe before he comments on a revenue trajectory, my view is that we would start to see in 2020 the opportunities for some level of revenue trajectory. And we will be trying to grow Nf L, but it's an immaterial level today. So it's not substantial. We by far were the largest customer they had. So Moll, you might want to comment on the other two items. Sure. So we have about two to three months of inventory on hand. And hence, for the Q3 results, we won't be able to take the advantage of consolidating and benefiting from the lower cost of two months inventory. But we will start to see the impact show up in q four. As Kevin stated, the full year impact after all this has gone away, which is, say, full year 2020, we are expecting 200 basis points of gross margin expansion. And this is all excluding purchase price accounting. As you know, as part of purchase price accounting, we will have to step up the inventory that we acquired from Oman, and they have couple of months of inventory on hand at their end. But it's a noncash impact on the p and l as we allocate purchase price to inventory step up and intangibles and goodwill. Okay. Thank you. Tycho, just one last point, the 40% growth trajectory, that's something we've been saying for a couple years. We feel very comfortable that we have plenty of visibility to continue that level of growth, which we think is a disruptive level of growth. So we feel very comfortable that that is going to continue even though our size is getting bigger. Maintaining that growth trajectory is something we feel comfortable with over the next couple of years. And our next question comes from the line of Mark Massaro with Canaccord Genuity. This is Max Massiji on for Mark. So to start, have there been times when you decided to delay consumable sale to a customer because you were waiting for Uman's antibodies? I guess what I'm trying to get at is to what extent does this acquisition eliminate a bottleneck? Yeah. You know, I I wouldn't say that I can, see any place where they've actually, curtailed our growth trajectory from a not sufficient supply type of thing. So I wouldn't put so much into that category. Obviously, we've become a much higher proportion of who Uman is. And so our growth trajectory influences their growth much more now than it has. And so certainly as we keep scaling, I would say pharma biotech has been interested to ensure that Uman becomes well funded to enable the expansion and the supply expansion that will be necessary to accommodate, a major move into diagnostics. And so I think this timing for them is also very, productive for us to now be combined to enable the right levels of investments to ensure that that doesn't happen, what you described it. I wouldn't say it has happened historically. Great. And so now we've seen M and A for vertical integration, access to new technology, access to a CLIA lab. So how would you prioritize what types of M and A deals make the most sense for the company? And could you speak to any differences between this acquisition and how you view it and your acquisition of Ashon? Yes. So basically, the vision that we show on our introductory slides of going after oncology and going after CNS or neurology, that's our prioritization of this market. Obviously, there's a lot of excitement in cardiology. There's a lot of excitement in infectious disease. There's a lot of components of other categories of disease that we could be focused on and be disruptive. But we decided that those two are the latest stage of disease diagnostics today. And they're very large market opportunities. And so we've narrowed our focus to those two. We've also can do a lot of things with DNA and RNA similar to what we can do with protein. Our technology, believe it or not, can make DNA and RNA as sensitive as digital PCR without using PCR. And so a lot of companies that have technologies that can span DNA, RNA and proteins, they've kind of spread themselves thin and tried to be all three. And so once again we've prioritized and say we're gonna go after the protein and not get tempted by what can happen in molecular. And you can see that the adoption of protein has just been almost unparalleled in the pharmabiotech because proteins are real and it's something that's been around for fifty plus years in the diagnostic industry is measuring proteins. And so we've maintained that focus. So anything we can acquire that further advances our ability to service the neuro and oncology markets, primarily initially protein is what our current focus is, that will be our core that we will look for opportunities to further advance. So our menu, we're continuing to try to expand our menu and for those two disease categories, Oshon brought a lot of menu expansion. Also gave us multiplexing. So that was more of a platform expansion. This would be considered more of a vertical shoring up of the fastest growing segment for the next five years of our menu. And that's NFL. I would say that as we look forward and as our value continues to evolve, we will continue to look at M and A as a way to broaden our ability to provide more answers into neuro and more answers into cancer as our primary. Our secondary focus would be to not move out of proteins and go on into DNA and RNA. Which means that an expansion of molecular that marries up a protein for cancer and for neuro would probably be a more interesting strategic area for us than for us to migrate from oncology and or neuro. So that should give you some indication that if we found the right places to marry into our business, we've got a track record for, I think we acquired eight companies as part of Caliper. All of them were accretive and helped our valuation. So we've got a team that can do this, but, our primary focus is organic growth unless we can strategically advance. And what else is interesting to us is our commercial channel. We just have begun to move into Asia. So we're building our own channel into many parts of Asia right now. So that's another piece that strategically we're not that far advanced yet as we are in other parts of the world. Great. And then one more if I can. You'll now have access to Oman's facilities in Sweden. So do you have any intention of using the facility as an international headquarters or beachhead? And Could you speak to any additional value that I guess results from gaining access to the company's facilities in that Nordic region? Yeah, you know, it's been interesting for us. Our last PPH was, the last PPH that we sponsored was over in Amsterdam. And I think the next PPH is likely going to be in Europe as well, probably either Barcelona or Stockholm. And it's interesting, there's this critical mass of neurology thought leaders. Many of them are in Europe. And so we find ourselves with a lot of kind of Europe centric opportunities. Beachhead for our European business, we we don't have enough critical mass to select one area. The employee base of Oman is not sufficient enough to swing the critical mass. So would there be another acquisition in Europe at some point in the longer term that might swing that critical mass? I would say potentially. And it would need to be that for us to pick a city that would be our hub. I don't think for the moment that we would pick Jumia as a key hub. We see The Netherlands and Belgium as being a good distribution hub. But we don't see a commercial hub at this point in any location. Great. That's it for me. Congrats on the acquisition. Thanks, Max. Thank you. And that does conclude today's question and answer session. I would now like to turn the call back to Kevin Rasovsky for any further remarks. Excellent. Hey. I just wanna, you know, really, thank, my team, you know, clearly, you know, Amal and Julian and and Steven as well as Don and Mark Roski and my legal team. We have Brian, Keane and John Treis just recently joined us as well. So this group has been really working around the clock to make these things happen. It's just a joy to work with them. But our broader company, we have a lot of really great things going on right now and there's a lot of inspiration. And it's one of the best teams I've ever had the honor to work with. So I'll leave it with that and just say that thanks for all your support as we continue after cancer and go after neurodegeneration like no other company. So thanks a lot. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. And everyone have a great day.