Quanterix Corporation
Q2 2018 Earnings Call Transcript

Published: 12 Aug 2018

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the Quanterix Corporation Q2 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be followed at that time. [Operation Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference call over to your host, Mr. Joe Driscoll, CFO.

[Joe Driscoll:]

Thank you. I’m Joe Driscoll, CFO of Quanterix, and joining me on the call today is Kevin Hrusovsky, our CEO, President and Chairman. Before we begin, I would like to remind you that today's call will contain forward-looking statements that are based on management's beliefs and assumptions and on information available as of the date of this call. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The risks and uncertainties that we face are described in our most recent filings with the Securities and Exchange Commission. With that, I will turn the call over to Kevin.

[Kevin Hrusovsky:]

Thanks a lot Joe. We had a really strong quarter on just about every key metric that we're following, so we're feeling really bullish about our progress to date. We did have $8.6 million of revenue, which grew 66% versus the prior year Q2, and our year-to-date, we're up 53% at $16.2 million. We also had a very nice mix of accelerated high margin. Our Q2 gross margins were 46%, which is about 420 bps and 380 bps above prior year and the first quarter of 2018. Our first half performance is about 120 bps ahead of the last year's first half. Our installed base continues to grow productively, and this is a key leading indicator. We're also recording utilization rates of pull-through consumables at over 50,000 per year, which is what we had had hoped to achieve this year, so we are feeling very good about the usage of our machines. Our product revenue growth also was fairly strong in the academic market at 41%, and pharma continues. Because of the acceleration of drug approvals utilizing our technology, we grew nearly 70%. We launched the SR-X benchtop product in the first quarter; had a little bit of a soft launch in Q4 of 2017. That was ahead of schedule. And that product continues to sell very productively. We are ahead of what we had hoped to be at this point, so we're feeling good that it's been 48 systems booked to date. We also have 22 assays now available on that system. And as I pointed out, we had record consumables sales on a per-instrument basis. But probably the biggest and most important leading indicator is that we've had nearly 100 publications issue so far this year, 40 of which came in Q2. And we now have nearly – over, actually, 250 total publications. 125 of those are neuro, neurology, which we feel is a very important component of our business moving forward. We also have been working diligently around bringing that Simoa ultrasensitivity to the planar technology, which we acquired from Aushon. And we are now progressing to a place where we are moving towards a 10-plex with the Simoa level of ultrasensitivity, so we're very excited about the potential of offering this to our expanded customer base sometime in the near future. Our commercial expansion continues; it's under way. We're also now entered into a CLIA lab with pharma services providing Phase I through III trials, primarily in neurology. And we are going to be the lead sponsor once again for the Powering Precision Health Summit, which is either going to be in Q4 or it's going to be in the first half of 201. Our year-to-date headcount has increased almost 50%, so we are about 175 people now, up from 125 at the beginning of the year. Just from the goals and priorities that we set out for the beginning of the year, I just wanted to comment that our revenue growth year-to-date's been about 53%. Our gross margins on a half-year basis is up 120 bps, 400 bps on a quarterly basis. The new products we mentioned, we also have three new assays on our HD-1 in addition to the 22 on the SR-X. And as I mentioned, we're developing a small planar benchtop instrument that will achieve the 10-plus-plex. We have, also, a very active process around our commercial selling organization to continue to upgrade it now that we are focused on selling accelerated drug approvals as opposed to selling just instruments and assays. This is a fairly formidable opportunity for us to further position what the biomarkers are able to achieve with the FDA with this whole approach of using biomarkers for both efficacy and toxicity. And we have added 16 headcount into our commercial organization; that's now up to 50 people. From a technology standpoint, we mentioned the publications. What's real interesting is, is that most of the most recent publications – I think there's over 90 of them year-to-date – do in fact bring a utility for drug trials evidence to those publications. That's further fueling interest in using our technology for drug approvals. And we have now penetrated 23 of the top 25 top pharma biotechs, and we have over 800 Phase I-II-III trials being run by ourselves as well as the CROs and customers that are utilizing our technology, and we now have 32 instruments in CRO labs, further evidencing a very rapid adoption of the technology. Our next slide illustrates just the rapid ramp; 216 instruments are now in place. I think we've added 40 instruments year-to-date. We have added about 93 of the 250 publications and there's now been 215 different protein biomarkers run in our technology, of which about 80 of them are off-the-shelf kits that we offer. So we continue to build those key metrics, as that lead ultimately to longer-term revenue growth. And you can see our revenue growth, our first half compounding of growth rate is tracking what we had been projecting. 40% is what we had been describing as the long-term metric that we feel very comfortable with. We're actually, year-to-date, projecting – if you look at a first half CAGR for the last three years, we're running about 45%. And you can see that we're getting a nice distribution. We grew 132% in Asia; this is a newer area of our focus. We continued our nice growth in Europe at 76% and North America at 55%. Most of our sales and installed base today are in North America. Our product, as you can see, is now 60% of our revenue. Services and other are about 40% combined. Neurology continues to be where we're dominating, but we're starting to make a lot of entry into oncology. Multiplexing is a lot more important in oncology because there's a lot of mutations that cancers mutate, and that creates the need to really look at a lot of immune and inflammation markers, along with many of the oncology markers. So we believe that multiplexing with sensitivity is going to be more important in oncology, and we'll speak to that in a moment. And you can see that we're now about fifty-fifty between academia and pharma, which is a good distribution. The next slide just shows once again, our product growth, as well as our overall growth and services growth for the first half, as well as for the second quarter. And you can see that our growth actually accelerated in Q2. We had some favorable timing, so we had 66% growth in the second quarter, but year-to-date we're at about a 53% overall growth. And you can see that our product growth is slower than our service growth, which is by design. We see a lot of strategic rationale for selling services. Not only do about third of our projects that we run in services translate into selling an instrument, which then has follow-on consumable sales, but we also, as you've watched when we've looked at the different stages of our growth opportunity, moving into companion diagnostics and pharma services really gets achieved through our services business. So strategically, all of those add-ons is why we really do have a strong focus on services, wanting to make sure that we maintain at least a third of our revenue in that strategic category, which, by the way, is by far our highest margin category as well. And so, the next slide, we just wanted to illustrate that we're getting very good pull-through of our consumables. I believe on a year-to-date basis now, 40% of our annualized consumable revenue – of our actual instrument ASP is consumable revenue. So that's a pretty good pull-through effect. I think it's even higher in Q2 at 42%. And you can see our overall gross margin activity. We do have some reduction in R&D due to the launch of the SR-X product, but we're continuing to invest heavily in our commercial effort. As we mentioned, the 50 headcount, and there's a lot of focus now on, where is it that there are drugs in Phase I, II and III in neurology pipelines that we can really focus our biomarkers onto to help accelerate drug approvals? And then secondarily, oncology is the newer area that we'll be focusing on starting in 2019, will be our big push. So this next slide just illustrates why we focus so much on publications, and we're the leading sponsor of Powering Precision Health Summit is, is that publications lead to a lot of interest in the technology and it validates from a third-party perspective that the technology actually really works and provides a lot of validation. This is an area that some companies haven't had that level of validation, and as a result, it's to create adoption pace similar to the adoption pace we've been able to create. And you can see the number of neuro publications that we've had to date, and it's about half. And you can see our growth continues to be very fast in the neural landscape, and oncology is now beginning to pick up as we start to evolve our menu to multiplexing. This next slide just illustrates why we again focus on publications. And you can see the evolution where Tau was a very key marker that was identified by the NIH initially with soldiers with post-traumatic stress disorder. That then led to us winning the NFL/General Electric Head Health Challenge twice for being able to measure concussions in blood. That then led to us getting a lot of visibility through public media around the ability to measure concussions, which stimulated a lot of neurologists around the world to acquire the technology to look for brain-health markers in a noninvasive or minimally invasive blood sample. That then led to the NfL neurofilament light being discovered in blood, which really was, up until that time, really only a cerebral spinal fluid biomarker. The ability to see it minimally invasively in blood really opens up a whole new opportunity and a whole new sea change in the way research is done for neuro health. And that then led to a lot of neurologists further buying the technology through exposure that Bloomberg and others gave us because NfL happens to be the same initials as the National Football League, and that created some pretty interesting kind of consumerism press, but that led then to more neurologists buying it. And then most of the pharma companies now that have neuro pipelines are utilizing NfL, and that story has just continued on the next slide. You can see we now have a whole series of biomarkers on the right-hand side of this slide that are being utilized in brain health and neurology, and you can see all the different diseases now that we have traction in our third-party peer-reviewed publications where the markers of interest are providing disease progression and/or patient stratification opportunities, and really honing in on subsets of different types of diseases through protein modifications that the sensitivity is enabling is creating an ability to have trials that are much more fertile on patients that the drug actually has a very good chance of being deployed against and being – and working. So anti-Tau drugs, as an example, seeing it noninvasively in blood has really been a big bolster of testing that's occurred, and now neurofilament light is finding a lot of application. In the next slide, you can see that particularly in MS, where today there's about 2.5 million patients, MS, multiple sclerosis patients. And on average, there's about 3.5 million MRIs per year that's actually measuring brain atrophy, which is very much a downstream symptom that occurs sometimes years after the disease actually ravages the body. And so many of the newer publications are showing NfL, neurofilament light, as being a very easy-to-measure, noninvasive biomarker that can show disease progression. And so there's a lot of interest even from the Progressive MS Alliance, which is an independent advocacy group, to try to get this MS biomarker of NfL further clinically validated with the FDA so that drug companies can utilize it to – and actually, doctors could utilize it as a way to ensure that the drug of interest for MS is actually being efficacious. I think there's 15 drugs today that are commercially marketed, but again, it takes years sometimes before you're going to be able to see the longer-term effects through brain atrophy and MRIs, as opposed to a simple noninvasive blood test. So this area, as you can see from this slide, there's a lot of publications coming out with a lot of opportunity for our technology, and we're very excited about that prospect. The next slide is an older slide, but it is attempting to illustrate just how rapidly our instrument sales, followed by our consumables sales and our accelerator sales, which are our services, how rapidly they can take off once you have biomarkers of interest. And you can see a lot of the logos on the left-hand side of companies that we've either – currently working with or they're in our pipeline of opportunity. I wanted to show this next slide which is entitled Biomarkers Clinical Utility in Transforming Drug Development. There is now evidence that there's about a 210% increase in the probability of getting a drug approval if you use biomarkers. We actually have some of the leading, top five pharma companies now using biomarkers even for toxicity to ensure that their particular drug is not affecting the baseline of placebos, or the baseline of healthy patients when the drug is applied. These would be deleterious effects that they don't want the drug to have – happen to the human, and being able to see that very early non-invasively is becoming a new area of opportunity for our biomarkers. So on the right-hand side you can see there's the CROs now that have deployed our technology. There's 32 different instruments out there now. And 65 plus percent of the year-to-date pubs do show drug trial utility, which is, I think, an important area. And those 15 marketed MS drugs could benefit quite rapidly if we can get this NfL marker validated as a clinically relevant marker for a lot of trials with those relevant marker for a lot of trials with those retrospective samples with those drugs to help see disease progression, patient stratification and monitoring, and someday maybe there's even an opportunity for a health screen with the NfL marker for MS. And that's a lot of the work that we are just beginning to do and monitoring very carefully the third-party publications from our customers. The next two slides are just examples of pharma companies that are now utilizing our technology, or they're in the pipeline for accelerator projects. You can see the different biomarkers that they're deploying against the different diseases. And you can see the dollar amount over on the right-hand side that these various trials represent. And we all are seeing certain trials having the beginnings of opportunity to be a companion diagnostic marker later stage. And so we're monitoring that very closely. And with the addition of the planar technology that we acquired earlier this year, it's given us more multiplexing opportunities. And you can see the second slide there’s a lot of biomarkers here because these are using multiplex panels to get at some of these areas of opportunity. And you can see infectious disease and cancer is a much bigger area of opportunity when you can get the multiplexing up. So we're pretty excited about how our accelerator is expanding its services into these multiplexed panels for oncology and infectious disease drugs. I'm going to close my portion of the discussion with a slide that at the top it shows the critical areas of disease focus. On the left-hand side you see neuro science or neurology, through infectious disease metabolism, and then it goes on to oncology on the right side. And then above it is inflammation. And what we have found is that the more you move to the right and oncology, the more you need multiplexing. And the more we think we can deploy this new planar technology very efficiently and effectively, even with long shelf-lives, to help that whole area of oncology. And so that's why in development we're working on a platform with a menu of what we would call multiplexing, 10-plex-plus, to help us get further penetrated in this very important field of oncology. So with that I’d to turn it over Joe for comments on our financial performance. Joe?

[Joe Driscoll:]

Thanks Kevin. As Kevin noted revenue in Q2 of 2018 was $8.6 million, compared to $5.2 million in Q2 2017, or 66% revenue growth. Product revenue grew from $3.3 million to $5.2 million, an increase of 55%. The main driver was the increase in consumables revenue, which continues to increase at a significant rate, especially in neurology applications. We had steady consumable orders for many different accounts, plus a few larger orders as customers kick off major projects. We booked a record number of instrument orders in Q2, some of which were recognized in Q2 revenue and the balance are in backlog for Q3. Also, service and other revenue increased 99% and this continues to be a major focus area of our business going forward, including the utilization of the CLIA lab which we acquired with the Aushon transaction. As stated previously, we are not providing revenue guidance. The favorable timing of certain deals led to greater Q2 revenue than we anticipated. This timing difference does not change our full year revenue expectations. As stated in previous quarters, our goal is to deliver meaningful growth each quarter, while continuing to build backlog for future quarters. We are currently assessing the impact of the new revenue recognition standards which go into effect on January 1, 2019. We have not concluded our analysis, but our preliminary work has identified a potential change in the recognition of certain deferred revenue. The approximate impact is estimated to be $2 million. We recommend that you take this amount out of your 2019 models as we finalize our analysis. Gross margin percentage in Q2 was approximately 46%. Prior year Q2 was 42%. This increase was due to a positive mix of consumables and accelerator during the quarter. For Q3 we estimate that gross margin will be in a similar range as Q2. There will likely be greater instrument revenue in Q3, which has relatively lower margins, offset by projected favorability in other line items, which results in Q3 margin being relatively consistent with Q2. We believe we have a significant opportunity for gross margin expansion in the future as we scale our overall business, reduce product costs, improve manufacturing efficiencies and drive the mix to more consumables than service revenue. R&D plus SG&A expenses totaled $11.3 million in Q2 2018, versus $8.7 million in the prior year quarter. We are attempting to accelerate the growth trajectory of the business by making significant investments in the commercial team and the infrastructure required to support our growth. The main drivers of the Q2 2018 increase include increased headcount in sales and marketing, including new inside and outside sales personnel, as well as increased headcount in other areas of the business; increased stock compensation expense related to new senior hires and Aushon personnel; transition costs related to the Aushon transaction as we continue to merge the two businesses; and public company costs. We will look to continue to add to our commercial organization and other key areas of the business over the balance of 2018. In the balance sheet is in good shape as of 3/30/2018 with approximately $60.5 million in cash. This gives us the financial resources to accelerate the growth in the business, as well as look at potential acquisition opportunities. Q2 cash use was approximately $4.7 million an improvement over Q1. Cash use in Q3 will likely be greater than Q2. There were a final payment of $800,000 related to the Aushon acquisition that we made in Q3, which was originally held back at the close of the deal. And there is an expected milestone payment of $900,000 to be made in Q3 for new product development costs. Weighted average shares outstanding for earnings per share in Q2 totaled $29.9 million. We project the weighted average shares to be in the range of 22 million to 22.5 million for full year 2018. Overall we are very pleased with our Q2 performance and are committed to delivering solid 2018 results in line with expectations. I will now turn it back over to the operator for Q&A.

[Operator:]

Thank you. [Operator Instructions] Your first question comes from the line of Puneet Souda from Leerink Partners. Your line is open.

[Puneet Souda:]

Hi Kevin, thanks for the questions. First one just wanted to understand and clarify. The number of SR-X in quarter, you provided 48 installed base so far. Could you remind us how many of those are in the backlog versus installed in the quarter? And if I look at your 40 year-to-date instruments, that would suggest that the HD-1s have seen somewhat of a limited pick up, if I'm correct, and just help us understand is there anything that's holding that back.

[Kevin Hrusovsky:]

Yes, we'd all show backlog Puneet. And we would say that most of the SR-Xs that we're selling, I would say a good portion of them have been revenue-recognized, but certainly we do maintain a backlog. As you know, that's a key to our visibility moving forward is to make sure we have strong backlog positions. But I would say the HD-1 continues to be robust on a couple of different levels. One level is just the sheer number of units. We continue to get more than – we get at least double-digit, it seems, to every quarter of units, new units. But more importantly, the amount of pull-through that's occurring in the HD-1 has continued to go up much more rapidly than we expected. We do expect at some point not in the near-term future, to be continuing to provide new capabilities on the HD series, which is our standalone fully automated. So I do think that it will continue to be a very important product for the future. We have several customers now that own both the SR-X and the HD. The real difference here is what level of consumption the customer is interested in. I would say on average the HD-1 price point is about twice the level of the price point of the SR-X, and the amount of pull-through that we project you’ll achieve in the HD-1 is about twice what you would get in an SR-X. So there really should not be, for your models any difference whether it's an SR-X or an HD-1 they both are going to generate the same level of pull-through from a dollar – per dollar basis. And they both are kind of evolving in a very productive complimentary way. This was part of what I was worried you would get caught up in HID-1 one versus SR-X and I feel like that could be very misleading. If the overall dollars of instrument continues to progress, we are going to drive and pull-through that revenue level.

[Puneet Souda:]

Okay, and thanks for that. So if I look at the current – the number of immunoassays that you have out there, the 22 assays that you mentioned, give us a view on how many assays that you need to have in SR-X. And I’m asking that because hoping to understand with the brand new instrument that's launching into the market, how is SR-X trending versus your expectations? Does it need more menu in order to expand faster? And it seems like there are some installs that are going into the backlog. I would think that it’s being a brand new instrument, it would get installed faster and then you would have a significant pull-through later on.

[Kevin Hrusovsky:]

The two things I would say around backlog is, is that we are, I would say, not trying to govern the usage of the instrumentation. Certainly, we want to get as much installed as we can for future growth of consumables, and so we're very focused on that, but this is a new instrument, and they have exceeded expectations for sure. So we are growing this quicker than we thought. And I think the primary area where we probably didn't think there would be as much interest would be as a complement to the HD-1. So seeing both instruments purchased simultaneously is an area of intrigue for us that we didn't really expect. So I do feel like our goal would be to continue to drive this. It is a new instrument, though, so I think we are probably running about 30% to 40% of what we originally thought, faster than we would have originally projected. But at the same time there are other pieces of our business that we're redeploying focus towards and from because we're seeing this expansion. 22 assays is probably also a little ahead of schedule. And we try to maintain our assay buildout based on where we see the interest. And so as we see interest getting populated in different sectors of customers, they have different interests in what they're going to use the technology for. So one of the things we are doing with the SR-X is we do have a 3-plex and a 4-plex that we are utilizing on that technology, and that has also now been made available on the HD-1, so we can do the 3-plese and the 4-plex on both instruments. So we are finding more and more interest and having the versatility of going from one instrument to the other. And so a lot of our focus is making sure that as we evolve our plexes that we create good correlations with our single plexes, we want to make sure if someone orders from us, that they get a good correlation of answer if it's – whether it's done in a single-plex or whether it's done as a plex in a multiplex, that they're going to get the same correlative answers. So we're spending a lot of time making sure we've got strong assay quality. You might remember we brought in Dawn Mattoon, who is an industry expert in the area of antibody engineering, that's also now running all of our assays in our kit buildout. And so we have really increased our resource base for our assays. But interestingly, there are certain assays that just really create a lot of growth very rapidly. And it can actually be a single assay. So for instance, NfL, that's one you've heard me speak a lot of here and we are seeing incredible levels of interest in that particular assay. And we've also deployed it now in some of our plexes so that if you want to get to the NFL result, you can get it both single plex or through one of the multiplex assays. So that build out has been very productive and we're very excited. And hopefully we will see our evolution into the planar technology with Simoa assays as we continue to forge into 2019.

[Puneet Souda:]

Okay. Thank you.

[Operator:]

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

[Sung Ji Nam:]

Thanks for taking the question. Congrats on the quarter. And may be I'm not sure if you're ready to comment on this. But is your plan in the future to maintain multiple technology platforms because that’s kind of – it sounds like that's what you're presenting today. And in that case are you targeting – are you – do you think there are opportunities to address different markets with the different platform technologies available? I'm just trying to get a sense in the future it seems like the capabilities are kind of converging, right? For your bead-based versus planar technologies. And so was curious as to if you're looking at different market segments. I know in the past you talked about point of care potentially with the planar technology, et cetera, if you might be able to comment on that.

[Kevin Hrusovsky:]

Yes absolutely. First of all, for the moment without any additional acquisitions, we really are probably honed in on one platform, Simoa. So we do believe Simoa has the ability to be utilized and presented with different types of matrix technologies or substrate technologies. And so how we present these Simoa technology whether it be beads or planar, we still look at the Simoa as being a really single franchise for the moment now. I don't want to ever say that we won't be expanding beyond a single focus of Simoa. We could end up moving into some other areas. But for the moment we look at Simoa as being our single focus with just different ways of presenting the substrates. So that's kind of number one. I do believe still that planar technology brings some things that we weren't able to get to with Simoa the way we were originally configured. And so the planar approaches as we Simoatize them are giving us opportunities, we think, for better chances of a point-of-care device, as an example, where you can miniaturize in a much more significant way, particularly if you're looking at multiple panels, or at least multiple analytes in the panels, we think it's going to be important to get to a handheld level of capability. And planar does bring some of those longer-term benefits, as you pointed out. But we do think Simoa, having the ability to see baseline, the ability to be able to measure the baseline level in a healthy patient, that's really the thing that we brought to the table with Simoa, is seeing that baseline when you're healthy. And so taking that concept of being able to find and see the baseline, which is the healthy level, as well as the diseased level if you end increasing the concentration of that analyte, having the ability to get there with panels, we think, is just as important as single-plex. And so particularly in cancers, we do believe that having some larger panels will be important for a lot of that research exploration. So hopefully that helps.

[Sung Ji Nam:]

Yes that’s very helpful. And then maybe could you comment on what’s the highest plex capability currently on the planar? I know you were talking about10-plex launching in the future. Was curious as to what the highest plex is currently.

[Kevin Hrusovsky:]

It’s interesting when you use the word currently we haven't launched the planar technology, so everything at this point is just R&D. So we've acquired the ability to take Simoa into planar. And so we're in development phase around that technology. And we see the versatility today from an R&D perspective very comparably at 10 to 20 plex. I think the real question for us is more going to be around the specificity and selectivity of the antibodies to ensure we don't get into cross-talk. There's a lot of challenge today by a lot of our customers who feel that when you get above a certain level plex, you create a lot of cross talk noise. And so being able to differentiate out that signal from the noise when you get into multiplexes is a very important area of our focus from an R&B perspective. And so there's different strategies I've seen deployed over the years. Like some capability is set up in a way where you might do a maximum of 10-plex, and then you can split the sample maybe into four samples to go to 40-plex. And so you are really only deploying crosstalk levels at 10-plexs, but you're splitting a sample and doing four different tests simultaneously to kind of get to that answer. So we don't know yet how we're going to get there, but we feel pretty comfortable that we can see 10-plex to 20-plex without cross-talk implications, and a lot of our R&D work is kind of focused on that.

[Sung Ji Nam:]

Great. And then lastly from me, was curious you were seeing really good growth in APAC, still a small part of your business. But given kind of what's going on in China or the tariff wars and the situation there, was curious as to if you're seeing any kind of – anything – I know you're still pretty small over there, but was curious as to if you're hearing anything from your distributors or seeing any kind of slowdown in orders, or if there's any stocking, even, ahead of potential further tariffs? Thanks.

[Kevin Hrusovsky:]

Yes, sure. Yes the China situation is dynamic and we probably are somewhat benefited by being so small there and trying to sort this out from the standpoint that we wouldn't have the level of impact that those that might be more populated or a higher concentration there. But with that said, we still see incredible opportunities throughout China. And our tariff rate is much lower we're at the 5% level, mostly because it's research focused products that we're selling. So for the moment, we don't see any real barriers to continuing to build out in China. But we’ll keep an eye on that. We do know a lot of our diagnostic friends have had a lot of challenges in that landscape, so a lot of, as you know, our focus is on research and research use only. We feel like this is still a very fertile and fruitful area for our investments and so we're going to continue aggressively trying to build our position in China as we see that opportunity unfolding.

[Sung Ji Nam:]

Great. Thank you so much.

[Kevin Hrusovsky:]

sure

[Operator:]

Your next question comes from the line of Doug Schenkel from Cowen. Your line is open.

[Unidentified Analyst:]

Hey, good afternoon. This is Chris on for Doug today. Thanks for taking my question. Just a quick clarification question to start, how much did the timing of orders benefit revenue in Q2 and should expect this amount of revenue to come out of our Q3 forecast?

[Joe Driscoll:]

Yes we – from a timing perspective, we basically feel our full year is not going to change. So I think we're probably more on a one-year horizon. We don't actually provide guidance and don't give that level of specificity, but I would say that we're clearly ahead of where we thought we would be for the first half of the year from the standpoint of what we were shooting for. So when we look at how we've gotten there, there has been some advantageous timing on a few deals. I would say that if there's been any impact that you could actually link to a quarter, it would probably be more Q4 than it would be Q3, but I think Q4, we have a pretty – it's normally a pretty robust quarter for us. But I wouldn't get too wrapped up in the timing except that I think our full year projections, we still feel very confident, which we did going into the year. And we have stated very confidently the level and the kind of CAGR growth that we would see over the long term, and we remain very committed to those levels.

[Unidentified Analyst:]

Got it. And that’s actually a good segue to my next question. So it sounds like assay utilization is tracking ahead of plan. Could you just provide some detail on what is driving the strong pull-through? I am particularly curious on how much of this is attributable to the launch of new assays, as well as increased interest due to the scientific publications you highlighted?

[Joe Driscoll:]

Yes, I would say that when you describe that we're ahead of schedule, we basically set a goal that we would be at $50,000 per instrument. And we're just really excited that we've been able to come through and nail that. And there was, I think, a lot of questions from people earlier in the year on whether or not we would really have the level of usage and adoption. And it's clear that all of our projections that we made are being fulfilled. And that's – I wouldn't necessarily say we're way ahead of schedule or anything. We're just basically staying right on what we said and we commit to not missing and never missing. So that's a key to the way we're focused on our buildout. Now, when you look at the relative role of the menu versus publications, I would say they're interlocked. There's no doubt that the publication utility for NfL, Tau, amyloid betas and GFAP has been very significant. I would almost say that 90% – there's, I think, 47 neurology brain health markers other than concussion publications that have occurred year-to-date. And of those 47, I think 46 of them are actually honed in on Tau, amyloid beta, GFAP and NfL. And so how we then package those markers in various kinds of menu – for instance, sometimes you can multiplex. Sometimes you can just sell single-plex. There is an interrelationship, but without the publication, I don't think you have this level of interest. And so that's why we are the leading sponsor of Powering Precision Health. Our whole view has been if we really excite the research markets around the possibilities of being able to see, noninvasively, health and disease much earlier than you would ever be able to see disease, and then be able to dilute away matrix effects using that sensitivity, if you can bring that to the researchers and excite them and let them see excite them and let them see it, they’re going to go after grant money and they're going to create a lot of publications. And it's clear from our past track record that publications have always been a major focus for us and it's lead to deals. And so we actually did include a slide here where we can see and track how publications are yielding the opportunity for biomarkers. But I would say that this concept of getting to 500 biomarkers which there was a time when I first got involved in this part of the landscape there was this belief that you had to be at 500 biomarkers for anyone to have interest in your technology. And I think what we have been doing is we've been deploying very specific, concentrated efforts where the biomarkers are truly game-changing and disruptive in being able to see disease much earlier, or being able to see disease noninvasively when you had to, in the past, use a lumbar puncture or you had to use a biopsy for a tumor. If we can get to the biomarkers that have a lot of relevance and a lot of impact for seeing disease earlier and less invasively, you don't necessarily need to have 500. So we're not focused on numbers as much as we are making sure we have publications supporting the biomarkers that we're going after. And then creating a groundswell effect around those biomarkers so everybody can see their versatility. NfL, for us right now, has so many different ways that you can see axonal damage in the brain. So we have even have some – we had one drug company the other day was running NfL even though their drug wasn't intended to affect NfL. They found some NfL elevation as a result of running a trial, and could that be neurotoxicity as a result of that drug damaging the axonal part of the brain? So these are new avenues of insight that you never could have before and you're getting these insights noninvasively in blood. And so we really hone in on those advances and then make sure that when we attend Powering Precision Health, which is an independently – we sponsor it. It's a summit where the scientists do present a lot of their findings. We want to make sure that we get as much of that information exposed there to those scientists so that it helps them look at new ways to use it. So I wouldn't say that there's a correlation between the number of biomarkers and our revenue as much as there is, if you have a biomarker that has a lot of publications around it, it's going to have more of a correlations to revenue growth.

[Unidentified Analyst:]

Got it. Super helpful. And then just for my last question, I want to follow up on the multiplexing chart on Slide 16. To be clear, are you still focused on expanding multiplexing capabilities on SR-X and HD-1, or has that moved over to your planar technology?

[Kevin Hrusovsky:]

I would say that we still see real versatility for multiplex on the HD-1 and on the SR-X. And so we have a 4-plex and a 3-plex already launched and I believe we'll have 6-plex as well on the SR-X. We've always kind of felt that the bead technology will be very effective, more for single-plexes and lower-plexes than higher-plexes. This slide today kind of gives you a map of what we see is the current versatility. You might recall when we acquired the planar technology, it actually came with a couple hundred assays. Many of those assays were multiplexed, and so we already today have visibility into a lot of multiplex technology for planar that we haven't actually expanded bead into yet. So if someday we do a 10-plex or 12-plex on the bead, then we would expand this a little bit further right, but this is more a picture of where we are today. And we see incredible opportunities for putting Simoa onto planar and presenting it via planar. And I'd rather look at the substrate presentation being bead versus planar as opposed to that it's a different technology because what we're doing with the planar technology is we're bringing it into the Simoa world, where you can actually see baseline levels of those markers of interest in a multiplex. That's what we think differentiates the opportunity because there's so many researchers out there that wanted to be able to see a full multiplex at Simoa sensitivity levels. And that's where right now we think there's a faster entry for planar multiplexing. Then maybe what we would with beads for the moment. But again I think there's versatility both directions. We also think that we have the opportunity to further create sensitivity with beads. We don't know yet if we can take planar beyond today’s current baseline level of sensitivity. It could be that planar doesn't have as much versatility, that substrate, as maybe beads do for going even further in future advances. So again, we just want to make sure we have the various tools in our tool box to get to the assay that the publications are saying are saying are game-changing and differentiating the way healthcare is practiced.

[Unidentified Analyst:]

Okay, great. Thanks for taking my questions. And congrats on a quarter.

[Joe Driscoll:]

Thank you.

[Operator:]

Your next question comes from the line of Tycho Peterson from JP Morgan. Your line is open.

[Tycho Peterson:]

Hey thanks. Just a couple of follow-ups, I guess Kevin can you talk about the mix of capital sales versus reagent rental in the quarter? And then how do you see that trending going forward?

[Kevin Hrusovsky:]

We don’t show that granularity because I do think that if we ever do migrate some of our lower cost instruments into reagent rentals, it's going to confuse just a little bit. But I would say that instruments from the standpoint if you were to have pure sales of instruments, it's lower than our consumables on any given quarter. We think our consumables have now outstripped the amount of instruments that we sell from a percent of revenue, from a – like, if you look at the total product revenue, consumables would be a greater proportion of that. And because they continue to grow on the installed base, that proportion will continue. So I think that the percent of our product revenue over the time will continue to get lower for instruments and higher for consumables just because we've got this amazing multiplication effect going on right now. Every installed base that we put out there is driving more consumables than what we originally put it out there to achieve. And so by expanding menu on really relevant published biomarkers, increasing throughput per instrument, coupled then with more instruments being deployed, you still are going to end up with a greater percent for consumables. So today, I would say, it's probably 40% instruments, 60% consumables would be my rough estimate.

[Tycho Peterson:]

Okay. And then following-up on some of the discussion on plexing earlier, I think in the past you talked about trying to out 20-plex maybe next year. You mentioned earlier, I think, internally you're doing anywhere from 10-plex to 20-plex. And you're also dealing with some cross-talk issues. So can you maybe just – maybe provide a little bit more clarity on the roadmap there? I mean will you be launching 20-plex at some point next year? And what new markets really open up here as you increase your multiplexing capabilities?

[Kevin Hrusovsky:]

We believe that we ill have the ability to get to 20-plex in 2019, Tycho. That's clearly a road map commitment on our part. I think part of what has been created as an opportunity as we are deploying planar technology is, some of the new learnings are giving us new insights to maybe the most efficient ways to get there in the fastest, given that we've actually acquired a lot of multiplexing menu that was already on a planar base. And so the speed to get to 20-plex with the most efficiency and the best cost position, all those factors are being measured, but there's no doubt – nothing has changed from our standpoint. Only it's gotten better, meaning that we actually feel we have more shots on goal now of how to achieve 20-plex. And you're right, we actually have customers that have been doing 10-plus-plex with our homebrew on the beads. And so it's clearly an achievable thing to do. But we just want to make sure that we're bringing it in the most usable way for our customers. And when you move into oncology, particularly, we do see large panels being very important, and we see the cost basis of those panels being very important. And we also believe the shelf-life of our assays are going to be important. Because you have a lot of crossover studies now. When n equals a very large number of patients for a trial, many times those trials can go over a longer period of time. And so not only are we working on getting to 10-plex to 20-plex in 2019, we also are working on ways to get the shelf-life of our kits to be a lot longer than six months, which is where they were when – a year ago. So we're trying to get the shelf life to a year, maybe even two years, as well as get the plex up to 10-plex to 20-plex. Both of those are important. Another thing that we find is really important is the automation. Being able to do it in what we call an automated way is another differentiator that we've been able to do, and we find a lot of interest in that. And the final thing is, is that we also don't want to lose homebrew. Homebrew is something that many of our customers are excited about. They can deploy their antibody pairs any way they want for the protein of their interest. And so that's a very game-changing differentiator that our technology has, is the ability that customers can do homebrew. So we want to preserve homebrew, we want to preserve automation as we bring sensitivity to multiplexing.

[Tycho Peterson:]

Okay. And then one or two other quick ones

[Kevin Hrusovsky:]

Yes, it's the fastest-growing part of our business. It continues to be. Tycho, we see the accelerator being very strategic for two different reasons

[Joe Driscoll:]

Over 60%.

[Kevin Hrusovsky:]

Over 60%. And we think that that's going to continue to ramp higher as we get some of these major projects that they've shown interest in. So I think a 37% of our revenue in Q2, roughly, was out of services. That's, again, a higher percent because it's growing faster than the rest of our business.

[Tycho Peterson:]

Okay. And then last one, thinking a little bit further out, as we think about 2019, and I understand you probably don't want to give 2019 guidance at this point, but I think the Street's modeling about 52% growth, which is consistent with what you've been doing in the first half of this year. I guess, are you able to talk at all about your comfort level on hitting that type of growth based on some of the discussion that you've highlighted here today?

[Kevin Hrusovsky:]

Well Tycho, you've covered me and our team for many, many years, and I guess the last thing I want to do is do anything that we don't achieve. And so it's premature for us to comment on 2019, but I will go back and say that from the time we did the IPO, we commented that we would be able to drive 40% CAGRs. We said that that was a long-term opportunity. With the kind of publication flow, the kind of track record experiences of our commercial organization, and kind of what we were seeing in the disruptiveness of this technology, we felt very comfortable that we would be able to deliver 40% CAGRs. And this year, you're right; so far we're delivering 53%. Maybe a little bit of that got some timing benefit, but I would say that I still feel very confident that we're going to continue to drive what we've always said, which is the 40% CAGR. Now, if you want to go beyond that, I would say that, again, we're not guiding and we're not providing any of that. But we've never – we don't miss. That's – we work hard to not miss. Not to say we won't, but we want to make sure we stay conservative and do it in a way that makes sense for all the investors.

[Tycho Peterson:]

Okay, thank you.

[Kevin Hrusovsky:]

You’re welcome.

[Operator:]

I’m showing no further questions at this time. I would now like to turn conference back to Kevin.

[Kevin Hrusovsky:]

Thank you very much. And we'll just close with a slide that you've seen before. It talks about our market and our execution. On the market side, we do believe, still, to this day – it's a slide that we used in the IPO road show – that we have a category-defining, unrivaled sensitivity that's creating a market, and we're best-in-class, and we are investing aggressively and being the leader in sensitivity, that we've found a way to translate into seeing disease earlier, seeing it less invasively in blood, urine, saliva, breath condensate, even sweat. We've been measuring PSA, as an example, in sweat recently. So we – it's amazing the sensitivity and the way we're lowering the invasiveness. And then finally, using dilution to eliminate matrix effects is a key area that, even for an abundant marker, you can deploy sensitivity to it to create advantage and reduce false positives and negatives in your testing. We also have a very methodical approach to our market penetration where we're focused where there's no reimbursement or regulatory risk, trying to reward investors that invest in us as we go. We have a track record for trying to do this and we don't want to lose that record. We also feel like this technology evolves a whole understanding of genotype to phenotype. We actually can do DNA and RNA on our technology. We're still focusing primarily on protein, but we can evolve it into highly sensitive DNA and RNA as well. Core to all of this is the validation; publications; the number of trials, Phase I, II and III; the number of pharmas that are using the technology with pull-through, key to us. We see this razor blade in our execution, really rooted on this area of validation of the technology. And then we have these future opportunities that we're trying to disrupt inside of, and we're continuing to nurture the ability to cross into LDTs and IVDs. We have a lot of agreements in place to try to further evolve that. So in summary, we remain very bullish on this opportunity and we really appreciate everyone's willingness to work with us as we continue to build out this value for society. Thank you very much. We’ll talk to you at the end of Q3. Take care.

[Operator:]

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. And have a wonderful day. You may all disconnect.