Bio-Techne Corp (TECH) — Q1 2020 Earnings Call Transcript

Good morning and thank you for joining us. On the call with me this morning are Chuck Kummeth, Chief Executive Officer and Jim Hippel, Chief Financial Officer of Bio-Techne. Before we begin, let me briefly cover our Safe Harbor Statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the Company's future results. The Company's 10-K for fiscal year 2019 identifies certain factors that could cause the Company's actual results to differ materially from those projected in the forward-looking statements made during this call. The Company does not undertake to update any forward-looking statements as a result of any new information or future events or developments. The 10-K as well as the Company's other SEC filings are available on the Company's website within its Investor Relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable GAAP measures are available in the Company's press release issued earlier this morning on the Bio-Techne Corporation website at www.bio-techne.com. I'll now turn the call over to Chuck.

Thanks Dave and good morning everyone. Thank you for joining us for our first quarter conference call. We started fiscal 2020 on a strong note with our first quarter organic revenue increasing 13% year-over-year, continuing a double-digit organic growth rate we delivered in fiscal 2019. The double-digit growth was broad across our product segments and geographies, with proteins, antibodies, simple Western, and RNAscope platforms performing exceptionally well. Also rebounding from last quarter, our OEM diagnostics tools business contributed to double-digit growth. As we look at our performance by geography, I will start with Europe. In Q1, organic revenue increased over 10% for the quarter. As expected, the headwinds we faced last quarter normalized and contributed to the strong performance in the quarter. Recall that the timing of a large order from a European customer was one of the headwinds we experienced in this region last quarter. During Q1, we received this order. Excluding this large order, our European growth was in the high single-digits, and this is our expectation for the remainder of fiscal 2020. The initiatives the European team has put in place over the past several years continue to positively impact the business, creating synergies across divisions and implementing creative ways to make it easier for our customers to do business with us. We believe these efforts create the foundation for continued European growth ahead of our industry peers in quarters to come. That said, the popular view regarding Europe is fairly bleak about an economic slowdown there, so we will continue to monitor Europe closely for any signs of weakness. With regards to North America, organic growth was also north of 10% driven by particular strength in biopharma. There's been a lot of effort dedicated to our digital market strategies, including the continued enhancements we make to our website which allow customers to do complex product searches and find solutions for their research needs. However, our digital marketing efforts go well beyond our website, with our search engine optimization efforts increasing brand visibility and driving traffic to our website. These efforts are translating into double-digit increases in our Bio-Techne web traffic which correlate very strongly with the double-digit revenue growth we have been seeing, especially in our antibody and protein portfolios. We view these digital market initiatives as a key component of our forward growth strategy and are very pleased with the continued progress through this important channel. For China, organic growth of nearly 20% for the quarter, with continued strong performance in both our reagent and instant products. The life sciences industry is still a high priority in China's five-year plan and we continue to be well positioned in spite of any local competition and are still very under-penetrated in our key growth platforms. Now let's dive a little deeper into the performance of our growth platforms starting with those within the Protein Sciences segment, which grew 13% organically for the quarter. As I've already indicated, antibodies and proteins performed extremely well for us in Q1 with both product categories growing in the mid-teens in the quarter. In addition to our digital marketing efforts, we recently began the process of validating a growing number of our immunohistochemistry antibodies using ACD branded in situ hybridization and gene editing platforms leveraging a transcriptomics approach to providing high-quality validated IHC antibodies for researchers. This initiative leverages across an organizational synergy between our reagents solutions division, our genomics division, and our recently acquired B-MoGen Technologies. For background, as the number of antibody suppliers has increased over the years, the process of validating the quality of numerous antibodies from various suppliers has become increasingly more challenging for customers. There are no rules or quality standards that an antibody reseller must abide by before selling an antibody. Customers are increasingly asking for assurance if an antibody has been tested and shown to be specific for cells known to express the protein in question and not bind the cells where the gene encoding a specific protein has been knocked out. We anticipate this multiomic approach to antibody validation to distinguish the quality of R&D systems and Novus Biological branded antibodies from our competitors, provide superior service to our customers, and ultimately benefit our antibody sales. We also continued to position ourselves as a tools provider for the coming wave of cell and gene therapies. While still a relatively small portion of our business today, cell and gene therapy will be a very important growth driver for our company in the years to come. With our GMP proteins polymer B technology in non-viral vectors and instrumentation to automate process and product monitoring, we can now supply a significant portion of the cell and gene therapy workflow. This potential is already evident in our GMP proteins business where we experienced growth over 100% in Q1. We broke ground in our new GMP dedicated protein factory in the quarter and we will be ready to provide GMP proteins in larger scale to our cell and gene therapy customers by the second half of fiscal 2021. Moving on to our instruments portfolio within Protein Sciences, where the simple Western platform continues to be the star of the show. With an installed base of over 1600 worldwide and growing double-digit, we saw consumable growth from these instruments that was over 40% higher than last year. Further evidence that these instruments are quickly achieving market acceptance. They are not just getting installed; they are getting used. As I mentioned in my opening comments, our growth in Q1 was balanced between both of our operating segments, with the diagnostics and genomics segment also growing double-digit in the quarter with 16% organic growth. Here, the OEM diagnostics tool business returned to double-digit increases in nearly all of its major product categories including clinical controls and specialized reagents. As expected, the OEM order timing was more positive in Q1 than it was in last quarter Q4. Also, our glucose controls business stabilized in the first quarter of our fiscal year with sales relatively flat year-over-year. Going forward, we expect this division to be at least a mid single-digit grower for all of fiscal 2020 with possibly higher growth in future years as new diagnostic instant platforms and assays by our OEM customers come online. Also, within the diagnostics and genomics segment RNAscope continued with its growth recovery with sales increasing over 20% in Q1. During the quarter, we released the RNAscope high flex assay, which enabled researchers to gain greater insights into cellular mechanisms and functions by combining a simple workflow with the capability of simultaneously detecting up to 12 RNA targets. The high flex assay is particularly well suited for spatial genomic studies with the assay requiring minimal sample preparation while delivering high performance and preserving the morphology of precious tissue samples. It is still early in the RNAscope high flex assay launch, but we believe this will be another growth driver for our genomics portfolio. Now let's discuss our liquid biopsy business Exosome Diagnostics. Of course, the big news here in Q1 is that NGS, our Medicare Administrative Contractor, issued a final local coverage decision or LCD covering EPI for men who are being considered for an initial prostate biopsy. This major reimbursed milestone is effective for EPI tests administered for Medicare beneficiaries on or after December 1, 2019. Importantly, with this final LCD, more than 60 million Medicare beneficiaries will now be covered for the EPI tests. During the quarter, we also made progress with private payer coverage of EPI. We currently have nearly 30 commercial plans contracted for EPI as well as 38 states covered under Medicaid. We expect a recent Medicare coverage decision to drive increased awareness of EPI within the private payer community and look forward to updating everyone on additional contract wins going forward. Following these reimbursement or regulatory milestones, we are positioned for an acceleration in EPI volume. All test counts in the most recent quarters were 34% higher than last year; we used the seasonally slower summer months to revitalize our marketing message and strengthen our sales leadership so that we are well positioned to garner doctor-patient acceptance of the EPI test as a viable alternative to potentially unnecessary prostate biopsies. With over a million unnecessary prostate biopsies performed every year just in the U.S., we couldn’t be more excited about serving what has been, until now, a very unmet need. In summary, we are off to a great start in our fiscal 2020. The second fiscal year of what we intend to be many years of double-digit growth. Our core reagent portfolio is performing at its best in over a decade while our adjacent proteomics and genomic analytical tools are still ramping in very under-penetrated markets. Meanwhile, our liquid biopsy and cell and gene therapy platforms are still in the pregame show of what we believe will be a long non-inning with many home runs. That's the strategy we are marching to, and I'm very proud of the Bio-Techne team and their accomplishments to date. With that, I'll turn the call over to Jim.

Thanks Chuck. I will summarize our Q1 financial results for the entire company and provide insights on each segment. In the first quarter, adjusted earnings per share was $1.06, up from $0.98 a year earlier, although foreign exchange effects reduced EPS by $0.25. GAAP EPS for this quarter was $0.37 compared to $0.45 in the previous year, with the decline in GAAP EPS largely attributed to the change in fair value of our investment in ChemoCentryx, which lowered the reported GAAP number by $0.26. Q1 revenue reached $183.2 million, reflecting a 12% year-over-year increase, and organic revenue growth was 13%. This includes less than 1% growth from acquisitions and a 1% negative impact from foreign exchange translation. Geographically, the U.S. and Europe both saw growth over 10%, while China experienced nearly a 20% increase. In terms of the Profit and Loss statement, our adjusted gross margin was 69.5% for the quarter, a drop from 72% last year, mainly due to unfavorable product mix, timing issues in factory absorption, and the impacts of recent acquisitions combined with foreign currency challenges. Looking ahead, we expect adjusted gross margins to be similar to those of fiscal 2019. Adjusted selling, general and administrative expenses accounted for 29% of revenue during Q1, remaining steady compared to the previous year. Increased costs from acquisitions and investments in our core business to fuel growth offset volume leverage. Research and development expenses for Q1 were 8.8% of revenue, down 30 basis points from the prior year mainly due to volume leverage. It is important to note that the Exosome Diagnostics acquisition was completed at the start of August 2019; hence our Q1 2019 figures only reflected two months of related expenses, while Q1 2020 includes three. The adjusted operating margin for Q1 was 31.8%, representing a 210 basis point drop from last year. However, when excluding the additional month of Exosome Diagnostics included in our current results and the negative impact of foreign exchange, adjusted operating margins remained consistent with last year. Below operating income, net interest expense in Q1 was $5 million, steady compared to the previous year. Our bank debt was $486.1 million, a reduction from $505.2 million at the end of Q4 2019. Other adjusted non-operating income was virtually zero for the quarter, a change from a $0.8 million expense in the prior year due to differences in foreign exchange transactions. In our GAAP reporting, other non-operating income includes unrealized losses from our ChemoCentryx investment. Moving to the Profit and Loss statement, our adjusted effective tax rate in Q1 was 21.9%, and we anticipate it will remain between 21% and 22% for the rest of the year. Regarding cash flow and capital return, we generated $40.5 million from operations in Q1, with net capital expenditures at $10.5 million. We paid $12.2 million in dividends during the quarter, and there were an average of 39.3 million diluted shares outstanding. Now, let's look at the performance of our reporting segments, starting with the Protein Sciences segment. Q1 sales totaled $141 million, representing a 12% increase, with organic growth also at 12%. Foreign exchange negatively affected revenue growth by 1%, and acquisitions added 1% to revenue. Growth in this segment was widespread across major product categories and regions. The operating margin for the Protein Sciences segment was 42.2%, down 100 basis points from last year due to unfavorable mix, factory absorption issues, and foreign exchange impacts, along with the recent B-MoGen acquisition. For the diagnostics and genomics segment, Q1 sales were $42.6 million, a 16% increase from the prior year, with organic revenues growing at the same rate. The growth was slightly supported by the additional month we owned Exosome Diagnostics, but also faced a 1% adverse impact from foreign exchange. Growth in this segment was balanced, with improved OEM diagnostic orders and our hematology controls business growing significantly, while our genomics division showed consistent double-digit growth. Looking ahead, we expect less volatility in our OEM diagnostics and anticipate mid-single-digit growth going forward. Concerning Exosome Diagnostics, as mentioned in previous calls, we are recognizing revenue from EPI tests performed on a cash basis due to the recent commercial launch and low penetration of contracted payers. For patients with non-contracted private insurance, the payment appeal process can be lengthy, meaning Q1 results reflected minimal EPI revenue. We did receive a favorable local coverage decision from Exosome Diagnostics for Medicare claims, and expect to start submitting claims after December 1st for covered patients. However, we foresee a 30-day lag before receiving Medicare cash payments, meaning minimal Medicare impact in our fiscal second quarter EPI revenue. We will continue to recognize Medicare revenue on a cash collection basis until we establish a sufficient claims history. We plan to shift to accrual accounting for Medicare claims early in fiscal year 2021. Regarding the diagnostics and genomics segment, the operating margin was 2.1%, down from the 6.9% reported last year, which reflects additional Exosome Diagnostics expenses this year. Excluding the treatment of Exosome, the Q1 operating margin for this segment was 9%. In conclusion, Q1 performance aligns with the full-year guidance shared at the end of last fiscal year. We plan to achieve organic growth of 10% to 12% and maintain adjusted operating margins while investing in our strategy for cell and gene therapy. We acknowledged the dilution from acquiring Exosome and anticipated improvement in margins over subsequent quarters. We were encouraged by our strong start to the fiscal year, supported by the timing of a substantial annual order in Europe and favorable OEM order timing. Although we began the year with 13% organic growth, we still forecast an overall growth within the 10% to 12% range. We also expect our adjusted operating margin for fiscal year 2020 to remain consistent with the previous fiscal year. Moving forward, the impact of Exosome Diagnostics' expenses on our base results is behind us. At current exchange rates, we foresee continued unfavorable FX impacts throughout the fiscal year. Despite future planned investments in cell and gene therapy, we aim to improve adjusted operating margins sequentially throughout the year. That wraps up my prepared remarks, and now I'll turn the call back to Nicole for questions.

Thank you. Hi Chuck and Jim. A strong quarter here, just wanted to get a view from you and what are you hearing from your biopharma customers overall as we head into the end of the calendar year, just giving us a sense of what the demand flow is looking like and overall what's the expectation here? You commented a little bit about Europe; I would love to get more of a longer-term trajectory, how are you thinking about Europe and overall business in North America? And then I have a few follow-ups.

Sure. I'll begin with Europe, which is probably the weakest area at the moment, and it's still a wait-and-see situation. Even though we observed some softness last quarter, we had an excellent quarter in Europe overall. However, there are a few challenges to note. I believe high single-digit growth for the full year remains a realistic expectation, and we might perform slightly better; we'll have to see. The instant side of our platforms is the main concern, while our reagent side is very robust. Asia is performing strongly with instruments, likely due to the ongoing buying cycles there. We don’t anticipate any major shifts, especially in China, where conditions look favorable. In the U.S., things are stable and consistent. We've maintained stability in the U.S., and with the positive news from NIH funding that was announced last week, I expect next year will also be decent, supporting the biopharma sector. We've made efforts to improve our online presence and just came off a very successful neuroscience show, generating more leads on the first day than during the entire event last year. Our booth has transformed significantly, showcasing all our platforms and brands together, which is attracting considerable interest online and contributing to sustained strength in the U.S., where we've seen double-digit growth for quite some time. This summarizes how the three regions are performing in the instant sector and beyond. Overall, things look positive. I think Jim was correct in his assessment. We're targeting a growth range of 10% to 12% for the year. If we experience a strong launch, there’s potential for even better results, but this is the safe estimate we’re considering.

Okay, great. On the facility buildout, it is great to see that kicking off but what's the expectation here for gene and cell therapy workflow products two to three years from now and wanted to get a view from you on what are some of the pieces that you would still like to add into this gene and cell therapy workflow to enhance the product offering to the customers?

We are focused on developing our cell and gene therapy workflow using non-viral methods. Currently, the majority of clinical work uses viral methods, but we will be providing GMP proteins for our approach. We achieved 100% growth in Q1 with our proteins, which is promising. Our factory dedicated to GMP proteins is projected to reach $140 million in productivity over five years, with potential to expand to $200 million, although it may take longer to reach that milestone. We essentially operate like a mini CDMO, but there's more to our workflow, including beads and our B-MoGen technology for gene editing. We have multiple platforms for analysis, including cell imaging with our AC technology and a simple plex amino assay for testing. Overall, our workflow is strong, but we are seeking additional areas to enhance it. We currently lack a leukapheresis instrument that would integrate with our workflow, but we are developing partnerships to address this gap, as it is a crucial component. Our bioreactor relationships are robust, and we have a unique product called Prodots that allows us to dry our proteins into small, stable components that can be reconstituted in a sterile environment without losing bioactivity. This innovation has caught the attention of our preclinical customers, and we believe we have a competitive edge in the workflow. As suggested, it will take two to three years to fully realize this potential. We are currently engaged in several preclinical studies that will transition to clinical trials, supporting our long-term strategy of five to ten years. Despite this timeline, we are optimistic about the growth of our protein business, having achieved impressive growth over the last 30 years, and I am willing to take the time needed to double it again.

That's great, thanks. And if I could just squeeze one more and I wasn't sure if you already provided, what's the revenue expectation around Exosome for the fiscal year and now that you have Medicare and could you talk about the plans for FDA or next steps now that you have breakthrough designation for EPI?

Yeah, we've done the first submission and they've come back with a long laundry list of questions as expected. So we're not even really able to give a date when it will be finalized for FDA. But under a year for sure, but it's going to be a few months at least for that. So we're in process and the FDA breakthrough stuff gets us that help from them directly that they promise. So they are helping. So we'll see what happens with that. In terms of revenue, we're right now trying to figure out where to reach back to for our first submissions for tests previously done. We're trying to figure out what that date will be, it'll be in months and no longer than a year worth. So we're not prepared to give a number on that but it'll be millions of dollars worth of potential but there's no guarantee. Going forward it's 40% to 50% of the tests and you kind of had that number and that ramps, you kind of guesstimate what we're going to be submitting. And although once we get everything greased here with CMS, which I promise will be December 1, that's a 30 days to pay kind of future, and then we'll go to accrual next summer probably at that, so after that amount of time frame. Revenue, you've seen the numbers. I mean we need a full year to get to a $30 million total and our run rate is about $50 million, and at that point we're probably break-even, that's going to be a 12 to 18 months kind of timeframe we think. But it's early and we don't really know yet, we got to see how this does ramp. We got to see how we execute. We've taken a long time here in the last few months to upgrade our marketing and our sales groups and we're still hiring. It takes six to nine months for the new people to get in the groove. We just hired out in New York, so we won't be getting a whole lot of traction in New York for probably another three to six months. It all takes longer than you want but we're nearly the only game in town, it works the best of anything out there. We got this thing from start to finish through and yes, in two years or so we will say Telus is a record. It's still like a long time for us but we'll see how it ramps. But I think getting to a level of revenue that we've talked about is certainly more than just plausible so we're excited to try and feed this beast as we go forward from December 1st.

Okay, thanks Chuck.

Hey guys, thanks for the question and congrats on the quarter. First one on that EPI Medicare look back topic. How's your discussions with NGS gone and when do you think you'll find out if you'll get those retrospective payments or not?

You just don't know. There is no precedent as you know, there's no real rule or law around it. It really is up to them what they feel is appropriate and fair. And we have to decide also what day to go back to and we can make it more problematic for us to get anything by the farther back we reach. So we're trying to pick a fair position where there's like notice, no dispute, no doubt, and you got to remember when you start out this kind of thing you're starting out with sales people with unclear practices and processes and data and we don't want anything nebulous about what we're asking for. So we're going to pick a safe date where we have from a point where our processes are really clean and perfect and we have great data and great outcomes and so there is no dispute. So we're trying to figure that out but it's going to be an all we think at least six months worth and that should be a few thousand tests. So we'll see. And I hope they're generous.

Okay, and then for the upcoming quarter, you have a pretty tough stacked comp in Protein Sciences. What's your view on that segment next quarter and what are you assuming in terms of the calendar year-end budget flush there?

We're not seeing much indication of budget flush at the moment. The recent news regarding NIH funding looks promising and sets a record, which excites us for the upcoming year in academia. As I mentioned earlier, the rest of the business appears to be steady. We'll see how our processes affect execution, but as you pointed out, this is a challenging quarter. We're entering a period that was particularly strong for us last year, and while we don't anticipate significant setbacks, it will still be a tough quarter. It's crucial for us to execute well, as that's the nature of this business. We aim for sustainable growth with double-digit increases every quarter moving forward, and it's never an easy task anymore.

And then last one from me, can you just give us an update on the general environment that you're seeing in China and what are you expecting for growth there for the full year?

We are definitely aiming for more than 20%, targeting around 25%. I believe our growth will fall between 20% and 25%, and the outlook is positive. As we conclude our fifth year, there will be some budget adjustments. I think we've moved past the challenges related to tariffs, even though they haven't had a significant impact on us. Our progress in China remains steady. We're still relatively small there, which represents a significant opportunity for growth, primarily driven by institutions and U.S. Chinese citizens familiar with our brand and education systems. Since I joined over six years ago, our presence has grown from a small team to over 150 employees. Initially, only our RMD and HR head spoke English, making hiring challenging in a company of a dozen people with limited revenue. Multinational companies typically capture the best bilingual talent. However, we've overcome that barrier, and now we primarily hire exceptional candidates from multinationals who not only speak English but are also attracted to our growth potential and the culture we are developing across our global subsidiaries.

Great. Thank you.

Great, good morning Chuck and Jim, thanks for taking our questions. This is actually Will on for Alex today. Chuck Bio-Techne has built a huge catalog of products and resources for life science researchers, as you move into the GMP grade protein production how can you leverage these existing products and resources to make you successful in the emerging cell and gene therapy area? To ask the question another way, is this another leg to the stool that needs to be added or can you leverage pieces of the existing businesses into this new growth area? Thanks.

We don't require a large catalog since we're likely focusing on about 10 products. Currently, despite our 100% growth in the GMP protein business, our setup is designed for research, and we lead in that area globally. We offer thousands of products and proteins, but we face a fundamental challenge as we are spread too thin. While our quality and processes are exceptional, they aren't GMP qualified because we lack the capacity to produce sufficiently large batches for a production environment suitable for a CDMO. Our clients appreciate our capabilities, but they request larger production volumes. To address this, we've purchased a factory that we are expanding, which will enable us to produce the advanced GMP proteins desired for the next generation of cell therapies. Historically, the focus has been on IL2, a protein that is relatively easy to manufacture, but moving forward, we are targeting more complex proteins such as IL7, IL10, and IL15. We aspire to be the preferred supplier as the demand shifts toward these more sophisticated proteins. Our goal is to produce the best quality with optimal yields and bioactivity. Therefore, we believe our future is clear, as we aim to establish ourselves as the leading protein science manufacturer globally, which is the driving force behind our factory expansion. The catalog will not be extensive, as GMP proteins for cell therapies require a more selective approach, focusing on specific characteristics such as the type of IL10, the quality, lab activity, and the yield our customers experience with our proteins in their therapies.

Got it, thanks. Appreciate the color. That's interesting. And then just what's the update on the ACD partnerships with LICA and if you could just talk on the next ACD tests in the pipeline and timing for some launches there, thanks?

We used to discuss the pipeline more frequently, but they've advised us against that. They have several projects in progress, many of which are smaller and address significant unmet needs. The current business is seeing strong growth with the HPV test, achieving double-digit increases, and we are pleased with the emphasis being placed on it. Our new management team, led by Kim Kelderman, has made a substantial impact. He previously managed Genomics at Thermo Fisher and has established strong industry relationships, which has helped elevate our status within the Danner organization and secure more focus on our initiatives. We are optimistic about collaborating with them on various projects. Additionally, Ventana and Roche are increasingly interested in partnering with us, as our platform is versatile and compatible with multiple instrumentation systems. We continue to address the relevant challenges, and so far, we are making good progress. Currently, our business is mainly based on RNAscope RUO, with diagnostics representing less than 10% of it, but we expect that to increase significantly over the next five years.

Okay, great, thanks. And then congrats on the final LCD for EPI, I just have one more question. Do you have any updated plans to kick this product as well as roll out other Exosome Dx based tests in either a lab or a kit format? Thanks.

We expect to receive FDA breakthrough status, which will provide us with more flexibility and enhance our credibility with private payers. However, we don't feel the need to rush into anything at this moment. There’s still a lot for us to explore without worrying about that. Additionally, we are currently focused on enrolling patients and initiating studies related to the bladder indication. We also have a kidney rejection rate to address and a validated test that is ready to enter clinical trials with a partner interested in the blood side for lung and breast applications. Our pipeline is robust with opportunities using this platform, and we don't need to pursue other options right now. There is sufficient work ahead of us.

Great, thank you.

Hey Chuck, Paul Knight.

Hey Paul, how are you doing?

Good, could you talk about your GMP production facility expansion specifically timing, but also will this be a footprint where you can add additional capacity around it once the initial investment is made?

Yeah, and as I mentioned earlier some of that answer but to expand on it, it's a 50,000 square foot facility. We bought a building so that we could save a year from doing a Greenfield somewhere else; that was the main reason we bought one. We bought it in St Paul proper. It was an absolute awesome facility for the way it's laid out for us. So we really just got to fill it with our stuff, which is most of the money as you know. The stuff is expensive to put in there with the large reactors, all the sterile piping, the in and out rooms, the clean rooms; it looks like a small pharma factory, right. It's a bioprocessing factory is what it is. It is ready to go on Phase 1 to roughly $140 million of the capacity at today's kind of pricing goals. And with expansion, easily to 200 million if we need to, there's plenty of room still and that 50,000 that was not utilized. We will be doing other things too; there's possibly other reagents we can work on there, some antibodies possibly there. There is stuff we're looking at, but there's also some room on the site land wise so we can build out if we need to. So this thing could be really big for us and we don't have to worry about buying another one for quite some time.

And then regarding protein simple your 1600 placements, is your pull through going up? Could you talk about where you think you are in market penetration as well?

Well we are 10% less than penetration we feel. We have seen that no matter what's going on with the instruments or whatever it being simple western, it has just been knocking on the park quarter after quarter. I think it's because we have more than crossed that chasm and it's still very under-penetrated. We are bringing back into the fold a lot of big pharma customers that have walked away from a Western blot as a process and in the you are going back with us again because this works so well. It's so fast, it's so reliable. So we're actually expanding the market again I think. 1600 is a good number but it's roughly, if you look at it as I compare to what imagers are out there it's less than 10% of installed imagers in the world. So we think there's a long way to go. We are still in good split between biopharma and academia. I think we're not done until we really see people leaving college with this is how they learned how to do Western blots; when this is the methodology that's taught in schools and becomes a standard, we'll know that our job is done and we're a few years off from that.

Okay, thank you.

We have no competition with this Paul. It's the only automated Western blot platform out there and we see nothing on the horizon.

You have to keep adding to the library with your antibody probes.

You mean in terms of Western…

Yeah, so we're always adding, right. So we add roughly 1500 a year; it is split up between antibodies, assays, and proteins each and every year. So we're the company people look to for the newest, hardest to make bioactive proteins. We've always been the ELISA leader and we still crank out new ELISAs every year. We are pushing the envelope another assay especially multiplexing so we're trying to extend that category as multiplexing becomes more and more of a standard. And antibodies we supply a lot through Novus. We have in our catalog over 300,000. We make over 20,000 ourselves but as you know, antibodies come in all different applications and from western to flow to whatever and we're the largest catalog in the world. We're not the largest provider, but we're in the top five. And we've seen double-digit growth for quite a few quarters now and we're enjoying it and we think it's going to continue.

Thank you.

Well, as our analysts move around from different companies, we're expecting a few more analysts coming back online in the next quarter or two so that'll be good. But we've enjoyed all your questions and we're here today and rest of the day tomorrow for other calls and one-on-ones and reach out to David Clair if you have other questions you have. But other than that, we'll check in with all of you again next quarter. Thank you.