Meridian Bioscience, Inc.
Q4 2018 Earnings Call Transcript

Published: 11 Nov 2018

[Operator:]

Good morning, my name is Jason, and I will be your conference operator today. At this time, I would like to welcome everyone to the Meridian Bioscience Fiscal Fourth Quarter Earnings Call. [Operator Instructions] Eric Rasmussen, you may begin your conference.

[Eric Rasmussen:]

Thanks, Jason. Good morning. By now you should have access to a copy of the earnings press release. If you do not have a copy, please go to the investor relations section of our website to access the press release and this morning's presentation. Before we begin today, let me remind you that the accompanying remarks include forward-looking statements. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond the company's control, including risk and uncertainties described from time to time in the company's SEC filings. The company's results may differ materially from those projected. The company undertakes no obligation to publicly update any forward-looking statement. Additionally, as discussed on Slide 3, we refer to non-GAAP financial measures, specifically operating expenses, operating income, net income and earnings per share. A reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures is included in our press release, which is again available on our website. Our agenda for the call this morning is on Slide 4 of the presentation materials. Jack Kenny, our CEO will start with a brief overview of some highlights from this past year. Our CFO, Melissa Lueke, will then review the fourth quarter and full year financial results and our guidance for fiscal 2019. Then, Jack will take some time to review the go-forward strategy for the company in each of our two businesses. We'll be glad to take your questions with the time remaining. With that, I'd like to turn the call over to Jack.

[Jack Kenny:]

Thanks, Eric, and welcome to our first quarterly investor conference call. Before we get to the financial results, I want to take a minute of your time to walk through Meridian's major accomplishments and announcements this past year. First, we took major steps in leveraging the combined strength and resources within our company by consolidating what was essentially separately run subsidiary companies into two global strategic business units. This went hand-in-hand with the realignment of our organizational structure, which resulted in fewer management layers and a more efficient cost structure that will help us free up resources for future growth initiatives. We also launched our new Meridian brand with the continued rollout supporting a fresh new image and a message to the channels and customers we serve with our products. More recently, we entered into a strategic collaboration with DiaSorin to sell a high throughput automated version of our H. pylori assay geared toward a new customer base. We also had some changes to our Board of Directors with the addition of Felicia Williams and the appointment of Dave Phillips as our new chairman after the recent retirement of Jack Kraeutler, who led our company as CEO for 10 years and most recently as Executive Chairman. And lastly today, we announced strong financial results to end our fiscal year and I'm looking forward to continued growth and improvement in 2019 as reflected in our financial guidance for 2019. Now I'm going to turn it over to Melissa, who's going to walk you through the financial results.

[Melissa Lueke:]

Thank you, Jack. Good morning, everyone. As we reported earlier today, total revenues for the fourth quarter of fiscal 2018 were $53.1 million as compared to $49.7 million in the fourth quarter of fiscal 2017. The 6.8% increase in revenue was driven by 18.8% growth in our Life Science segment and 2.3% growth from our Diagnostics segment. We are very pleased that those segments posted these levels of growth, while executing efforts to integrate and streamline their respective commercial units. Gross profit margins of 60.5% in the fourth quarter fiscal 2018 declined 110 basis points from 61.6% in the prior year. This is due to the combined effect of pricing pressures, primarily within our gastrointestinal business and a higher mix of revenues from our Life Science segment, which generates lower gross profit margin as compared to the Diagnostics segment. Operating expenses on an adjusted or non-GAAP basis of $20.5 million declined from the fourth quarter of fiscal 2017 levels of $21.1 million. This decrease is a result of the decrease in research and development spending based on project timing, a decrease in sales and marketing expense from savings generated by streamlining our 2 commercial units, which is mostly offset by higher levels of commissions earned on higher levels of revenue, and finally an increase in G&A expenses related to incentive compensation earned under the new fiscal 2018 incentive plan. On an adjusted or non-GAAP basis, fourth quarter operating income increased to $11.7 million or 22% compared to $9.6 million in the prior year. Higher revenue levels and reduced operating expenses more than offset the decline in gross profit margins. Also, on an adjusted or non-GAAP basis, net earnings increased to $8.6 million or almost 40% compared to the prior year level of $6.2 million, reflecting the improved operating income and lower tax rate after the passage of U.S. tax reform. On a GAAP basis, $3.6 million in restructuring charges recorded during the fourth quarter associated with streamlining the commercial teams contributed to the increase in operating expenses of $25 million and to operating income declining to $7.1 million. Net earnings on a GAAP basis declined $5.4 million for the fourth quarter compared to $5.7 million in the prior year, reflecting the combined effect of the restructuring charges noted and a lower effective tax rate of 21% compared to 34% in the prior year. Now moving on to fourth quarter operating segment highlights. Revenue for the Diagnostics unit grew to $36.8 million, an increase of 2.3% over the prior year revenues of $36 million. Operating profit growth was slightly less than sales growth in the quarter with sales and gross profit increases partially offset by higher G&A spending. Strong volume growth in respiratory illness assays, along with growth in our lead or blood chemistry assays was partially offset by declines in gastrointestinal assays. More specifically, gastrointestinal assays declined 5%, primarily due to declines in C. difficile sales volume more than offsetting growth in H. pylori testing volume. The C. difficile declines also contributed to the molecular technology declines. Respiratory illness assays increased 29% on the strength of Group A strep and influenza sales, and blood chemistry or lead assays increased 12% due to increased penetration into pediatric offices, leading to higher testing volumes. Revenues for our Life Science unit grew 18.8% to $16.2 million as compared to $13.7 million in the prior year comparable period. Both molecular and immunological or immuno reagent categories had strong growth of 8.9% and 26.8%, respectively. Additionally, each geographic region posted double-digit growth. Sales of immunoreagents to IVD customers continue to grow at a strong pace as more IVD customers incorporate our immuno reagents into the production of their diagnostic assays. We are pleased with the improved profitability of the Life Science segment in the fourth quarter. Operating income increased 71.5% to $4.9 million compared to $2.9 million in the prior year comparable period. This reflects gross profit from higher revenue levels and a lower cost structure after streamlining the commercial teams, and lastly the closure of 2 non-strategic locations. Moving to the full year fiscal earnings summary. Total revenues for 2018 were $213.6 million as compared to $200.8 million in fiscal 2017. The 6.4% increase in revenue was driven by 10.2% growth in our Life Science segment and 4.8% growth from our Diagnostics unit. Gross profit margins of 61.1% in fiscal 2018 declined 80 basis points from 61.9% in the prior year for reasons consistent with those stated in the fourth quarter. On an adjusted or non-GAAP basis, fiscal 2018 operating income was essentially flat at $44.6 million compared to fiscal 2017 with margins on the higher level of revenue offset by the increase in operating expenses for incentive compensation earned in 2018, higher sales and marketing expense on higher commissions, our branding initiatives and more sales and marketing resources in our Diagnostics unit and higher R&D spend. Also, on an adjusted or non-GAAP basis, fiscal 2018 net earnings increased to $31.7 million or over 10% compared to the fiscal 2017 level of $28.7 million, reflecting the lower tax rate subsequent to tax reform passed in December 2017. On a GAAP basis, operating expenses increased to $98.9 million from $86.9 million in fiscal 2017, primarily due to $13 million in restructuring and litigation costs in fiscal 2018. This contributed to GAAP operating income declining to $31.6 million in fiscal 2018 compared to $37.4 million in fiscal 2017, which included a $6.6 million impairment charge. Net earnings on a GAAP basis increased to $23.9 million for fiscal 2018 compared to $21.6 million in fiscal 2017, reflecting the lower 21.5% effective tax rate for the fiscal year as a result of tax reforms enacted. Now moving to the full year operating segment highlights. Revenues for the Diagnostics unit grew to $150.5 million, an increase of 4.8% over the prior year revenue of $143.5 million. Strong double-digit volume growth in respiratory illness assays, mid-single digit growth in our lead or blood chemistry assays and slight growth in the gastrointestinal category combined to produce this level of growth. Strong volume growth in H. pylori testing more than offset declines in the C. difficile testing within the gastrointestinal category. The strong respiratory growth contributed on both the molecular and immuno-assay technology front. On an adjusted or non-GAAP basis, operating income of $29.7 million was down from 2017, reflecting higher levels of revenue, offset by the previously mentioned operating expenses. Revenues for our Life Science unit grew 10.2% to $63.1 million as compared to $57.3 million in fiscal 2017, with balanced growth from both the molecular and immuno reagent categories of 11.9% and 9.2%, respectively. We were pleased to see continued growth in both the EMEA and China regions. New molecular reagents, such as Lyo-Ready products and increased numbers and volume of our immuno reagents being incorporated into the assays of our IVD customers contributed to growth. For the fiscal year, the profitability of the Life Science segment reflects the fact that most restructuring efforts took place in the second half of the year with the greatest impact in the fourth quarter. For the fiscal year, operating income increased to 5.9% to $14.9 million. By contrast, the operating income margin for the fourth quarter of fiscal 2018 was 30.1% compared to 23.6% for the full fiscal year. Now moving to 2019 fiscal year guidance. As we look at guidance for fiscal year 2019, we are providing consolidated net revenue guidance of 2% to 4% growth. This is based on expectations of low single digit growth in the Diagnostics segment and low-double digit growth for the Life Science segment. We do not expect as strong as a respiratory season in fiscal 2019 and expect competition within the gastrointestinal category to continue to put pressure on both pricing and volumes. These factors are expected to offset in part share growth anticipated in the respiratory and blood chemistry categories. We expect the Life Science segment to continue its low-double digit revenue growth, albeit on a larger base, with ongoing growth from new molecular products and increased sales to large IVD customers across the globe and to customers in China. We expect operating margins to be in the 20% range. Savings from restructuring activities during fiscal 2018 are expected to be in large part redeployed to research and development within the Diagnostics segment. We expect improvement in Life Science segment operating margins, while we expect operating margins for the Diagnostics segment to be down 0 to 50 basis points, due partly to anticipated pressures on pricing within the gastrointestinal category. For fiscal 2019, we expect our consolidated effective tax rate to be in the 25.5% range. In fiscal 2019, we will have a full year benefit from U.S. tax reform. Excluding onetime tax benefits from tax reform, in fiscal 2018, our normalized effective tax rate was 27%. For fiscal year 2019, we are providing GAAP diluted earnings per share guidance of $0.74 to $0.76 based on an estimated 43 million shares outstanding. This represents flat to 2% growth compared to fiscal 2018 adjusted or non-GAAP earnings of $0.74 and reflects our commitment to reinvest in growth opportunities for the future. Now I will turn it back to Jack.

[Jack Kenny:]

Thanks Melissa. As those who follow Meridian know, over the last few months, we've undertaken a strategic planning process for both of our businesses, which we have reviewed with our Board of Directors in detail. We want to spend a few minutes this morning introducing you to some of the results of this process and the key elements of the strategy for each of our business units and the overall company. At the starting point, it's important to recognize the major trends affecting the business. The key industry drivers and trends we see as having the most relevant impact on our company are listed on Page 12. We believe the highly regulated nature of our business is increasing on a global basis, with the forthcoming IVDR regulations in Europe being a prime example. This is a competitive advantage for companies like Meridian with the expertise and infrastructure to successfully operate in highly regulated environments. We see the pricing pressure in the industry continuing as reimbursement drives continued scrutiny on healthcare costs. At the same time, our customers continue to consolidate with integrated delivery networks or health systems, which are growing in size and scale. From a technology standpoint, molecular testing continues to grow and we see the shift that began some time ago continuing, particularly as the industry find ways to drive cost down and increase efficiency in this area. Lastly, China continues to be a large and growing market, too big to be ignored. We developed our strategy to ensure we are addressing these key trends. As shown on Slide 13, there are 3 overriding elements driving our strategy as a company. First, we aim to reshape the financial profile of the company with a new emphasis on driving the growth that is critical to creating sustainable value on the business. We're looking to increase investment in the business to drive growth - to drive this growth with a disciplined and focused approach that would include both high levels of internal spending in R&D and proactive acquisition activity. Lastly, with the rising price pressure in the industry, driving organizational fitness with higher levels of performance, speed and efficiency will be increasingly important to our future success. Our goal with our strategy is to create a more balanced investment profile and reposition the company as a higher growth business with strong profitability and returns and an improved risk profile that addresses the competitive risks of an aging product portfolio. Slide 14 shows Meridian's historical track record in deploying capital over the past decade. Meridian clearly has demonstrated a strong commitment to returning capital to shareholders in the form of dividends with the stated goal of distributing 75% to 85% of net earnings. It is worth noting that this targeted payout ratio is by far the largest among our peer group, which overall deployed - higher level of capital to internal R&D and capital investment as well as acquisitions. As a company, we regularly evaluate our capital allocation priority in light of the immediate investment opportunities we see for the business. Our board has approved our regular dividend and we have maintained the indicated dividend rate at its existing level of $0.50 per share on an annual basis. We remain committed to return our excess capital to our shareholders, but will no longer have a stated goal of distributing 75% to 85% of our earnings. We are proactively developing internal and external reinvestment opportunities, including acquisitions. Should these developments required capital well above our current plans, we will - we would need to reassess our capital allocation priorities in combination with the financial flexibility available to us given our strong balance sheet. The bottom line is that we do not see a need to change our dividend at this time, but we also will not let a historical policy and approach to capital allocation stand in the way of meaningful reinvestment opportunity, internal or external, that we believe will create significant value. Now I want to kind of change direction a little bit and talk a little bit about the strategy for our Diagnostics business unit. As described on Slide 15, the healthcare environment is changing fundamentally, whether it's managing an increasing number of patients at a lower cost, changing payment models that are putting clinical and financial outcomes into focus or increasingly demanding day-to-day operations. In facing these challenges, health systems are forced to react and are doing so through consolidation with other systems, implementing standardization to improve efficiency and employing a value-based model. We believe those IVD providers that can anticipate and react to the changing needs of the healthcare system will be at a significant competitive advantage. Consolidation among care providers is one of the major effects changing the healthcare market. Independent hospitals have consolidated into health systems and health systems have consolidated across regions and the country. These trends are expected to continue with some predictions that the number of IDNs will be reduced significantly. This means larger, more diverse health systems that will need solutions across a diverse range of points in a healthcare network from the physician office to smaller and mid-sized hospitals to the hub of the network and the central lab. Given this trend and market backdrop, we developed our vision for the Diagnostics business, which is shown on Page 18, that is focused on serving the changing needs of consolidating health systems and providing diagnostic solutions optimized for the various types of facilities within their network. Our vision is to deliver expertise in gastrointestinal testing and support the well-being of our children and community through our diagnostic offerings. Our primary pillar of our diagnostic strategy is a focus on gastrointestinal testing, which, we believe, is an attractive underserved market and a natural for Meridian given its history and its position. As shown on Slide 19, with GI, we intend to have a dual technology approach, providing both immunoassay and molecular platforms and assays. We do not believe that 1 test fits all. And within the GI arena, we aim to provide the format and technology most appropriate for the specific point of care within the IDN and the specific patient circumstances. We believe a focus on a specific disease state will allow us to support differentiated offerings and drive assay demand across platforms and the IDN. We are pursuing the dual platform strategy focused on GI, as I mentioned, first of all, with the new immunoassay platform in our continuing and upcoming launch of Curian. And second of all, with a new molecular platform that we intend to be a focus for internal R&D and potential external investment opportunities. Key to our strategy is a deep GI related menu that we would expect to include smart panels and resistance testing. To complement this differentiated GI menu, particularly in certain types of customer facilities, we're planning to retain and improve a limited respiratory menu of the most common and highest volume tests, including flu. We believe this menu strategy across two platforms can position Meridian favorably across IDNs by offering a wide range of cost-effective solutions for those customers. The other key pillar to our strategy is pediatric point-of-care. This is another attractive and an underserved segment in diagnostics in our opinion, and also an area where we are well positioned to support changing IDN needs. Slide 19 shows that our strategy for the pediatric point-of-care market will be to build menu depth from our core physicians in lead testing. A pediatrician focused menu and platform, we believe, has a place in the market and within the IDN. We intend to have an expanded menu with our next generation of the LeadCare platform that is expected to offer some of the most common tests needed by pediatricians. We believe this will allow workstation consolidation and simplification in the physician's lab. Lastly, we believe our Curian platform can also have a significant impact in this market. Putting our platform and menu strategy together on Slide 21, highlights how we intend to expand our reach across the IDN. With multiple platforms and expanded menus, we are now planning to grow by moving deeper into the physician office labs, but also growing our position in mid-sized and larger hospitals. We believe our strategy will allow us to significantly expand the breadth of our market opportunity and to serve our IDN customers at a variety of facilities within their network. A vision or strategy is only as good as its execution. And listed on Slide 22, we've identified and initiated the key activities necessary to execute our strategy, which include specific deliverables in new product development, commercial excellence, product lifecycle management and operational efficiency. The Meridian team is actively engaged in executing these key activities, which are critical to making our strategy a success. In summary, we believe, our combined vision, strategy and execution in our Diagnostics business can return this business to a growth trajectory and position Meridian as an important player in the changing healthcare landscape for the long term. I want to take a couple of minutes to talk about our strategy for the Life Science business. We currently enjoy a very strong position in Life Science and our plan is to build on the recent momentum we've been able to generate in this business. First, on Slide 24, I would like to briefly remind everyone where our Life Science business is and how it is positioned. We develop, manufacture, sell and distribute antigens, antibodies and reagents largely for the IVD market. Our Life Science business is entirely focused on bulk raw materials, both immunoassay and molecular and it is a far more global business than is our Diagnostics business. We intend to maintain this focus on bulk raw materials with a global market perspective. The key elements summarizing our Life Science strategy are on Slide 25 with a focus on driving continued top line growth, while doing so in a more efficient, streamlined cost structure. We consolidated the separately-run immunoassay focused and molecular focused subsidiaries into a single business unit earlier this year. Much of our strategy is built on leveraging that consolidation and includes a new go-to-market approach that will focus on our largest accounts and driving growth in our molecular product line with IVD customers, redeploying resources to focus on more impactful opportunities for the business, leveraging the combined scale of the 2 Life Science businesses and consolidating certain activities and locations and finally actively pursuing business development activities to add new products or move into new markets, including potential niche acquisitions. The recent drivers of growth shown on Slide 26 also remain key elements of our Life Science business strategy. Our growth in China has been remarkable and we look to translate more of that success we have with immuno products in the region to our molecular products line - molecular product line going forward. New products are also important to our growth and continued - we continue to develop and add proprietary products to support global expansion within our Life Science business. As Slide 27 shows, we have had low-double digit growth over the past 2 years in Life Science and we expect it to continue into fiscal 2019. It's important to note that the specific timing of orders in bulk shipments in Life Science can be unpredictable, and at times we do expect some performance and periods to be different than our annual growth rate trend and expectations. We continue to see strong growth prospects for both of our Life Science businesses within as we move forward. With that, I wanted to conclude by - our presentation by saying that after working much of the past year to get the right leadership team in place and align the organization, we believe, we have the strategy to win as a company. Our strategy has us shifting to more of a growth orientation, focusing our resources on core market opportunities where we have the right to play based on our scale and experience and increasing our investment in R&D, acquisitions and other opportunities. We're working hard to implement our new plans, to get our Diagnostics business positioned to resume higher levels of growth and we look forward - we're looking to our Life Science business to continue to support top line growth for the company, while improving margins and returns on a more consolidated infrastructure. Overall, we're convinced that Meridian is on track for a successful future. With that, Jason, I would like to see if we can open it up for any questions that folks may have.

[Operator:]

[Operator Instructions] Your first question comes from the line of Bill Quirk from Piper Jaffray. Your line is open.

[Bill Quirk:]

I guess, first question, Jack, certainly appreciate the comment about being more flexible when you are referring to returning capital as well as thinking about deployment. Certainly, I think, the implication here is that it sounds like you're planning in being more active in M&A. Can you help us think a little bit about the type of deals that you might be pursuing, kind of tuck-in versus the more kind of Magellan-like pivot? Just kind of help frame that for us a little bit.

[Jack Kenny:]

And Eric you can add in at the end if you would like. We certainly, as part of our plan, Bill, are anticipating to look more at M&A as part of our overall process. And that would be looking at M&A in both our Diagnostics as well as on the Life Science part of our business. I would describe in Life Science, the activity that we are likely to look at in that space is probably more tuck-in - kind of smaller opportunities in the Life Science business, that, we believe, could help us to continue the aggressive growth that we have had in that space. And from a Diagnostics perspective, we're keeping all avenues open. We're looking at a situation that can help us really when we look at our overall strategy to be deeper in GI and to - at the same time, have a significant position in the molecular space, what things can we go from an M&A perspective that may help, along with the organic work that we're doing in the Diagnostics business. Eric, is there anything else you want to add to that?

[Eric Rasmussen:]

No, I think, you put it well. I think on the Diagnostics side - tuck-ins are exactly the focus on Life Science. And I think on the Diagnostics side, we're still in relatively early days on our strategy and we're working through what are the kind of things that are available to us and what will make sense for the company. But we're pretty open-minded about the right things to do and - but I don't think right now we don't have plans for any kind of blockbuster acquisition kind of approach in - for that business.

[Bill Quirk:]

I appreciate the color across both Life Science and Diagnostics. I guess, turning specifically to the pipeline, can you touch on just a little bit about this pipeline molecular system? When should we expect to think about this hitting the market, additional details about the platform, et cetera? When should we - how should we be thinking about that as we are looking at our longer term models?

[Jack Kenny:]

So from a Diagnostics standpoint, first of all, we made some significant changes in our organization last year, specifically with some new leadership within the R&D organization. We brought in a gentleman named Larry Mertz, who has a long history in the molecular diagnostic area. He spent a number of years at BD as well as many other companies in the diagnostic space. Larry and his team are actively working in regards to where we're going to go with our next generation. We have programs we're looking internally at programs for different opportunities and approaches on the molecular side, but we're not also ruling out M&A opportunities to supplement what Larry and his team are doing. I would say in the next 6 months or so, we'll have much more clarity in regards to this specific area. It is kind of probably the biggest area of focus for the senior leadership at this point.

[Operator:]

Your next question comes from the line of Brian Weinstein from William Blair. Your line is open.

[Andrew Brackmann:]

This is actually Andrew on for Brian. So maybe we could start a little bit with the GI focus that you're talking about, going deeper into that channel. Could you maybe expand on the competitive advantage from it that you made there? We are seeing some other players in the space going into GI in the multiplex side. So maybe a little bit more color on why you think you can win in that area? And then I have a follow-up

[Jack Kenny:]

A couple of things I'd like to highlight, Andrew. First of all, there are players and people are playing in the GI space. So we fully acknowledge that. However, what most of the players in the marketplace are doing is they're coming in and developing maybe a key panel as BioFire has done with a very extensive panel or potentially some of the smart panels along the way. Our strategy is that - in the IDN space, cost-effectiveness, the changes - things like the Palmetto and the reimbursement changes that are going on in the marketplace, what we want to make sure we can offer is that IDN has the right type of test for the right situation. If you only have molecular tests available, you can't have molecular testing done at all sites within an IDN. The ability to have immunoassays in maybe places where you can't afford or can't - don't have the skilled labor to do the molecular testing to be able to offer immunoassay tests are critical in those locations. We fully believe that having smart panels will be critical in the GI space, bacteria panels, viral panels, things of that nature. But we also think individual tests like EHEC and CAMPY are also the appropriate tests and can be done at any times. We see ourselves as unique in that we really are the only players that can offer both the molecular offering and we will work to build a much deeper and broader molecular offering as well as the comprehensive immunoassay offering, so you can have the right test at the right price, at the right location within the IDN.

[Andrew Brackmann:]

And then maybe we could turn to spending and the level of investments that you guys are contemplating here. It looks like there's a steady increase in R&D this year, maybe close to $20 million to get to your guidance. So maybe longer term, what do you think that you need as a percentage of revenue to spend on R&D to drive these projects forward?

[Jack Kenny:]

So, Andrew, you're right, we are anticipating in fiscal '19, a significant increase in R&D, more than 20% increase in the overall R&D spend. And there would be increases in both Diagnostics and in Life Science. So that is across both sides of the business. So we do believe increased investment is key. I think what we want to move towards over time is to move closer to 10% or more of our R&D spend versus - as a percent of revenue. Historically, we have probably been in the 7% type of range and we're working our way to move closer to 10% as we go forward.

[Operator:]

Your next question comes from Catherine Schulte from Baird. Your line is open.

[Catherine Schulte:]

The first question, the Life Science segment has been particularly strong over the last couple of years. For the double-digit growth outlook for fiscal '19, can you just walk us through the main growth drivers there, maybe starting with the outlook by geography and then what the different growth drivers are within each of those regions?

[Jack Kenny:]

So we - absolutely, Catherine, glad to do that. We see significant growth clearly as we noted in our Life Science business. I'll start with China. I think that's probably the best place to start. We've seen really nice growth in China and we anticipate strong growth again in 2019. Our immunoassay business is the primary part in - of our Life Science business in China. And that business continues to grow as customers move from sampling the product, through the RA process as they're registering their product in China and now those products are starting to become CFDA approved and when you get into that, they get into a more regular ordering pattern at that point. So we see continued growth on the immunoassay side as the customers move kind of towards that regular supply as they go to market in China. At the same time, we have very small amount of our IVD business in China is the molecular space for IVD. And the same customers that we've been selling to on the immunoassay side have molecular programs. We are actively working with those customers and really starting to accelerate the growth and opportunity on our molecular side in China. And we anticipate in '19 and really accelerating after that, going beyond as those customers start to move those products into production in the Chinese market. So we see growth on both the immuno and the molecular side in China. When we get to other parts of the globe, probably the biggest thing, Catherine, is we looked at our business, we've identified a few of the top 200 accounts in our Life Science business. And approximately 120 of them may be in the immuno side and maybe 80 of them or so are in the molecular side. But interestingly enough, we virtually have very little cross-selling between those customers. And many of those customers, companies like Abbott, that is a very, very important customer for us on the immunoassay side, have strong molecular programs and we had real opportunities for growth there. So we are seeing real significant opportunities by cross-selling the immunoassay and molecular businesses in these IVD customers. And we do anticipate that we will have good growth across the globe via this cross-selling effort. And then the last thing I would say is, our molecular business had historically been the academic environment and we have a very good reputation with the Bioline brand of products in the academic space. We will continue to support that space, moving more toward the distribution model to get to that marketplace, but also open up where our immunoassay products can be sold into that space, where we can leverage the goodwill, if you will, that Bioline has in that area. So we believe that our Life Science story is the beginning of a strong story and it will continue to get stronger as we go forward.

[Catherine Schulte:]

And then back to capital allocation, what kind of leverage would you be comfortable with and any near-term plans to change the balance sheet structure or will it be more opportunistic?

[Jack Kenny:]

I'll start and Eric will probably help me a little bit here. So we are assessing and looking at opportunities at all times. So we have been working with our board. Our board is very supportive of doing the things internally and externally that we need to do to continue to build a stronger Meridian. We do believe that we have a balance sheet that enables us the opportunities to do things if the right situation presents. And as we actively look, if they present, then we'll look to move on those opportunities.

[Eric Rasmussen:]

I think, Catherine, it is opportunistic. It's based on - we don't have a targeted leverage amount. We, I think, we'd be comfortable as a company taking more leverage than we do have today, and that the opportunities for investment and we'll determine what we do with our balance sheet.

[Operator:]

Your next question comes from David Westenberg from CL King. Your line is open.

[David Westenberg:]

So going onto 2018, just to kind of understand the dynamics and potential headwinds that you saw in '18, so when you went through the restructuring, was there any identifiable disruption to revenue by going through this restructuring and maybe if there is any other sort of headwinds that would have showed up on the revenue line in 2018? For example, venous blood - or was that the quarter before? Just any kind of color in terms of what would have hit you in this year?

[Jack Kenny:]

So David, thanks for the question. So as you know, we went through our first organizational changes really in the springtime and that was really kind of organizing into the 1 Meridian structure, moving from 4 kind of independently managed groups more towards 1 company with 2 businesses. Those changes were really senior management and we had some changes, we brought some new folks in. The real significant change with our go-to-market was going to happen in Q4 in the summer. So we took our Life Science's commercial teams, they were two separate teams and we integrated them into one. We also took our 2 Diagnostics teams, the Magellan team and the Diagnostics group and merged them into 1. So we went into Q4 with certainly an opportunity and risk to kind of lose some momentum in the business. We were incredibly excited in Q4 because our commercial teams executed very, very well in Q4. Our Magellan business, as it integrated into the other business, grew 12%, probably our strongest quarter for the year, another double-digit quarter for us. Our Bioline business that was integrating in with the MLS business had nearly double-digit growth and was really kind of on plan throughout the quarter. We did not see any degradation in the quarter. In fact, accelerated performance in Q4. So it was a very, very uplifting quarter for us to execute, and I think it was a good sign of the execution that we can deliver with our team as we go forward.

[David Westenberg:]

That was a lot of helpful color. Just a quick clarification question. Does the guidance include the anticipation of getting the venous blood indication from the FDA? And that's all I have.

[Jack Kenny:]

So we continue to work actively with the FDA, working through the remediation efforts with them. Our anticipation and our financials for 2019 are based on the assumption that venous blood would return to the market in the springtime. And so it is not a huge financial impact through this last five or six months of the year, but we do have some level of growth coming back from venous blood in the second half of the year.

[Operator:]

Your next question comes from the line of Mark Massaro from Canaccord Genuity. Your line is open.

[Mark Massaro:]

I'm very much intrigued by the slide talking about the molecular platform investment. And so, I guess, can you give us a sense of where you are internally, in other words, have you already demonstrated feasibility to multiplex internally or is that sort of a work-in-progress? I guess, obviously, if you could do it internally, that might be a more logical solution than going out and acquiring something.

[Jack Kenny:]

So Mark, we are still fairly early on, in full disclosure, in regards to the molecular strategy in this next generation platform. We have not gotten to the point of having this - a working system of that level. We're doing extensive internal work as well as looking externally at opportunities. So we have some work still to do in that area, Mark.

[Mark Massaro:]

And then I noticed that you had exceptionally strong growth in respiratory, which is perhaps - maybe it is just me but I think most don't normally attribute you to being such a strong grower in respiratory. So can you give us a sense if most of this came from Group A strep on illumigene or are you seeing maybe the flu test on the ImmunoCard STAT? Anything - anymore granularity would be helpful.

[Jack Kenny:]

So, good catch Mark. The majority - the largest portion of that growth really did come from Group A strep on illumigene. We continue to see strong growth on that product and it is continuing to be a nice grower for us. It has been all year and continued in Q4. At the same time, flu was also additive to us. If you recall, we had a flu product that didn't meet the change in guidelines last year and we went out and we worked to bring a new flu product to market. And that new flu product did have a very positive impact for us in the overall fiscal year. The flu overall for 2018 was a growth engine for us. We had, as you know, a very strong season last year, flu season, but, we believe, we can continue taking share in the off-season, and we believe that our flu can continue to grow as we head into fiscal '19.

[Mark Massaro:]

Would be curious to get your sense on your perspective on Palmetto and how it changes. I know you touched on it, you talked about smart panels. But can you just speak to maybe your existing C. diff business? Is much of what you're talking about related to business development initiatives, a function of trying to maybe get ahead of the GI final decision from Palmetto and any thoughts you have about the competitive environment in C. difficile? Clearly, there are a lot of players and I know that BioFire has had a really strong run with their panel, but with Palmetto changing things a little bit, how do you see your legacy C. diff doing going forward?

[Jack Kenny:]

So I'll start first of all with Palmetto. We were fully supportive and excited to see the feedback that Palmetto recently delivered. We were firm believers that our responsibility in this industry is to bring great tests to market, but to also try to ensure that appropriate testing is done. We do think that the approach that Palmetto is driving is really about driving appropriate testing. Our view that we alluded to before about smart panels was the view that we had before Palmetto. We had been kind of preaching this - that this is the path that we believe as well as the times for individual tests when that is appropriate. So we were excited to see that. We had kind of been waiting for that to occur. We expected that in the summer. We are glad see the Palmetto ruling come down here in the last 30 to 60 days. In regards to C. diff, our C. diff business has continued to be a challenge. We have a significant C. diff position in both the molecular side, but also the immunoassay testing side. So from our view, the C. diff business, we continue to see challenges on the molecular side from competitors, Cepheid and others, and we don't anticipate that changing. However, we are seeing growth in our immuno side of C. diff testing. Customers had moved everything - we were a big part of moving customers from the immuno test going back in time to molecular tests and the cost of molecular testing was higher. Customers are now moving back towards using both immunoassay and molecular as appropriate to get the right level of testing and also the right level of sensitivity to best manage C. diff in their overall networks. So we have seen the return to growth in our immunoassay products as that trend is changing, as the guidelines are starting to move towards a combination of molecular and immuno. And it was also, honestly, Mark, part of the key things as we were thinking through our strategy about why molecular and immuno together makes more sense. A lot of people would say just go molecular, it's more exciting, there's better sensitivity. But there is a value need in the marketplace as well. And so we believe having both a comprehensive molecular offering which is what we will work to develop as well as a comprehensive immunoassay offering will be a really unique position for us. We do see C. diff being an area we're going to have to continue to defend while we work to reposition ourselves in the molecular space. But we expect to see continued growth in the immunoassay side to help offset that somewhat.

[Mark Massaro:]

And then my final question, your cash balance is about $60 million. That's obviously - you have a good balance sheet situation here. On the other hand, doing an acquisition of a company might necessitate going to the capital markets. So can you just give us a sense on, one, your willingness to use debt in any transaction; and then, two, are you seeing technologies out there today that meet some of your acquisition criteria or do you think that this might be kind of a longer journey as you explore additional technologies?

[Jack Kenny:]

I'll start. Melissa you can add to that. Mark, we do see that we are willing, if the right situation presents, to consider taking on more debt. We do believe we have got a very nice balance sheet. We do have the ability to take on more debt and we're very confident that we can support that debt as well as continue to operate the business effectively. So I do think - and Melissa, you can to that at the end, that, that is something that we will actively consider if the right situation presents. Mark, we have been actively working internally, but also actively looking externally at what things are out there in the molecular space. There is definitely a fair amount of things out there. We're exploring them. But you have got to find the right situation and the right products for the strategy we have. So I would describe us as actively looking, it's probably the best way to say at this point.

[Operator:]

There are no further questions at this time. I'll turn the call back over to the presenters.

[Jack Kenny:]

So first of all, thank you all for joining us. We are excited to have our first quarterly earnings call. We look forward to doing this on a quarterly basis to ensure we give high levels of transparency and to help you to understand where our business is developing. We look forward to talking to you in the future, and have a great day. Thank you very much.

[Operator:]

That concludes today's conference call. You may now disconnect.