Genmark Diagnostics Inc
Q1 2018 Earnings Call Transcript

Published: 2 May 2018

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to today's conference call to discuss GenMark Diagnostics' First Quarter 2018 Financial Results. My name is Takia and I will be your operator on this call. After the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. [Operator Instructions] Please note that this call is being recorded today, Tuesday, May 1, 2018 at 1.30 PM Pacific Time and will be available on the Investors section of GenMark's website at www.genmarkdx.com. I would now like to turn the meeting over to Johnny Ek of GenMark.

[Johnny Ek:]

Thanks, Takia, and thank you all very much for joining us today. Before we begin, I would like to inform you that certain statements made by GenMark during the course of this call may constitute forward-looking statements. Any statement about our expectations, beliefs, plans, objectives, assumptions or future events or performance are forward-looking statements. For example, statements concerning our 2018 financial guidance, the development, regulatory clearance, commercialization and features of new products, plans and objectives of management and market trends are all forward-looking statements. We believe these statements are based on reasonable assumptions. However, these statements are not guarantees of performance and involve known and unknown risks and uncertainties that may cause the actual results to be materially different from any future results expressed or implied by such statements. Important factors which could cause actual results to differ materially from those in these forward-looking statements are detailed in GenMark's filings with the SEC. GenMark assumes no obligation and expressly disclaims any duty to update any forward-looking statements to reflect events or circumstances occurring after this call or to reflect the occurrence of unanticipated events. I will now turn the conference call over to Mr. Hany Massarany, President and CEO of GenMark. Hany?

[Hany Massarany:]

Thank you, Johnny. Good afternoon and thank you all for joining us. Joining me on the call today is our CFO, Scott Mendel. We're off to a solid start in 2018. Financial highlights from our first quarter include revenues of $20.6 million an increase of 65% year-over-year. Our performance was driven by high respiratory testing volumes in an exceptionally strong flu season. In addition, our ePlex system again contributed meaningfully to revenues in the quarter and for the first time surpassed revenue contribution from our XT-8 system. While this shift was anticipated, we're pleased to see ePlex revenues exceeding our initial expectations driven by strong adoption of our respiratory pathogen panel by many of the largest labs across the U.S. During the past three to four months, most IVD labs were extremely focused on managing high volumes of respiratory testing driven by the severe flu season and yes, our commercial teams were still able to make strong strides with ePlex placements. In the first quarter we expanded our ePlex installed base by 32 analyzers and closed the quarter with 228 placements in U.S. and European labs. The majority of our Q1 ePlex placements were in the U.S., the largest market for our testing platform and panels. Turning to business highlights, our primary focus in the quarter was to fulfill the exceptionally high customer demand for our ePlex RP test cartridges. The additional manufacturing line and automation we implemented last year, were instrumental in enabling us to keep up with demand. That said, our gross margins were impacted by a lower manufacturing yield in the quarter as we prioritized customer demand over internal initiatives to improve yield. As the flu season has tapered off in recent weeks, we have begun implementing manufacturing process improvements, designed to increase yield and we expect to see gross margin expansion in future quarters. In addition, we are accelerating our plans for a third ePlex manufacturing line to help service the 2018-'19 flu season and our ongoing menu expansion. We are encouraged by the steady positive customer feedback we receive on the performance, ease of use and processing capacity of ePlex, as well as on our recently launched ePlex NP for lower volume hospitals and decentralized sites. In the U.S., we continue to displace key competitors in some of the largest and most strategic accounts and now that the flu season have subsided, we expect placement momentum to pick up, especially later in the year as we approach the 2018 2019 flu season, and the anticipated FDA clearance, to market our blood culture ID panels in the U.S. Based on this, we are now accelerating our sales force expansion plan and expect to leave this year with a U.S. sales force in the mid-30s. In Europe, we are continuing to improve our commercial processes to shorten ePlex acquisition cycle from placement to routine implementation and revenue generation. And we saw positive impact from these initiatives reflected in our Q1 results. Customer and patient impact from these European market initiatives were highlighted at the recently concluded European Congress of Clinical Microbiology and Infectious Disease Meeting or ECCMID, which was held in Spain. There, one of the leading respiratory testing sites in Scotland reported on their experience with ePlex RP testing to inform patient admissions during this historically strong season. Consistent with other published literature on the benefits of rapid multiplex molecular testing for respiratory pathogens the preliminary analysis of this data suggested that ePlex RP may contribute to improved bed management, a meaningful reduction in isolation room utilization and lower anti-microbial utilization. Overall these patient and hospital benefits have the potential to be translated into meaningful net cost savings for the health system. This experience was shared at multiple other sites across Europe during the 2017, ’18 flu season and we look forward to reporting additional positive impact of ePlex RP at the Clinical Virology Symposium or CVS next week in Florida. And to build on this momentum in Europe we’ve also begun to evaluate opportunities to expand our distributor partnerships to address key markets, and as we highlighted on our last call, we are making progress to identify under-utilized ePlex analyzers that can be repositioned to new sites in order to grow the annuity of our installed base in Europe. Turning to ePlex menu expansion, we are making very good progress towards delivering three unique blood culture IV panels to the U.S. market. We are driving forward internal and external studies of our blood culture IV family of tests in support of U.S. FDA submission. We are close to finalizing the BCID Gram positive clinical study and while we’re not yet ready to elaborate on details or specific results, we’re very pleased with progress to-date. All clinical sample testing has been completed by the clinical sites and we are preparing for submission shortly. We’re also preparing to commence the BCID gram negative and fungal clinical studies and continue to expect submission of these panels to the FDA this year. As I mentioned earlier in Q1 we were extremely focused on supporting the growing number of customers utilizing ePlex for routine clinical testing and we prioritize their high demand for our RP panel over internal initiatives including many expansions. As a result we remain on track for FDA submission of the gram positive and gram negative panels in the second and third quarters of this year and we now expect to submit the fungal panel in the fourth quarter a slight delay from previous expectations. Therefore subject to FDA review timing we expect FDA clearance of two of the BCID panels by the end of this year but it is likely that the fungal panel clearance will be in early 2019. We continue to receive positive feedback from potential customers who are looking forward to the addition of the BCID panels to our menu and are already anticipating them in their decision process. We also continue to produce real world performance data and clinical utility evidence for the BCID panels in Europe. Three early adopters reported on their experience with ePlex BCID at the ECCMID Meeting last week in Spain. One leading site in Ireland reported on the improved sensitivity of ePlex BCID compared to mul-detox technology. This pilot dataset demonstrated the superiority of ePlex BCID to deliver highly sensitive results direct from bottle positivity compared to mul-de. Another French site evaluated the performance of the ePlex fungal panel versus mul-de and showed 100% sensitivity for on-panel organisms including rare candida species that can be particularly acute in immune-compromised patients. Notably this study identified an approximately 5% fungal co-infection rate that can be difficult to identify with mul-de but that the ePlex BCID panels were specifically designed to detect. And finally a major research site in Belgium performed a perspective study comparing ePlex BCID panel performance for gram positive, gram negative and fungal panels to mul-de across a relatively large number of positive blood cultures. This study demonstrated excellent analytical performance for all three ePlex BCID panels and that ePlex BCID can delivery results approximately one day sooner in many positive blood culture samples. These results and others from multiple site in multiple markets demonstrated the rework benefit that the ePlex BCID panels were designed to deliver, including the broadest inclusivity of any rapid molecular panel on market, the impact of actionable resistance markers and the unique ability to provide poly microbial detection across gram positive, gram negative and fungal panels. Given the critical nature of these diseases state ePlex BCID is demonstrating its unique and differentiated position in the diagnosis of bloodstream infections. Launching our menu of BICD panels in the U.S. is a very important company priority. And with the flu season behind us we are now dedicating significant resources to complete the necessary clinical studies and FDA submissions as soon as possible. And finally we're also making progress on our highly differentiated ePlex gastro intestinal pathogen panel with over 30 reportable targets and controls, demonstrating ePlex’s utility with this most challenging sample type and a highly multiplexed panel. I look forward to providing further updates on GI and other ePlex panels in the future. And with that I will now turn the call over to Scott for his financial review. Scott?

[Scott Mendel:]

Thank you, Hany. As noted our first quarter 2018 revenue with $20.6 million, up 65% versus the first quarter of 2017 with ePlex revenue in the quarter, surpassing XT-8 revenue for the first time. In addition to the impact of the strong flu season on first quarter revenues an increasing number of customers are utilizing ePlex in routine clinical testing, which drove the average annuity per ePlex placement to over $200,000 for the quarter, well above our expected range. We remain confident that the average annual revenue per ePlex placement will be in the $100,000 to $120,000 range with the potential to increase in future years, as our test menu expands. First quarter gross profit was $4.2 million or 20% of revenue versus $6.2 million in the first quarter of 2017 which was 49% of revenue. This lower than anticipated gross margin in the first quarter was largely due to factors larger, than anticipated mix shift towards ePlex driven by the extraordinary Flu season demand and higher than animated manufacturing expenses, as we prioritize, meeting our e-Plex customer needs over internal initiatives to improve manufacturing efficiencies. We have identified opportunities and developed detailed plans to increase ePlex manufacturing yield and reduce expenses and we are committed to making this happen over the next few quarters. Our teams are focused on driving raw material costs down through supply chain efforts and improving the overall yield of the manufacturing lines. The first quarter provided strong evidence that we can reliably produce ePlex cartridges even in times of extraordinary demand and now we are focused on driving manufacturing efficiency. Total operating expenses were $15 million for the quarter a decrease of $4.8 million compared to the first quarter of 2017. This decrease was largely due to reduced ePlex development expenses. Our net loss per share for the first quarter was $0.21 compared to $0.30 in the first quarter of 2017. Moving onto the balance sheet, we ended the quarter with $65.5 million in cash and investments. We used $6.5 million of cash in the quarter which was significantly lower than the previously reported quarters due to several factors including the reduction in operating expenses previously mentioned as well as our focus on minimizing working capital needs. This is consistent with our priorities that we discussed on our last earnings call. When compared sequentially to the fourth quarter 2017 our accounts receivable balance decreased by $2.6 million to $8.1 million and we finished the quarter with inventory of $10.5 million, a decrease of $500,000 versus prior quarter. We expect cash usage to increase over the next couple of quarters, as we significantly increase BCID cartridge production, to support our internal development efforts as well as the clinical study sites. However our cash usage will be significantly reduced relative to prior year while remaining in line with our expectations. Turning to guidance for the full year 2018 we are reiterating our revenue guidance in the $68 million to $72 million range but given the impact of the flu season on our first quarter revenues, we now expect to achieve the higher end of that range. Gross margin for 2018 is now expected to be in the 30% range also reflecting our Q1 results. We expect to see margin improvements throughout the remainder of the year. The main drivers will be process improvements to drive direct labor efficiency and yield as well as direct material cost reductions being driven by our supply chain team. We are also reiterating our expectation for operating expenses in the near $60 million range, driven mainly by reduction in R&D expenses, partially offset by increases in SG&A. And finally we expect to finish this year with global ePlex placements in the range of 140 to 170 net new analyzers. We are energized by the positive customer feedback we continue to receive on ePlex and excited about the opportunity we have to drive commercialization with a robust and expanding menu of test covering a wide variety of life threatening diseases. And with that I’ll now open the call to questions.

[Operator:]

[Operator Instructions] Our first question comes from Mark Massaro with Canaccord Genuity. Your line is now open.

[Mark Massaro:]

Hey guys. Thanks for the questions and nice quarter. I guess the first question is on respiratory revenue in the quarter obviously, record flu season. So nice to see that and it looks like you met demand. So can you just confirm that you were able to meet demand throughout the entire quarter/ I guess was there a time where you are unable to meet demand? And I guess, second to that, can you just provide a little more granularity on the gross margin, negative impact in the quarter I know you've indicated that you prioritize meeting customer needs, I was just wondering if you could elaborate on some of the cost initiatives to meet customer demand for flu?

[Hany Massarany:]

All right. Well thank you very much for the question Mark. And yes, we are very pleased that we have been able to meet the high demand for RP during the flu season and we have not had a single customer without product, through the season. So we're very pleased to have been able to do that. In fact, we had some customers that were in the funnel and sort of expecting to transition to ePlex after the flu season and they were not able to get respiratory tests from their supplier at the time -- their provider at the time. And as a result they sort of accelerated their decision and we were still able to support their needs so that we're very pleased with that. And as I mentioned we benefited from the expansion in capacity with the additional line and automation that we implemented late last year. And we had our teams very focused on that. As a result or partly this all kept us so busy that the priority was to meet demand and some of the plans that we already had in place to drive manufacturing, -- oops I am not sure that was, I hope you can hear me Mark. But we ended up sort of prioritizing, meeting customer demands all over implementing some of the plans that we already had in place to drive manufacturing efficiency, including improving yield and driving down costs of direct material and direct labor. But now that the flu season is behind us, we are now focused on executing on these initiatives and we expect that the margin will improve over time. And looks like Scott wants to add a comment to what I've just said.

[Scott Mendel:]

Yeah. So Mark I'll add some more color and context to the types of initiatives we're talking about that drive margin up. They really fall into three main categories. The first being additional quality control stuff that we introduced along the process to identify defects or non-conformances as early as possible that helps reduce the cost of any scrap or yield issues that we're facing. The second major area is automation of certain steps in our -- in our process so that helps reduce variability from having the manual stuff. And then the third area is focusing on training documentation and adherence to work instructions so that those are three categories major categories that these different initiatives fall into that we know will help us drive margin improvements as we move throughout the year.

[Mark Massaro:]

Great. And then my second question is, it’s great to see the gram positive and gram negative on track. We would love to maybe get a little more color on the fungal push out. Are you planning to make any tweaks to the cartridge or can you provide any more granularity as to what the root cause of the delay is on fungal?

[Hany Massarany:]

Sure. No changes in anything to do with the design of the panel or the cartridge or anything like that, the product in general, Mark. It's a very slight delay and it's purely driven by our focus in the first quarter on meeting the high demand for RP and therefore we haven't sort of been able to support the development process and the clinical sort of studies with sufficient cartridges to keep test cartridges to keep fungal on track. So it’s a very slight delay. Our initial expectation was to complete all three submissions in the second and third quarter. So fungal looks like it's slipping by a few weeks into the fourth quarter. But other than that, nothing else really behind that.

[Mark Massaro:]

Okay. Thanks I'll hop back in the queue.

[Hany Massarany:]

Thank you.

[Operator:]

Thank you. Our next question comes from Tycho Peterson of JPMorgan. Your line is now open.

[Tycho Peterson:]

Hey thanks. Hany, maybe just on Europe on the repositioning, can you maybe comment on how those initiatives have gone, are you able to see how many systems have been repositioned? And then obviously you've got initiatives to improve order conversion there as well, just curious if we could get an update there?

[Hany Massarany:]

Yeah. Thanks Tycho. I'm not able to sort of report exact numbers but I can tell you for sure that we know exactly where the sort of dormant if you like ePlex systems are. And we have already started repositioning. So we've had success doing that during the quarter and we expect to continue to be able to do that over the next few months and maybe couple of quarters. So there is no question that we have more work to do in Europe and we are doing that. We're seeing some good results but there is more work to be done. And we continue to expect Europe to be an important part of our business in the future. But certainly we're also extremely focused on the U.S. being the largest market obviously for our products and super excited about the potential for ePlex in the U.S. based on the funnels that we have and the traction that we're getting in the marketplace right now.

[Tycho Peterson:]

And then I guess now that you said NP out for a little bit, can you just talk about the difference in annuity levels between ePlex and NP what you're seeing from the field?

[Scott Mendel:]

Sure Tycho. This is Scott, I will handle that question. We are seeing traction both in U.S. as well as Europe on NP and so that launch has gone very well and according to our expectations. It's not material either from a number of placements and certainly has not had any impact on our expectations on annuity per placement. So we're not actually splitting it out this time. I'm keeping an eye on it but again not affecting the overall annuity per placement.

[Tycho Peterson:]

Okay. And just one last one any change in what you're seeing in terms of capital sales versus leasing in terms of interest from the field at this point?

[Hany Massarany:]

Yes Tycho, we said before I think on the last couple of calls that we were beginning to see more of shift toward reagent rental. So capital is sort of more challenging to come by and we and we saw that in the first quarter as well. It's one obviously quarter one data point. Our expectation was that would be sort of in the 30% to 40% range and the first quarter was just a little bit -- a tad under that. So we're keeping an eye on it and certainly we’ll update in the future, if it sort of if it looks like it will be below our expectation we'll update on that. Our priority is to secure market share and drive growth of the revenues from the assays, as opposed to capital. Of course, it's nice to have the capital and we try to get it when we can. But certainly we want to make sure that we don't miss out on shifting market share and driving revenue growth with the blade in as we continue to sort of place these systems.

[Tycho Peterson:]

Okay. Thank you.

[Hany Massarany:]

Thanks.

[Operator:]

Thank you. Our next question comes from Doug Schenkel of Cowen. Your line is now open.

[Doug Schenkel:]

Good afternoon. So my first question is on menu expansion. With blood panels on track to be submitted this year, could you just give us a little bit more detail on what’s coming next? Could we assume that GI is going to be CI mark -- I am sorry, CE mark by the end of this year? And then can we assume this will get submitted to the FDA in the first half of next year and would you be able to comment on meningitis.

[Hany Massarany:]

Oh, all right. So thank you, Doug. Our focus is on the BCID panels right now. Certainly we are very interested and we understand the importance of menu expansion. Menu will drive placements and revenue growth and so on and so forth. But some of these panels are still sort of early stage in terms of their adoption in routine clinical use and sort of full understanding of the best way to implement them in labs with the clinical utility that would add the most value to patients. So it is -- we're certainly continuing to drive menu expansion but we haven't really communicated on panels beyond GI. We are looking at other panels but not yet ready to talk about other panels beyond the blood culture ID more ,importantly the three panels that we're working on right now and then GI is coming after that. We do not expect to -- having said that we do not expect to achieve CE mark with GI this year unfortunately again the sort of good news is that the flu season drove respiratory panel sales significantly in the first quarter but with some of those delays that sort of pushed fungal out a little, also impacting GI. So we don't expect GI to be CE mark this year. We're optimistic that would happen next year and certainly also so would the submission to FDA next year as well.

[Doug Schenkel:]

Thank you for all that detail. Regarding sales force expansion you indicated that you accelerated hiring plans and expect to exit the year, I think you said in mid 30s in terms of U.S. headcount. Can you keep remind us how this differs from previous guidance?

[Hany Massarany:]

Yeah we -- that's sort of an increase of approximately 10 people where we were sort of planning to be in the mid-20s in the U.S. or certainly left that year -- left last year with a force in the mid-20s and expected to add some additional headcount. But with the traction that we're getting in the marketplace and also in anticipation of what we would be able to do as we get sort of closer to the launch of BCID panels et cetera, we're now looking to take that number up to the mid-30s in the U.S. So that would be an increase of approximately 10 over 2017 and a handful of people or so above what you had already planned to do in 2018.

[Doug Schenkel:]

Okay. That's helpful. And last one I guess probably for Scott. In terms of gross margin guidance I think you had previously indicated that you expect to exit that year I have in my notes 40 plus, 40 or above. Given the change in full year guidance do you still expect to exit the year at that level or is there something new that we should be modeling for it. Thank you.

[Scott Mendel:]

Yeah. So that slight change in guidance on gross margin really reflects the impact of Q1 results. As we look forward to Q4 Doug, I think it'll probably be in that 35% to 40% range based on what I'm saying I will give an update as we move through the year. We need a little bit of time to get some of these process improvements in place and give me better visibility to where I think we’ll exit the year but certainly well above where we are at today, and along the same lines of trajectory that we had anticipated as far as improvement as we move throughout the year.

[Doug Schenkel:]

Okay. Thank you so much for all the answers.

[Hany Massarany:]

Thank you

[Operator:]

Thank you. Our next question comes from Brian Weinstein with William Blair. Your line is now open.

[Brian Weinstein:]

Hey guys, thanks for taking the question. I want to go back into the gross margin discussion a little bit. Scott, I think you said there were three steps [ph] to margin, and you talked about quality control steps, automation and training documentation, if I heard you correctly. But you also mentioned on the call some commentary about raw materials. So can you kind of arrange those things in terms of the importance that they would have and if there is any additional detail that you can provide us about some of the things that are going out when you talk about quality and control steps, be more specific if you could on automation what specific are -- what specifically are you automating and then as part of that you talked about increasing gross margin. Are you implying that you expect to see sequential gross margin increases throughout the year even though Q2 is likely to be obviously a much more challenging revenue quarter for you? Thanks.

[Scott Mendel:]

Yeah. So let me just jump right in. So those are the three categories I spoke about and if you think about what's going to have the biggest impact on gross margin, direct material or yield my answer is yield right now. The direct material reduction that we planned for, in the year are going according to our plans and they are having an impact, but certainly having scrap rate at the end of the line is a lot more impactful than any reduction you are going to get, any specific part from a direct material perspective, Brian. So yield is our number one focus. As far as examples, to give you a little bit more color on what I'm speaking about, I've got an example, while we won't necessarily report on specific examples every single quarter I thought it might be helpful to give you one example of improved quality control. So during -- since the flu seasons subsided we did implement an automated system and this system performs functional testing of our printed circuit boards after they've been processed, but before we put on the specialized capture probes and fully assemble into cartridges, obviously adds a lot of expense to it. So that's an example of an in process quality control method that we implemented that happens to be automated, that should result in significant reduction in scrap rate at the very end of the line which is the most costly part to scrap that. So I hope that helps give you some example of what we're doing.

[Brian Weinstein:]

Yeah. And then the question on the sequential improvement in margin please?

[Scott Mendel:]

Yeah. So from a sequential improvement perspective, I do think it will sequentially improve as we move through the year both because as we have a lower quarter in Q2 and Q3 because flu seasons subside you get positive mix shifts helping you out in Q2 and Q3. In addition these initiatives that I just spoke about are going to start taking effect. So I do believe we will have sequential improvement from where we landed in Q1 as we move through the year.

[Brian Weinstein:]

Okay. And then if you can talk a little bit about if you have any idea on what you think your share of new placements were in the quarter just thinking about the broader market in the U.S. in particular?

[Hany Massarany:]

That's a good question, Brian. I can’t comment on share of new placements in the quarter but I can tell you that we have had some significant wins and despite the fact that as you know the first quarter, our customers were very busy dealing with their volume of testing as opposed to bringing new systems in to evaluate and implement. So despite that we've had some very good wins. We've demonstrated Brian and we feel very good that with ePlex we can absolutely displace our competitors in the field. We can also win, and we have won many Greenfield sort of new customers that have not done this sort of testing before. And then finally we've worked with our XT-8 customers that we've known that they wanted to sort of upgrade to ePlex in order to meet their needs. And we've been able to do that very successfully as well. And in every case we're competing, there aren't any customers out there who sort of don't know about our competitors and end up going with us, without considering other options. So we feel good that we're able to compete well and as I mentioned in my comments, now that the flu season is sort of behind us and as we are ahead of the next flu season and certainly ahead of FDA clearance of the BCID product, we expect placements to sort of start increasing per quarter.

[Brian Weinstein:]

Okay. And the last thing from me if I could is, what are your field reps telling you about or what are your laboratories telling you about any change to kind of how they're using the product in terms of inpatient versus outpatient? Did you see anything skewing more towards outpatient in the quarter and what do you think that percentage is at this point? Thank you.

[Hany Massarany:]

Well, not with not as much with our systems. As you know we work directly with the clear moderate complexity labs in hospitals and private labs as well. And so the vast majority of the samples are coming from inpatients. We know that certain labs are changing their algorithms or looking at ways to perhaps use some of the low plex, simple panels for flu A, flu B, RSV to deal with outpatient volumes and that's something that we also encourage labs to do. But with inpatients it is absolutely necessary to get as much information as possible as early as possible with a complete and full multiplex panels -- panel and that's what where our focus is. We expect that to continue in the future as well.

[Brian Weinstein:]

Thank you.

[Hany Massarany:]

Thank you Brian.

[Operator:]

Thank you. Our next question comes from and Anne Edelstein with Bank of America Merrill Lynch. Your line is now open.

[Anne Edelstein:]

Hi. Thank you. Just a question on XT-8, can you just help us think about the number of systems that should be pulled from the field over the balance of the year? I understand that there probably weren’t that many that were pulled in Q1 but for the balance would be helpful.

[Scott Mendel:]

Sure. This is Scott. So this quarter we had just over 600 XT-8s in the installed base and I would expect that would come down a little bit as we move through the year, just as we have additional conversions for our VP business to RP. Tough to gauge exactly how many because you have to also look at which ones of these are VP customers, also using other panels on XT-8. So I don't, I don't know that I have an exact answer for you Anne, other than to say it will continue to come down. I think it's come down in that 10 to 20 per quarter basis.

[Anne Edelstein:]

Thank you. That's helpful. And then just on ePlex pull-through I mean obviously we're coming off a historically severe flu season. So how should we kind of think about pull-through during the between the flu season. So Q2, Q3 kind of timeframe.

[Hany Massarany:]

Yeah. Certainly step down as we have always expected we’ll have a lot less volume in Q2 and Q3 as the flu seasons subside. But still inpatient testing occurs. It’s not the same magnitude. You are right, first quarter was extraordinary. It does demonstrate the power of ePlex, especially in high volume labs and the ease of the workflow. So that is -- it’s an exciting proof point for us but we still remain committed to the $100,000 to $120,000 over the entire year, annuity per placement, probably skewing a little bit towards the higher side.

[Anne Edelstein:]

Thanks.

[Hany Massarany:]

Welcome.

[Operator:]

Thank you. Our next question comes from Mike Matson with Needham & Company. Your line is now open.

[David Saxon:]

Hi guys. This is David Saxon on for Mike this afternoon. Thanks for taking our questions. I guess first, can you talk about the mix between the standard ePlex and the NP version and are you seeing any labs that had previously gotten that their NP upgrade regularly [ph].

[Scott Mendel:]

Sure, David. I can start that off and Hany can answer if so needed. The NP placements are happening both in the U.S. and OUS, kind of in line with our expectations but certainly not a majority of our placements. What's most important is that the mix of NP versus standard one tower is not affecting the annuity per placement. So again running in line with our expectations, not having material impact on the number of placements, and not affecting the annuity per placement. So that's why we are not reporting it separately.

[Hany Massarany:]

And yes, we have seen examples of labs that started with an NP, and maybe a function of the severe flu season, realized that they needed additional capacity and ended up during the quarter upgrading to a full tower with a capacity of six bays, as opposed to three bays. So that certainly is something that we expected, and we felt that NP not only can provide a more holistic solution to integrated delivery networks for example, that have some smaller volume sites -- decentralized sites. But also customers that are beginning to do this sort of testing, multiplex testing for the first time and not exactly sure how much -- how -- what their volumes might look like. And NP provides an opportunity to start with a smaller capacity system, and then be able to upgrade to a lot a lot more capacity as their volumes increase.

[David Saxon:]

Great. Yeah. That’s helpful. And then, I am sorry if I missed this, but in Europe, have you seen the ePlex and NP and then blood culture test, accelerated adoption there at all?

[Hany Massarany:]

Yeah. We we've certainly -- we've seen more NP placed certainly since we launched the system. It’s only a recent launch for us. So we've seen a number of NP placed in Europe. We expect that to sort of increase over time. And then we continue to see, and as I Indicated in my comments the very positive feedback and interest in the blood culture ID family of panels and we expect that to continue to drive growth in Europe as well. With that said we are very -- just to remind everyone that while Europe is an important market for us, and certainly in the future a market that will be important to our growth and leadership globally, we believe that in the near term in the near to midterm the U.S. will drive most of our growth, as especially as we bring more menu to market in the not too distant future.

[David Saxon:]

Great. Thank you.

[Hany Massarany:]

Thanks very much.

[Operator:]

Thank you. I'm showing no further questions. Thank you. At this time I would like to turn the conference back over to Hany Massarany for closing remarks.

[Hany Massarany:]

All right. Thank you very much. And on behalf of our Board of Directors and employees I want to take this opportunity to thank you very much for your ongoing support. We are proud to have delivered the highest revenue quarter in GenMark’s history with strong performance across all segments that demonstrate the incredible potential of our ePlex platform. We’re excited about the benefits that our BCID ID assay family will provide in further accelerating this growth. And I look forward to reporting our progress in the coming quarters. Thank you for your time this afternoon.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes today's program. You may now disconnect. Everyone have a great day.