Luminex Corporation
Q3 2014 Earnings Call Transcript

Published: 28 Oct 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to Luminex Corporation’s Third Quarter 2014 Earnings Conference Call. My name is Jasmine, and I will be your coordinator for today. Today’s call is being recorded. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. (Operator Instructions) I would now like to turn the presentation over to Matt Norman, Manager of Investor Relations, for opening remarks. Please proceed.

[Matt Norman:]

Thank you, Jasmine. Good afternoon and welcome to Luminex Corporation’s conference call for the third quarter 2014 financial and operational results. In addition to the audio portion of our conference call, we have prepared a slide presentation that is on our website at www.luminexcorp.com and will be available for six months. I would remind everyone that certain statements made during the course of this presentation may not be purely historical and consequently may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements speak only as of the date hereof and are based on our current beliefs and expectations, and are subject to known or unknown risks and uncertainties, some of which are beyond the Company’s control that could cause actual results or plans to differ materially and adversely from those anticipated in the forward-looking statements. Factors that could cause or contribute to such differences are detailed in our Form 10-K for the year ended December 31, 2013, and our quarterly reports on Form 10-Q for subsequent periods filed with the Securities and Exchange Commission. We encourage you to review these documents and the cautionary language we’ve included at the beginning of the slide presentation we are presenting today. We undertake no obligation to update these forward-looking statements. Also, certain non-GAAP financial measures, as defined by SEC Regulation G, maybe covered in this presentation. To the extent that any non-GAAP financial measures are covered, a presentation of and reconciliation to the most directly comparable GAAP financial measures will be included in this presentation and be available on our website in accordance with Regulation G. I’ll now turn the call over to our Chief Financial Officer, Harriss Currie.

[Harriss T. Currie:]

Thanks, Matt. Good afternoon, and welcome to our third quarter 2014 conference call. Joining me today are Homi Shamir, President and CEO of Luminex; and Pat Balthrop, our recently retired President and CEO and current Consultant to the Company. In our prepared comments and presentation today, I will summarize the third quarter corporate highlights and review the financial performance. We’ll then have some comments from Pat Balthrop, followed by our guidance update and closings remarks from our President and CEO, Homi Shamir. After that, we’ll open the call for Homi and me to answer your questions. Starting with our financial highlights, we generated a solid performance in the third quarter, achieving third quarter total revenue of $56.7 million, driven primarily by strong growth in assay sales, up 37% over the prior year quarter. Previously, you’ve heard us refer to the assay business as a primary growth engine for the company. Over the last couple of years, we’ve taken a number of steps to support this business, including multiple strategic acquisitions, taking control of the sales channel by building a direct sales force, and making considerable R&D investments. With the headwinds from 2013 largely behind us, we believe our strategic investments are beginning to payoff as it’s reflected in the performance of our assay business during the quarter which experienced balanced growth across all of our major assay product lines. Other highlights from the quarter’s income statement include strong gross margins of 69%, indicative of the favorable product mix from sales of our higher margin items and our continued strategic focus on cost. GAAP net income was $5.6 million or $0.13 per diluted share, a significant increase compared to $0.02 per share in the third quarter of 2013. On a non-GAAP basis, net income was $11.5 million or $0.27 per diluted share compared to $0.06 per share in the prior year period. Transitioning to our corporate highlights; during the quarter, we received FDA clearance to add three new targets to our Gastrointestinal Pathogen Panel in clearance for an additional sample type known as Cary-Blair medium. With the original 11 targets, we had coverage of more than 90% of the causes of infectious gastroenteritis. Now with a total of 14 targets, GPP provides even more comprehensive coverage to labs . But more important from a reimbursement perspective, beginning in 2015 this configuration will put GPP in the highest reimbursement tier for tests of this nature. In addition, the clearance of the new sample type provides our laboratory customers with additional flexibility based on the sample types they receive. Moving forward, we’re optimistic with these enhancements to GPP will be well received by our laboratory customers as we continue to execute in the marketplace with this innovative product. On the regulatory front, the Food and Drug Administration recently proposed a risk-based framework for oversight of laboratory developed tests or LDTs. On prior calls, we’ve outlined our LDT strategy for pharmacogenomics, and the core differentiating feature of our new ARIES platform will be the ability to automate LDTs. A lack of oversight of LDTs have been a concern for the FDA for some time now given that the volume and complexity of LDTs has increased considerably. However, in the draft proposal, the FDA outlined plans to initially focus on high risk LDTs, which were tested to have a significant patient impact such as companion diagnostics and test for cancer diagnosis. Alternatively, the FDA plans to continue treating lower risk LDTs as it always has by exercising its enforcement discretion. The number of tests that are run today in this category is substantial, and they continue to provide significant value to laboratories, physicians, and patients. The key take away from the proposed guidance is that it removes the cloud of uncertainty that has been present for quite some time with regard to the regulation of LDTs, which we consider beneficial to our LDT strategy. Overall, we expect our LDT product strategy will continue to be a viable growing business for both xTAG products and our new ARIES products under proposed regulatory framework. Moving on to an update of our pipeline products. Scheduled for introduction in the near future, we have two exciting and compelling products in our pipeline. The first of these products is our new multiplexing assay, the NxTAG Respiratory Pathogen Panel. NxTAG RPP is an upgrade to the chemistry in our xTAG RVP product that will run on our MAGPIX system, and is targeted from moderate to high volume labs in the multiplex market. Throughout the year, we’ve showcased NxTAG RPP at multiple industry tradeshows, and the response of this product has been outstanding. Our multiplexing customers are looking for product that has both expanded target coverage and scalable throughput to meet their volume requirements. All in an easy to use format that delivers fast results. We’ve designed NxTAG RPP to satisfy all of these customer requirements with an elegant workflow that significantly reduces hands-on-time, delivering results in a fraction of the current time. NxTAG RPP development remains on schedule, and we expect to have a product evaluation in customer hands very soon. Not only we will protect our position in high volume accounts with its highly competitive product, but our goal is to move the product down market and expand our market share over time. We will continue to upgrade our assays across our product portfolios in the future. The second key product in our pipeline is ARIES. Our sample-to-answer system targeting the low-plex testing market. ARIES development continues and we made substantial progress during the quarter. As a reminder, the market for just ARIES launch menu represents a major revenue opportunity that we believe is growing at strong double-digit rates. Consistent feedback from customers continues to convince us that ARIES will revolutionize molecular diagnostics, given its mix of differentiated features and an intuitive design that focuses on solving many of the problems laboratories face today. Given the significance of this initiative to the company, we began a comprehensive review of the program six months ago, considering a number of factors, including product design, customer requirements, and launch schedule. On the second quarter call, we did not offer specifics regarding particular development milestones, given that we were in the middle of this important strategic review. However, now that we’ve completed this review, we are prepared today to provide more specifics on the milestones and timing for the ARIES launch, which Homi will discuss in a few minutes. Strategically, the ability to offer both targeted testing on an ARIES system along with syndromic panels through our xTAG and NxTAG product lines will provide Luminex with a unique strategic advantage, positioning us as the only company in the marketplace offering laboratories the complete testing solution. We’re pleased with the financial performance achieved so far in 2014 as we have successfully executed on our key strategic initiatives, particularly, in our assay business. With the reimbursement headwinds of 2013 behind us and the competitive pressures easing, we anticipate we will continue building momentum through the end of the year and into 2015. In terms of near-term catalysts, GPP once again outperformed prior quarters, and we expect the additional clearance to accelerate market adoption further. The pharmacogenomics business continues to grow at an impressive rate; and with an established solid customer base, we expect it will continue being a growth driver. Our performance during the third quarter was bolstered by the strength of our direct sales force, achieving the strongest quarter in assay sales since going direct at the beginning of 2013. Moving forward, we will continue to build momentum with a full-year of our direct sales force in the molecular market. In addition, we’re nearing completion of a number of development programs in the pipeline including ARIES and NxTAG. We’re excited about the growth opportunities ahead of us and remain focused on final preparations to ensure successful commercial launches. I’ll now review our financial performance and then turn the call over to Pat for some brief comments followed by our guidance update from Homi. As mentioned previously, total revenue for the third quarter grew by 12% over the prior year period. We sold a total of 269 multiplexing systems in the third quarter of 2014, which included 122 MAGPIX systems, 115 LX systems, and 32 FLEXMAP 3Ds. We shipped a total of 280 multiplexing systems in the third quarter of 2013. Consumable revenues were down 6% for the quarter, largely due to a decrease in bulk purchases. We continue to interact closely with our partners to monitor consumable demand and commitments into future years. And based on recent interaction with our customers, we expect consumable revenue to be under pressure in the near-term as a result of transitory inventory management challenges by our largest partner. Additionally, we expect continued fluctuations in consumable revenue based on all of our partners’ efforts to minimize lot-to-lot variability and allowances made for longer development and production lines However, we remain confident in the long-term heath and trajectory of our consumables and partnership business, as evidenced by the sustained growth in reported royalties and end user sales by our partners. During the quarter, 19 customers purchased in bulk and comprised $9.5 million or 78% of total consumable revenue, compared to $2.7 million or 83% of total consumable revenue in the prior year quarter. Royalty revenues were up for the quarter by 8%, representing total reported end user sales on xMAP technology of $117.4 million. In the aggregate, our higher margin items consumables, royalties and assays comprised 77% of current quarter revenue. Looking briefly at our revenue growth by segment, our partnerships segment or TSP revenues declined slightly for the quarter by 2%, driven by decreases in system and consumable revenue. They were partly offset by increased royalty revenue. Our assays related product segment or ARP, increased significantly by 38%, driven by well-balanced growth across our infectious disease and genetic testing assay franchises. Now let’s turn to the income statement. As discussed previously, revenues grew 12% for the quarter. Gross margin for the quarter was 69%, but that’s our targeted range. We remain confident in our ability to maintain gross margins in the strategic range of high 60% to low 70% range and see this as a significant competitive advantage. GAAP operating expenses decreased by 3% for the quarter, largely due to lower restructuring costs incurred in the current. R&D expenses were irrelatively flat and represented 18% of revenue for the quarter, compared to 20% of revenue in the prior year quarter, primarily the result of savings and material spending that’s part of a shift in ARIES system development from alphas in the prior year to betas in the current year offset by some additional personnel expenses in the current year. We currently expect consolidated R&D expenditures for the full-year 2014 to be in the 20% of revenue range based on our current revenue guidance. SG&A cost were also relatively flat, but given the increase in revenue represented 38% of revenue compared to 42% in the prior year period. Of the components of SG&A, general and administrative costs were down year-over-year primarily as a result of the bad debt expense recorded in the prior year related to the bankruptcy of a former customer. Offset by an increase in sales and marketing expenses as a result from incremental resource investment associated with our direct sales activities. At our comments today, we’ve referenced certain non-GAAP operating measures. We believe that adjusting for certain items and the related tax effects, reflects operating results that are more indicative of the company’s ongoing performance while improving comparability to prior periods and as such may provide our investors and enhanced understanding of the company’s financial performance. For the third quarter, GAAP operating margin was 9%, up from a loss of 8% in the third quarter 2013 GAAP results. Non-GAAP operating margin was 21%, representing a 14 percentage point increase over 2013 non-GAAP results. Our non-GAAP adjustments are detailed in the reconciling table at the end of our slide presentation and are incorporated into our earnings release. Now turning to our two core segments; GAAP operating profit of our technology and strategic partnership segment was a healthy 27% of TSP revenue for the quarter, down a modest 1 percentage point from 28% in the prior year. The GAAP operating loss of our ARP segment was 16% of ARP revenue for the quarter compared to a loss of 77% in the prior year and represented an absolute dollar improvement in ARP operating loss of $9.7 million. This is attributable to a combination of higher ARP revenue coupled with decreasing ARP operating expenses that was largely due to savings in material spending as part of the shift in ARIES system development from alphas in the prior year to beta in the current year, as well as the prior year impact with previous customers bankruptcy as mentioned previously. We ended the quarter with $97.1 million in cash and investments, up $7.4 million from the June 30th balance. We generated $11.5 million in operating cash flow, offset by capital expenditures of $5.5 million. We had no share repurchases during the third quarter. At September 30th, both DSL on accounts receivable and DPO on accounts payable were favorable at 44 days and 53 days respectively. Finally, we had approximately 1.9 forward quarters of inventory on hand at September 30. This slide summarizes our year-to-date cash investment flow. The takeaway here is that we continued our historical trend of generating strong quarterly operating cash flows, which served to fund our capital expenditure requirements and other items, ending with $97.1 million in cash and investments. While we expect to continue generating incremental cash and investments on a quarterly basis, it would be reasonable to expect an increase in aggregate capital expenditures in 2015 related to manufacturing automation initiatives for the ARIES cassettes. I’ll now turn the call over to Pat Balthrop.

[Patrick J. Balthrop:]

Thank you, Harriss. As you know, I recently announced my retirement as President and CEO of Luminex on October 15. It’s truly been a privilege leading the Company over the past 10 years and I’m very proud to have had the opportunity to work alongside such an amazing group of employees. Luminex has come a long way in that time, earning a reputation as a market-leading innovator with a solid financial position and a strong pipeline of best-in-class products. Recognizing the importance of effective and confidential CEO succession planning, the Board of Directors conducted an extensive search over a lengthy period, which led to the selection of Homi Shamir. I firmly believe that this is the right time for me to pass the baton and I’m confident in the new leadership of the Company under Homi. His extensive experience and accomplished track record will undoubtedly serve the Company well in the years to come. I look forward to facilitating a smooth transition over the next several months. And now, I’ll turn call over to Homi.

[Nachum Shamir:]

Thank you, Pat. I wanted to recognize Pat for his leadership and dedication to Luminex over the last 10 years. During his tenure as CEO, the Company extended significantly, becoming an innovative leader in the market. I’m honored to join Luminex at such key time in the Company’s history. Before I discuss our 2014 guidance update, I would like to provide an update on our sample-to-answer pipeline product known as ARIES. ARIES is revolutionary MAGPIX system of (indiscernible) or biological testing chemistries and best-in-class software. As mentioned previously, the company recently completed a review of the ARIES program and timelines, which I will share with you today. We anticipate beginning clinical trials over the end of the first quarter of 2015, following by a standard 501-K submission in late summer, which coincides with RUO availability in the U.S. Therefore, we are targeting IVD clearance in the U.S. of the system and HSV assay during the fourth quarter of 2015, spending the review of the submission by the FDA. Shortly thereafter, we expect to receive clearance for the remaining launch assay with all five assay cleared by the second quarter of 2015. We are confident in our ability to execute of the timeline announced today and I look forward to providing an update on future calls. You may recall that in prior public comments the company indicated that it anticipate additional incremental investment in sales and marketing activity in the second half of 2014 ahead of launch of ARIES. We now expect these expenses to be phased gradually during 2015 in alignment with the identified results required for successful full commercial launch. As a reminder, the headcount increased are indented to be modest, targeted increase in order to accommodate gap in our current sales force. Now to 2014 revenue guidance. We are revising our 2014 revenue guidance to a range of $225 million to $228 million for our previous range of $225 million to $240 million. Although, we have been successful across a number of strategic and operating initiatives during the year, we do not expect to reach the level of growth necessary to achieve the top end of our previous guidance range. Consideration should be given to the following factors. We expect system revenue to be more consistent with our third quarter sales as opposed to earlier quarter of the current year. We expect consumable to be under pressure in the near-term with growth in the low-single-digit for the full year. With respect to assay, we expect double-digit growth for the full year in the high-teens driven by continued growth in both our xTAG and MultiCode product line along with continuation of positive momentum in our LDT strategic. As a reminder, historically the fourth quarter of the year is typically one of our strongest quarters for assay revenue. With a sound financial position, great reputation and a strong pipeline of innovative products we are well-positioned for continued success and accelerated growth in the marketplace. Over the next few months, I will be conducting a detailed review of our business. After that time, I look forward to sharing with you my insight and strategy for how we will continue to expand and grow the company. This ends our formal comments. Operator, please open the line for questions.

[Operator:]

(Operator instructions) And your first question comes from the line of Dan Leonard with Leerink. Please proceed.

[Daniel L. Leonard:]

Thank you. So it seems like you’re assuming both instrument and consumables revenues are going to be down pretty meaningfully in the fourth quarter year-over-year. And I’m curious why is that into the degree that part of the answer is lumpiness with the large customer, why would that be? I thought that there was some renegotiation of this relationship which was supposed to smooth the lumpiness going forward?

[Harriss T. Currie:]

So, Dan, this is Harriss. Overall, the flatness in consumable revenue can be attributed to challenges across a number of our customers, not just our largest. There is a contribution there. We had worked out a significant amount of the lumpiness with our largest customer; however, lumpiness does still remain with our other customers. There is also the effects of new product delays one with our largest customer and then other products on our technology that have been delayed as well that have contributed to the slower than expected growth in consumable revenue and as a contributor to the flatness from the pressure that I mentioned going forward in the near-term.

[Daniel L. Leonard:]

Okay. And this is my follow-up question. It looks like ARIES just pushed out a couple of quarters here. Can you offer more color as to what the primary drivers of that are?

[Harriss T. Currie:]

Well, as in every development exercise, there are challenges you encounter and there also are opportunities for us over the past six months to hone our understanding of customer requirements to ensure that the developed products most appropriately met the needs of the customers, and we had the opportunity to tweak it a little bit and to add some of those features. And as a result, the final product we believe will even be better accepted in the marketplace than it would have been, and we’ve not been able to make those adjustments. We really get only one chance to get this right with the system like this. And so, it’s very important that we do it right the first time, so that we can get a great start out of great gate with a system like this that we believe is a game changer.

[Daniel L. Leonard:]

Got it, thank you.

[Operator:]

And your next question comes from the line of Brian Weinstein with William Blair. Please proceed.

[Matt Larew:]

Hi guys, this is Matt Larew in for Brian here. Sort of a quick follow-up on Dan’s question there on ARIES. If you could be a little more specific and provide a little color on, on sort of what needs to be done, are these technical changes we’re talking about things that are more logistic or cosmetic or the changes to the menus. I guess any color that you can help us out over there to understand what that process was and what additional work needs to be done or already has been done?

[Nachum Shamir:]

This is Homi. As you know I just joined the company two weeks ago. And part of that, the ARIES is so important to the company, and as Arias said a few minutes ago is a game changer product . We wanted to make sure which will be a perfect launch. And so as obviously and every innovation and every game changing technology, you have some – sometimes it is taking longer to take it to the market and bring it out of R&D. But I will not go to the details, but when I joined, I wanted to make sure we are doing it perfectly, and bringing today the product without any hiccups and really excite the customers.

[Matt Larew:]

Okay, thanks for that detail Homi. And then just thinking about the guidance here for the remainder of the year, you’d mentioned sort of the consumables being flat as a drag, but can you maybe talk about other things you’re expecting that would have gotten you to the high-end of guidance that didn’t come through and sort of what that delta – what that additional delta was? And then, I’ll just jump back in and thanks for the comments guys.

[Harriss T. Currie:]

Sure, as you can imagine, our revenue stream across our two segments is rather complex and rather diverse. So the top end of our range were things like faster than anticipated launches of our partner’s products, which then [we got] (ph) consumable revenue and royalty revenue and additional system placements faster than what occurred, which were still impressive, but better than what occurred placement of our GPP product in the marketplace. Launches of our own products potentially quicker things like RPP that an earlier launch possibly would have made available as an RUO product a little bit earlier and we could have contributed. Government programs and grants which were significant opportunities at the beginning of the year that we have gotten clarity on a number of products, a number of projects that are in the pipeline, but won’t bear fruit until likely 2015. So things like that were the big contributors to the – not being able to hit the top end of the range, but was still growth across our assay portfolio, which was able to help offset some of the flatness that you’re seeing in the TSP business, but as I mentioned in my comments, our partners continue to execute on the technology, continue to develop assays and sell those assays in the marketplace; royalty revenue, and reported end-user sales continue to grow. So we are encouraged across our entire business.

[Matt Larew:]

Thanks Harriss.

[Harriss T. Currie:]

Sure.

[Operator:]

And your next question comes from the line of Dan Arias with Citigroup. Please proceed.

[Daniel Arias:]

Good afternoon guys. Thanks, just a follow-up on ARIES. I don’t think that I missed this, apologies if I did. But what are you assuming on timing as far as the CE mark for the platform?

[Harriss T. Currie:]

CE mark would be roughly equivalent to the RUO launch in the U.S., which is the middle of next year after clinical trials are completed. The data is analyzed and you know if you have a good product, and then we could proceed with CE marking at that point.

[Nachum Shamir:]

Yes, but we don’t expect than a significant revenue from Euro. So obviously we get the theme on somewhere in the summer, but we are not anticipating any major revenue coming out of this region initially.

[Daniel Arias:]

Okay, thanks. And then Harriss I know you have a quarter before we get to the 2015 outlook, but when we think about R&D at a high-level in the assay segment, can you sort of give us a sense for how much of an investment on a percentage basis maybe is going towards xMAP based test development versus that that’s going towards EraGen chemistry for the ARIES platform. I am just trying to understand how the resources are being focused here?

[Harriss T. Currie:]

Today, the bulk of our R&D investment is directed at the ARIES platform, which is our largest opportunity to date. As we turnover our – Pat mentioned to us in pervious calls many times about we have 5 assays under development today and those five essays are completed and we can roll those people on to the next five assays and that investment into ARIES will continue and in addition development of ARIES, many the ARIES v2, the additional ARIES based products and potentially the expansion of NxTAG from not only RVP, but other xTAG products. So there are opportunities moving forward, the majority of which as we sit here today, would be directed towards ARIES, but there are additional investments that we can make in the NxTAG technology as well. But really to answer your question, the bulk of our R&D resources today are focused on ARIES products.

[Daniel Arias:]

Okay. Thanks very much.

[Operator:]

And your next question comes from the line of Drew Jones with Stephens Inc. Please proceed.

[Drew Jones:]

Thanks. It seems like a lot of things going on with the GPP panel. I know historically you guys have talked about penetrating the RVP customer base. First, is that still the right way to think about it? And if so, what’s the penetration level there so far?

[Nachum Shamir:]

Our RVP penetration has remained pretty consistent. The opportunities with GPP going into a lab that is conducting RVP is really a matter of understanding the technology and knowing Luminex, knowing how to execute on xTAG technology. So the best opportunity, obviously, it’s easy to sell more to an existing customer than it is to get a new customer. And so for us, the easy sales are in accounts with which we are familiar and who are familiar with us.

[Drew Jones:]

Okay. Given some updated comments here can you update us on what to think about as far as NxTAG FDA approval timeline and then how far behind ARIES approval would version [2b] (ph)?

[Nachum Shamir:]

NxTAG will be ahead of the timeline that we provide for ARIES. If you look at the timeline probably about three months ahead of, say, the timeline we’d provide for ARIES.

[Drew Jones:]

And you guys talking any about ARIES version 2? Within that what the lag would be?

[Harriss T. Currie:]

Not yet.

[Nachum Shamir:]

Not yet. We have not till yet.

[Harriss T. Currie:]

Let’s get a result first.

[Drew Jones:]

Thanks guys.

[Nachum Shamir:]

Sure.

[Operator:]

And your next question comes from the line of Tycho Peterson with J.P. Morgan. Please proceed.

[Jordan Justman:]

Hey, guys, this is Jordan on for Tycho.

[Nachum Shamir:]

Good morning.

[Jordan Justman:]

Question on flu. Have you guys seen any inventory build kind of coming into the flu season?

[Nachum Shamir:]

I guess your question is have we seen our RVP customers build an inventory.

[Jordan Justman:]

Yes.

[Nachum Shamir:]

And the answer is no. Typically customers, because they order the RBP product so frequently, the order enough to get them through the beginning of the respiratory viral season, and then as they run through their inventory, they begin to order faster and faster right until the season begins to die down. That way they don’t run the risk of overstocking inventory and having wasted at the end of the season. So what we really haven’t found is much of that. The enterovirus that you heard so much about is not a new strain. So it’s a strain that’s existed before and the – something that we can detect. The press coverage has been really high, but not infectious. So the inpatient presentations of enterovirus have been significant. So anyway, overall, we haven’t seen stocking up prior to the flu season, but RVP cells remain strong and the introduction of RPP will provide additional help there.

[Jordan Justman:]

Got it. And then just one more. Do you have any thoughts in, I guess, the general CapEx environment from your customers overall?

[Harriss T. Currie:]

With respect to purchase of our equipment? Can you ask your question in another way? I’m not sure I followed your question.

[Jordan Justman:]

Yet, exactly, with respect to purchasing your equipment.

[Harriss T. Currie:]

We actually don’t. On our assay side of our business, a significant portion of our systems are placed with assay utilization requirements. So with those, the purchase of the system is justified. Our partners don’t appear to be experiencing the classic capital constrains in the marketplace. Plus the price of our equipment isn’t such too subjective to the typical constrains at larger, couple of hundred thousand dollars pieces of equipment we’d run into. So for us, no, we haven’t seen a problem there. If you look at our placements over the past, really two years, you see pretty consistent placements in the mid to high 200s systems a quarter. That number really hasn’t changed. So our partners have had success and continue to have success in place in those boxes.

[Jordan Justman:]

Great. Thanks so much.

[Harriss T. Currie:]

Sure.

[Operator:]

And your next question comes from the line of Brandon Couillard with Jefferies. Please proceed.

[Brandon Couillard:]

Thanks. Good afternoon.

[Harriss T. Currie:]

Hi.

[Brandon Couillard:]

Back on ARIES – Pat, Harriss, and Homi, why not disclose the strategic review process earlier? Do you think it was disingenuous on the second quarter call to suggest that the timeline was firm and had not changed? And then, secondly or thirdly, can you elaborate specifically on what about the box, what modifications you’ve made between I guess beginning of the year and now?

[Harriss T. Currie:]

Number one, I don’t believe it was disingenuous. I think that that the move we made not to disclose the specific. Product timelines was recently – we said what we knew to be true in those calls. It was a situation where we started a strategic review. We’re in the middle of it. It would have provided for all of the analysts and investors that covered as I think confusion and for us we think it was better to run the course of the review and then announce the results. Now that we’re complete with our review with a firm timeline, which is really what everybody wanted to know. What you really wanted to know is what’s the longest timeline, when do we expect to have clearance, when do we expect to submit to the FDA, a number of questions that we’ve been hesitant to answer for a long time. And so, I think ultimately the end is exactly where you wanted us to get.

[Brandon Couillard:]

Okay. And then, I guess secondly, in terms of the assay business maybe on this, but did you give the mix between genetic screening and infectious disease to do the revenue mix. And any color you could give us is to the biggest contributors within each of those buckets will be helpful.

[Harriss T. Currie:]

So yes, in the quarter, the infectious disease assay sales were about 65% of the total, the genetic testing was the rest 35%, so 65

[Brandon Couillard:]

The biggest components to the growth within each of those two buckets.

[Harriss T. Currie:]

It was actually – surprisingly for us, it was increases across all components of our assay portfolio. Our LDT group, our LDT assays, LDT and pharmacogenomics assays group, our genetic testing portfolio which primarily CF grew, our RBP product revenues grew, GPP grew. So across the entire portfolio, there was growth, which was number one impressive and then number two contributed to that 37% assay growth year-over-year that I have talked about previously.

[Brandon Couillard:]

Thank you.

[Harriss T. Currie:]

Sure.

[Operator:]

And your next question comes from the line of Zarak Khurshid with Wedbush Securities. Please proceed.

[Zarak Khurshid:]

Hi, there everybody. Thanks for taking the questions.

[Harriss T. Currie:]

Hi.

[Zarak Khurshid:]

Hi there. Yes, so in terms of kind of the dialogue you’re having with customers on ARIES, how important is the LDT feature to the success of the products in your view? And I’m just curious if any of the tweaks were related to that element of the platform?

[Harriss T. Currie:]

The LDT feature is an important feature by itself. It’s not a – if ARIES was an LDT platform only, the product wouldn’t be as compelling as it is with the LDT offering and also some core assays that they can run on the system. So what allow them to do is to run FDA cleared assays that we can offer and in addition automated significant number of other of their own tests with a standard sample protocol, with walk away capability on the system. There are a number of reasons to buy ARIES. It gives the customer flexibility, the assay menu, workflow, LDT capability I’ve talked about, a number of different reasons for ARIES, LDT is just one of them.

[Nachum Shamir:]

And it’s simple to use...

[Harriss T. Currie:]

And simple of use…

[Nachum Shamir:]

Simple of use

[Harriss T. Currie:]

Absolutely.

[Zarak Khurshid:]

Got it. Thanks for that. And then as we think about the typical GPP customer today, can you us a sense for what types of institutions are kind of – what the flavor of institution is in terms of the bed size and then if you could provide some context in around how they’re using the product and if you’re – they’re essentially replacing the C. diff for another competitor out there with GPP that would be great. Thanks.

[Harriss T. Currie:]

So we’re talking about 300 plus bed hospitals that require a differential diagnosis. So there is a – typically is not going to replace just C. diff by itself, but you have a situation where patient presents in gastrointestinal distress and it which can be debilitating, it can be that and you have to determine the cause of that quickly. You know you’re on the risk of dehydration and other challenges that that results from severe gastroenteritis. So it’s the large hospitals acute care setting, patient presents in distress and you need a differential diagnosis and you need it now.

[Zarak Khurshid:]

And based on your experience to date, how are you thinking about the overall total addressable opportunity for GPP?

[Harriss T. Currie:]

When we decided – originally we thought GPP was a $100 plus million market. Today more like maybe $150 million total addressable to us. We have a lot of runway in front of us with our GPP product.

[Zarak Khurshid:]

Great. Thank you.

[Harriss T. Currie:]

Sure.

[Operator:]

And your next question comes from the line of Shaun Rodriguez with Cowen and Company. Please proceed.

[Shaun Rodriguez:]

Hi, guys. Good afternoon. Thanks for taking the question. So the first is a follow-up on Brandon’s, I believe. So just to be clear Madison wasn’t a disproportionate driver of infectious disease growth in the quarter. So I think last Q3 you called about an order that had slipped, that was concentrated on Madison products. So I just want to make sure I’m thinking about the contributions within that 37% reported growth correctly.

[Nachum Shamir:]

Again, it was spread across our entire product line. Madison was a significant contributor, but Toronto was too. So it wasn’t an overly significant contributor to the growth. Again, it was growth across our entire product line.

[Shaun Rodriguez:]

Okay, thanks. And my second and last one. So it looks like you’re suggesting low-single-digit growth for consumables for the year, and I think last year was about flat and then it was down pretty materially the year prior. So just trying to get a sense for moving forward really what are the drivers? There is a reason to believe that this accelerates meaningfully. So I think at times we thought about this as a high-single-digit or low-double-digit grower, but it just hasn’t materialized that way. So I just want to make sure we’re thinking about the outlook here appropriately. Thank you.

[Nachum Shamir:]

As we grow our partnership business and as a more meaningful relationship is determined between consumable sales and generation of end user sales or royalties by our customers, I think we could expect a more parallel course of royalty bearing sales and consumables. But today our partners do a significant amount of work on biotechnology and R&D. Our largest customer of consumables on our partnership side, Thermo-Fisher, is equivalent to others in that case. They use a lot of their consumables in development. So as those development efforts ebb and flow, you see ebbs and flows in consumables until those products are commercialized and launched and begin to pull-through a consistent consumable pull-through. That’s where the growth comes from. So in the near-term, we don’t see it as a concern because if you look back three years ago where our royalty bearing sales, where are our royalties were. You see pretty significant growth of royalties and royalty bearing sales over that time. You don’t see the consumable growth equivalently, but the indicators here tell you that the partners continue to develop on our technology continually launch new products. And therefore, use consumables that are in inventory to manufacture these new products, launch those products and submit royalties. Consumables are great margin to us as you know 90 plus percent margin, our royalties are even better. And so, what we want as our partners continue to investment in the technology and continue to drive those end-user sales. If you think about today, the royalty bearing sales are supported by our partners. You mentioned $117 million in the quarter. That’s over $450 million almost $0.5 billion of annualized end-user sales by our partners. And if you add our run rate to that, you’re over a $0.5 billion of assay sales on Luminex technology in the marketplace, it’s consistently growing. And for us that’s what matters. The technology is being used in the marketplace and it continues to be accepting. So I hope that answers your question.

[Operator:]

(Operator Instructions) And your next question comes from the line of Bill Quirk with Piper Jaffray. Please proceed.

[William Quirk:]

Good. Thanks. Good afternoon everybody. First question is on GPP. Harriss, could you elaborate on the number of samples that are coming in with the new sample media? I guess I’m just trying to understand how much more incrementally that that opens up the GPP market?

[Harriss T. Currie:]

Actually, I don’t have that data in front of me. Let me see if I can pull it out here in our data package here. If you another question…

[William Quirk:]

Sure.

[Harriss T. Currie:]

We’ll go there first and then I’ll answer your first one second.

[William Quirk:]

Yes, and so I guess just as a follow-up I guess to kind of coming back to the inventory situation from your large customers and particularly your largest customer. I guess I am struggling here, how much should we read into this, so that they’re simply trying to manage their cash flow versus obviously the sequencing guys you’re talking about moving into HLA as well as relatively early, there does appear to be a fair amount of interest there. And so I am just trying to parse out kind of how much of this is just logistics versus some sort of incremental changing competitive dynamic? Thanks.

[Harriss T. Currie:]

I don’t see any incremental change in competitor dynamics. From what we can see in our intimate discussions with our partners around consumable utilization, consumable needs, et cetera, it appears solely to be an inventory management issue, whether that’s a management of inventory balances or lower needs as development projects wrap up and they get ready for commercial launch or others, is difficult to determine. But overall, we don’t see any competitive pressure, for instance, in HLA, especially in tissue typing, right, the matching of a donor to recipient from sequencing. That focus is primarily on the bone marrow measurement and not on the others. With respect to the carrier broader media, the key is that all samples can be run with no changes in workflow. As far as the number of samples that are coming in carry the layer versus others, I don’t have a data. But I know that it’s significant and it provides additional flexibility to the laboratorian where you don’t have to alter your workflow to process the sample of that comes in, in the carrier level as opposed to others.

[Operator:]

And there are no remaining questions. At this time, I will like to turn the call over to our CEO, Homi Shamir, for any final remarks.

[Nachum Shamir:]

Thank you, Jasmine. Thanks to everyone for your attendance on our earning call today. We look forward to seeing you in person in the very near future. Thank you very much.

[Operator:]

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. See you all, have a great day.