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Edited Transcript of OXFD earnings conference call or presentation 2-Mar-20 1:00pm GMT

Q4 2019 Oxford Immunotec Global PLC Earnings Call

ABINGDON Mar 24, 2020 (Thomson StreetEvents) -- Edited Transcript of Oxford Immunotec Global PLC earnings conference call or presentation Monday, March 2, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Matthew T.E. McLaughlin

Oxford Immunotec Global PLC - CFO

* Peter Wrighton-Smith

Oxford Immunotec Global PLC - CEO & Executive Director

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Conference Call Participants

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* Chris Lin

Cowen and Company, LLC, Research Division - Research Associate

* Rachel Marie Vatnsdal

Piper Sandler & Co., Research Division - Research Analyst

* Ruizhi Qin

JP Morgan Chase & Co, Research Division - Analyst

* Sung Ji Nam

BTIG, LLC, Research Division - Director and Life Science & Diagnostic Tools Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Oxford Immunotec Fourth Quarter and Full Year 2019 Earnings Conference Call. As a reminder, this conference is being recorded.

It is now my pleasure to turn the call over to Matt McLaughlin, Chief Financial Officer.

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Matthew T.E. McLaughlin, Oxford Immunotec Global PLC - CFO [2]

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Good morning, and thank you for joining us to review Oxford Immunotec's financial results for the fourth quarter and full year 2019.

Before we begin, I'd like to caution listeners that comments made and financial information provided during the conference call includes certain statements that are estimates, forward-looking and/or subject to various risks and uncertainties. This information reflects our current expectations, assumptions and currently available data and are neither predictions nor guarantees of future events or performance. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with our business, including those under the heading entitled Risk Factors in our annual report on Form 10-K for the year ended December 31, 2019, to be filed shortly, and our quarterly reports on Form 10-Q.

The company disclaims any obligation to update or revise any forward-looking statements, except as required by applicable law. During the call, we'll also refer to certain financial information on a non-GAAP basis. We believe that non-GAAP financial measures taken in conjunction with GAAP financial measures provide useful information for both us and investors to evaluate the company's performance. These include constant currency comparisons, pro forma revenue, gross margin, loss from continuing operations, EBITDA and adjusted EBITDA.

Reconciliations between certain GAAP and non-GAAP results, such as EBITDA and adjusted EBITDA, are presented in the tables accompanying our earnings release, which can be found in the Investor Relations section of our website.

Further, as a reminder, in early November 2018, we completed the sale of our U.S. laboratory services business to Quest Diagnostics. As such, the now divested U.S. laboratory services business is shown as discontinued operations in the historical financials in our press release and forthcoming Form 10-K. The discussion of our results and business update on today's call will be focused on our continuing operations. And to assist investors in understanding the underlying performance of the company's continuing operations, we will be comparing to certain unaudited pro forma consolidated information for the prior year periods. This information reflected the company's estimated revenue and cost of revenue as if the closing date of the sale of our U.S. laboratory services business to Quest had occurred prior to the respective periods. This information appears as supplemental tables in our Q4 earnings press release. The pro forma adjustments in these tables were based on the information available at the time and assumptions that management believed were factually supportable and reasonable.

With that, it's my pleasure to turn the call over to Oxford Immunotec's Chief Executive Officer, Peter Wrighton-Smith.

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Peter Wrighton-Smith, Oxford Immunotec Global PLC - CEO & Executive Director [3]

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Good morning. On today's call, I'll provide a brief overview of our operating performance for the Fourth Quarter and Full Year 2019 before turning to an update on our business and our strategic priorities. Matt will then take over to discuss our financials before handing the call back to me to provide our 2020 financial guidance. We'll then open up the lines to take your questions.

For the fourth quarter of 2019, we posted revenues of $18.1 million above the top end of our expectations for the quarter. Total company revenue grew 14% over the fourth quarter of 2018 on a pro forma basis. U.S. revenue was $5.1 million. As expected, U.S. revenue was slightly down compared to pro forma revenues for the same period in 2018, given the changed seasonality of the business. You will recall that U.S. pro forma growth was exceptionally strong in the first half and we knew that would normalize in the second half. For the full year, the U.S. grew 16%, pro forma, excluding blood donor screening versus 2018.

Europe & Rest of World revenues of $2.8 million were up 14% compared to the fourth quarter of last year or 16% on a constant currency basis. Highlights in the quarter were continued strong growth in our U.K. ODL business and good growth in France.

Asia revenues were $10.2 million for the fourth quarter of 2019, up 26% from the same period last year or 22% on a constant currency basis.

China was particularly strong, as we started to see the advantages of going more direct into the marketplace on the selling prices into that geography, including a pricing adjustment that related to Q3 shipments getting caught up with the new contractual price, confirmed upon signing of the contract with Shanghai Pharmaceuticals in Q4.

For the full year 2019, our global revenues were $73.7 million above the expectations we had at the beginning of the year. This represents year-over-year growth of approximately 12% over pro forma 2018 revenues, a growth of 15% when excluding blood donor screening revenues from the 2018 comparison.

We saw approximately 15% growth in each of our geographical regions for the year, which demonstrates the broad-based growth drivers of the business as we displace the skin test and convert customers to our superior products around the world. We sold close to 4 million tests during the year, setting a new high watermark for TB volumes and bringing the cumulative number of tests we've now sold to nearly 20 million.

In addition to a continued focus on driving revenue growth, we've also been very pleased with the progress in the company's profitability metrics. We continued our track record of gross margin expansion coming in at 73.8% for the year, growing about 590 basis points over the pro forma gross margin in 2018.

In the year, we were successful in repurposing the company's spending around our new, more focused business model, bringing down operating expenditure. This OpEx reduction, coupled with the continued growth in revenues and gross margins, brought the company to adjusted EBITDA breakeven for the second half of the year.

Turning now to our key operating priorities and the business update. Our strategy is to grow our TB revenues across 3 vectors. Firstly, by converting from the skin test. The market is only about 20% converted from the skin test to IGRA technology. We continue to drive this conversion, aided by guidelines that are becoming ever more favorable to IGRAs.

Secondly, from overall market growth, as TB testing is continuing to grow as the world seeks to get control of the TB academic. This is being led by bodies such as the World Health Organization, whose new 2018 latent TB guidelines showed clear evidence for the benefits of systematic testing and treatment of latent TB and support IGRA testing globally for at risk populations.

Lastly, by taking share from IGRA competitors. We currently have about 25% of the IGRA markets, although we have shown that we can become the leading brand in several countries on the basis of differentiated performance and simpler pre analytical workflow. We're now able to strengthen our offer through providing automation and improved economics to labs.

Our key initiatives to support this strategy are to deliver automation to our customers globally; to improve economics for customers who choose T-SPOT.TB; and thirdly, to expand our sales and marketing teams and also use commercial partnerships to add to our voice and reach in the market.

Lastly, recognizing that more and more countries are or will establish screening programs, we need to continue to expand our geographical coverage to be able to take advantage of this market growth.

Commenting on each of these, in turn, beginning with automation. Automating our test has been a significant focus of our R&D effort and dollars over the past few years, and has culminated in a new technology called T-cell Select. T-cell Select is a platform technology, which allows white blood cells to be purified using magnetic beads, without impacting their functions in a live cell test like ours. Cell separation is a key aspect of our technology and one that differentiates us from other IGRAs.

With T-cell Select, this new process results in an exceptionally pure sample. Consequently, blood samples collected in a single standard blood tube can now be stored for up to 54 hours at room temperature before use in a test, a significant increase over the prior 32-hour window. This further extends our unrivaled simplicity and logistics advantages for customers.

Perhaps, more importantly, by using our new T-Cell Select accessory kit for the first time, customers have an automated solution for T-SPOT. TB. The use of automation will simplify workflow, improve throughput and reduce hands-on time for labs performing T-SPOT. TB. We believe it enables our existing customers to grow and enables us to win customers who've always wanted our test performance for whom workflow was previously a challenge. For example, we recently won a significant tender from an opinion-leading French hospital to replace their prior IGRA with T-SPOT. TB running on automated platform. After an installation and on-site qualification of its automation, I'm pleased to report this site has just gone live with T-SPOT. TB and is in the process of switching volumes over from its prior test.

We also started shipping products and placing automation with other customers in our Europe & Rest of World region, and we have a very strong pipeline of interested customers.

There's a regulatory process to go through to bring this product into additional jurisdictions. We're well into our U.S. studies for FDA approval, and I'll report more on the anticipated launch timing once we submitted and have received comments back from the agency.

Moving to improving economics for our customers. Labs are under increasing financial pressure. And is, therefore, it is part of our strategy to constantly improve economics for our customers. In the U.S., the PAMA legislation has upended pricing for laboratory testing. Under this new regime, reimbursement for most tests is declining. However, T-SPOT. TB has a stable reimbursement level under a reimbursement code that is unique to our test. As we're able to make automation available in the U.S., we believe this will enable customers to improve their economics. More generally automation, by reducing labor requirements, makes our test more attractive for them to run.

Outside of automation, we can improve the economics for our customers if we can increase the efficiency of our go-to-market channel and reduce the markups between us and our end customer. To that end, our recent transition of business model in China gives us more pricing flexibility in what is a large, attractive and growing market for TB testing.

We're also expanding the number of wholesalers we use in Japan, which allows our key end customers to use their favorite vendor.

Lastly, as it relates to our U.K. ODL service, we're already part of the U.K. National Health Service's Logistics network to enable hospitals to send our sample seamlessly as they were -- as though they were sending to any other part of the NHS. We are now working to become synced to the NHS' centralized laboratory information system so that customers can order and receive results at the click of a button, reducing labor and cost to them in administrative tasks.

Moving now to sales and marketing and commercial partnerships. As we previously communicated, a major focus of our recent sales and marketing expansion has been in Asia, especially in China, where we are in a transition to a new business model, away from our prior exclusive distribution partner to a model, whereby, we take more direct control over sales, promotional and market development activities. This transition has been progressing well. We have retained the vast majority of our end-user customers through the transition. Pricing is coming in line with our estimates, but it will still take some time for revenue mix to stabilize and, therefore, for us to know where pricing finally settled out.

The operational side of things are running smoothly with importation by Shanghai Pharmaceuticals and subsequent onward contracting and shipment to end-user customers is working well.

Obviously, we can't talk about China without also talking about the coronavirus outbreak. The outbreak has several effects on our business, which I'll take in turn. Most importantly, our Chinese staff are all current, fit and healthy. However, as with much of the population, they're under some travel restrictions, and mostly working from home, limiting their ability, for example, to make sales calls to grow our business there. Equally, patients are largely staying at home and avoiding hospitals, and that's absolutely necessary. And hospitals themselves are prioritizing coronavirus over other diseases. Consequently, demand for testing is significantly lower than it would be under normal circumstances. We don't purchase any raw materials from China in our manufacturing, and [impaling] our key suppliers, they also do not rely on Chinese components.

Moreover, we've been carrying a healthy stock of raw materials as part of our Brexit risk mitigation. Consequently, we believe there is low-risk in our supply chain for the time being from the disruption to normal business activity in China.

Another item in China that we've been working through with the renewal of our registration. China requires that you reregister your products every 5 years. Applications must be submitted 6 months before expiration. Although we timely submitted our renewal application approximately 8 months prior to expiration, the renewal was not issued prior to the expiration of our license on December 11, 2019. The registration renewal was delayed as the National Products -- National Medical Products Association, or NMPA, had scheduled an audit of our manufacturing facility, which they wanted to complete before signing off on the registration. We now have the findings from the audit, which went well, and the NMPA have not indicated that they have any further questions for us. We, therefore, believe that we've cleared all the substantive steps to obtaining registration and are, therefore, close to receiving it. However, we're also told that resources, within the NMPA, have been diverted to prioritize coronavirus matters, and hence, they are somewhat distracted from and delayed in normal activity.

We currently have adequate stock in the market to meet demand for the time being. However, we will need to get registration in a timely way in order for us to be able to continue to serve the Chinese market without interruption.

As an added protection against delays, we're also shipping some more kits manufactured before the 11th of December to China. This would give us additional buffer stock in the market. I'll comment a little later on how these things impact our outlook for the year when I talk to revenue guidance for Q1 and the full year.

Turning to commercial partnerships. We continue to focus on the success of our relationship with Quest, who is a key partner for the company in the U.S. As you know, a principal rationale for this transaction with Quest was to significantly increase the reach and competitiveness of T-SPOT. TB in the U.S. market.

We're now seeing the strategy bearing fruit. Quest continues to make progress on implementation, expanding availability of T-SPOT. TB through their commercial team and their joint venture network.

T-SPOT. TB is now available in over 1,400 patient service centers nationally and growing over time. I'm also pleased to report that Quest has started running T-SPOT. TB in their Chantilly laboratory to improve capacity and access to testing. As a result, our sales growth request is increasingly coming from new ordering providers, primarily in physician offices.

By the end of 2019, Quest has now over 20,000 new prescribers of T-SPOT. TB. We continue to collaborate well together, most recently, on an initiative to drive high-grade usage in rheumatologists, with the implementation of a rheumatology panel that includes T-SPOT. TB and Quest leading with T-SPOT. TB and providers with immunocompromised patients.

For all these reasons, we remain highly encouraged by the way the relationship with Quest is progressing and continue to expect its results in further expanding growth opportunities.

We also have an important commercial partnership in Russia, which has generated strong growth for us in 2019. However, we feel the market opportunity in Russia is significant, and there is a lot of headroom still to grow there. Consequently, we're continuing to work closely with our commercial partners and pulling through for further growth there.

Lastly, turning to our commitment to expand our geographical coverage. We're also very proud to have been included in the product catalog of the Global Drug Facility or GDF.

The mission of GDF is to facilitate worldwide equitable access to tuberculosis medicines and diagnostics. As of May 2019, GDF had delivered more than $2 billion in TB medicines and diagnostics to 142 countries, and GDF is the largest global provider of quality-assured TB medicines, diagnostics and laboratory supplies to the public sector. The GDF is housed and administered by the WHO within the Stop TB Partnership. The objectives of the GDF are to shape the market. The GDF works with suppliers, donors and other stakeholders to ensure the availability of quality-assured and sustainably priced products that respond to market needs.

Secondly, to facilitate access. GDF provides technical assistance to facilitate the introduction and uptake of innovative medicines and diagnostics in client countries, and finally, to provide best-in-class procurement services to ensure that countries have access to the quality assured products they need when they need them.

We have agreed to sell T-SPOT.TB and associated accessory regions at pricing, which we believe, will facilitate uptake of our test, even in countries with the least resources.

Following completion of final contracts, we look forward to partnership with the GDF to shape the market, facilitate access to our tests and use their procurement network to streamline our access to new markets. We see this as a big step to opening up a major new channel with additional countries in light of the inclusion of T-SPOT. TB in the World Health Organization's list of essential diagnostics and the changing WHO guidance, which now includes a role for our test even in the high suburban countries.

Outside of TB, the company continues to pioneer new technology to measure the immune system. And we have a longer-term aspiration to leverage our technology in other areas. One such area is to utilize our technology to enable personalized medicine for transplant recipients, to manage their risk from cytomegalovirus or CMV infection. Two significant new pieces of evidence from our T-SPOT. CMV test have recently been published, which demonstrate the clinical value of our technology in measuring the immune response to CMV.

So the company has been busy this past year on setting the foundations for growth into 2020 and beyond. Those foundations are also built from operational improvements to continue to support the company's growth and improve efficiency. For example, we're augmenting our facility footprint in the U.K. to increase capacity. Also this year, we're rationalizing our 2 U.S. sites into one site, and at the same time, establishing an automation, R&D and technical support capability ahead of the future U.S. approval. We're also embarking on a project to replace our antiquated operating and financial system with a new ERP system, which will, once implemented, give us new analytics and bring multiple efficiencies to current processes.

The company has transformed through the course of 2019, and notwithstanding the coronavirus curve ball, we come into 2020 with strong momentum and are focused on investing to drive further growth in the company.

I'll now hand it over to Matt, who'll give you some more detailed comments on our financials.

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Matthew T.E. McLaughlin, Oxford Immunotec Global PLC - CFO [4]

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Thank you, Peter. Our full GAAP results, as shown in our press release issued today, show the comparison of our Q4 2019 with the GAAP numbers of our continuing operations for Q4 2018. For the reasons I've already explained, when giving year-over-year comparisons, I'll be referring to the pro forma numbers for Q4 2018 instead to enable the comparison on a like-for-like basis to our Q4 2019 results. You can find these tables at the end of our press release after the presentation of the GAAP results.

Total revenues in the fourth quarter of $18.1 million were up 18% versus GAAP revenues in Q4 '18 and up 14% from pro forma revenues in Q4 2018. Breaking down our reported revenues on a regional basis, U.S. revenue was $5.1 million, representing 28% of our revenue. Europe & Rest of World revenue was $2.8 million, representing 15% of our revenue. And Asia revenue was $10.2 million, representing 56% of our revenue.

Turning to volumes in our TB business. In the fourth quarter, we sold approximately 250,000 tests in the U.S. via kit sales and over 550,000 tests in our OUS region, both via kit sales and test process in our U.K. ODL service business. Gross profit for the quarter of $14.3 million was up 26% from the pro forma gross profit in the prior year period. Overall gross margin for the quarter was 78.3%, an increase of about 710 basis points from the prior year period pro forma number.

Breaking down margins by product-service split. Product gross margin was 79.4%, and service gross margin was 58.5%. We saw an expansion in product margins of 700 basis points as we continue to pull-through benefits of larger batch sizes, greater automation of kit manufacturing as well as the benefits from fixed costs being spread over higher volumes.

We also continue to gain a tailwind from the roll-off of royalties as we move to protecting our products through company-generated IP. However, we also benefited from a onetime adjustment related to our transition to new pricing in China. We also saw a strengthening in service margins, both as we have eliminated the drag on margins from the blood donor screening service and as we continue to grow volumes in our U.K. service lab.

Turning to operating expenses. Operating expenses increased by $400,000 or 3% from the prior year period. Sales and marketing expenses increased to $7.3 million, primarily driven by growth in the APAC region and our transition to a more direct model in China. Research and development expenses increased to $2.7 million due to timing of both new and ongoing clinical studies, particularly those that support automation. General and administrative expenses decreased to $6.1 million. Operating expenses for the fourth quarter included approximately $940,000 of share-based compensation. Net loss for the fourth quarter of 2019 was $1.6 million compared to a pro forma net loss of $6.9 million in the fourth quarter of 2018.

EBITDA, for the fourth quarter of 2019, was a $3.2 million loss. Adjusted EBITDA, which excludes share-based compensation, unrealized FX gains or losses and unusual items, remained around breakeven with a $931,000 loss for the fourth quarter of 2019. Both EBITDA and adjusted EBITDA are non-GAAP measures.

Turning to the balance sheet. We finished the fourth quarter with a very healthy cash position of $181 million. During the quarter, we repurchased $3.7 million of our shares at an average price of approximately $15.54 under our share repurchase program. I would note that in the first quarter, we've already purchased significantly more shares than we did in Q4. And to date, we've purchased $13 million of stock under the program.

I'll now hand it back to Peter, who will discuss our business outlook.

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Peter Wrighton-Smith, Oxford Immunotec Global PLC - CEO & Executive Director [5]

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Thank you, Matt. For the full year 2020, prior to the coronavirus outbreak, we had expected revenues of between $83 million and $86 million, representing 15% year-over-year growth at the midpoint. On the assumption that business returns to normal in China by the end of March, and that there is no material disruption to our ability to serve the market, we estimate the impact of the reduced demand for testing and the reduced selling days to be around $5 million for the full year. Consequently, our guidance for the full year, including the impact of coronavirus in China, is for revenues of between $78 million and $81 million. We will, of course, update our guidance on our next earnings call as we continue to watch how the coronavirus outbreak plays out globally.

Based on the midpoint of our annual guidance, we expect approximately 13% to 18% of full year revenues to fall in the first quarter. As seen in prior years, Q1 is typically the weakest quarter of the year for Asia. This is obviously exacerbated by the impact of the coronavirus in China where testing consumption is down significantly. We, therefore, expect an unusually weaker quarter in Asia before it picks up throughout the remainder of the year.

As I mentioned previously, we are shipping some additional kits to China, but we have some uncertainty about whether we'll be able to recognize this revenue in Q1. Consequently, we have a larger-than-normal range for Q1, with the extent of the range principally reflecting whether or not this shipment clears customers before the end of Q1.

We expect strong continued year-over-year growth out of Europe and a sequential increase from Q4. In the U.S., in line with the new seasonal pattern, we expect a sequential increase from Q4. This will be a little muted as Quest, now that they have experience with us as their supplier, is looking to take down stock levels over the first half to move to a more just-in-time shipment pattern.

Moving down the P&L. We're focused on continuing to drive up gross margins through investments in manufacturing, automation and economies of scale. And we see an opportunity for gross margins for the year to grow at least 100 basis points over 2019.

On the bottom line, given that we feel we're still in the early innings in TB, we're focused on making investments to maximize the long-term growth of the company rather than trying to manage to a particular profitability target. Having said that, we do expect to maintain the company around about the adjusted EBITDA breakeven level for the year as we make those investments. I would note, however, that there will be quarterly fluctuations, not least, due to fluctuations in quarterly revenue levels.

On the balance sheet side, our principal uses of cash is to continue our share buyback. We also intend, over time, to deploy cash to gain new products for us to develop and sell through our expanding commercial channel. These investments will be in R&D to develop additional test based on our technology as well as opportunistically executing on business development and/or M&A if we see complementary assets that will be synergistic to our current business.

That concludes our formal prepared remarks. We'll now open up the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Your first question comes from the line of Sung Ji Nam from BTIG.

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Sung Ji Nam, BTIG, LLC, Research Division - Director and Life Science & Diagnostic Tools Analyst [2]

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Maybe, starting out with T-SPOT. CMV. Peter, to the extent possible, could you talk about what the time line could look like for potential commercial launch? And then, also remind us again, what the total addressable market opportunity there could be?

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Peter Wrighton-Smith, Oxford Immunotec Global PLC - CEO & Executive Director [3]

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Sung Ji, Thanks for the question. So the way we're looking at CMV is we view this as a part of a longer-term play in our aim to diversify our portfolio over time. We will require regulatory approval in the U.S. and for us to establish value-based reimbursement. So we're in the process of evaluating the market opportunity, building out the business case and getting some more market feedback before we'll apply significant resources to it. Consequently, this should not be viewed as a revenue driver for the time being, at least, as it relates to the TAM here. That's one of the things that we're looking to gain clarity on. And in part, it will depend on what reimbursement level or what reimbursement pathway we would seek to take in the U.S. And hence, I don't want to put out a figure right now until that work is complete.

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Sung Ji Nam, BTIG, LLC, Research Division - Director and Life Science & Diagnostic Tools Analyst [4]

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Okay. Great. And then just my follow-up is on the coronavirus outbreak. Was wondering, you had announced that you are shipping some kits to China as a rule out test for TB. I was wondering what the uptake on that front is. And then also, as you look at some of the other regions getting hit by the outbreaks, such as South Korea and Italy, could you kind of talk about, I guess, remind us again kind of your -- how important those kind of regions might be?

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Peter Wrighton-Smith, Oxford Immunotec Global PLC - CEO & Executive Director [5]

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Okay. Yes, thank you for the question. So I think in terms of the shipment, I think you're referring to the donation of RMB 3 million worth of kits to China. That's been very well received by the KOLs in China. And obviously, as we're building a more direct presence in China, we view that as part of our reputation and brand-building efforts in China. As it relates to other countries with coronavirus, we have not yet seen a disruption to our business in Japan and South Korea, for example. But obviously, if other countries were to impose the same kind of travel restrictions and patients were to dispose some kind of behaviors as we've seen in China, then clearly, there would be a disruption in those countries. We haven't reflected that in our guidance in this point because obviously it's still very early. And as I've said, we've not yet seen a disruption. I would note, of course, that Japan is material for us, but smaller than China and South Korea is a much smaller component of our revenue. So it's really Japan that would be the market we'd be most focused on.

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Operator [6]

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

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Chris Lin, Cowen and Company, LLC, Research Division - Research Associate [7]

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This is Chris on for Doug. Just to follow-up on the last question, could you comment on if you expect to recapture any of the lost revenue due to the coronavirus situation?

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Matthew T.E. McLaughlin, Oxford Immunotec Global PLC - CFO [8]

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Chris, yes, thanks for the question. I mean when we've seen these interruptions before, as we've seen, for example, in the U.S. at various points in time, generally, the volume is just lost because even though there might be pent-up demand for testing and the healthcare systems are generally running pretty close to full capacity, and so they can't just double the amount of patients they see just because there's pent-up demand. And so our assumption is that the demand is just lost.

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Chris Lin, Cowen and Company, LLC, Research Division - Research Associate [9]

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And Peter, I believe you mentioned that there are 20,000 new prescribers of T-SPOT. TB in the U.S. Could you provide a bit more detail on the profile of these prescribers? Are they new to IGRAs? Or are they competitive conversions? And additionally, are there any more logistical barriers, as it relates to ordering for this customer group?

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Peter Wrighton-Smith, Oxford Immunotec Global PLC - CEO & Executive Director [10]

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Yes. So I don't have the answer on that, on who they are exactly and whether they're competitive takeaways or new to IGRAs. We're working through that. We're doing some survey work of that at the moment, which will give us a better information to inform that. In terms of the logistical barriers, Quest has made a very significant progress on the electronic ordering system and result system. As I said, we're in about 1,400 patient service centers now, getting closer and closer to the -- I think it have just over 2,000, so that's making progress. Quest is making progress on enhancing logistics ease and capacity for T-SPOT. TB, as I mentioned, through their joint venture networks, but also through opening up -- running T-SPOT. TB in the Chantilly lab. But there still is some remaining steps to be made on the integration activities. But I think, it's very encouraging that we're already seeing so many new prescribers of T-SPOT. TB, and it kind of indicates the main rationale why we did the transaction, which was to access parts of the market that we couldn't otherwise reach ourselves.

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Chris Lin, Cowen and Company, LLC, Research Division - Research Associate [11]

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Can you also give us an update on your larger account strategy with Quest? Have you seen meaningful increase in win rate or access to potential new large accounts? And how you are thinking about this dynamic in 2020?

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Peter Wrighton-Smith, Oxford Immunotec Global PLC - CEO & Executive Director [12]

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Yes. So we actually have been working very successfully with Quest national accounts team, and we have some -- have made some actually some very significant wins in the course of 2019. So Chris, you well know that our customer base, prior to the transaction, was those large accounts, typically, hospitals and big public health accounts. And we certainly -- whilst we're clearly wanting to see growth in the physician office channel because that was the part of the market that we couldn't have access to before, that doesn't mean we've taken our foot off the accelerator, as it relates to large accounts. And as I mentioned, we're working well with Quest on closing those, as that continues to be part of the growth story of the company going forward.

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Chris Lin, Cowen and Company, LLC, Research Division - Research Associate [13]

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And for my last question, just on T-Cell Select, I guess, this is a question on commercialization. Is there potential to commercialize that product for applications beyond TB testing? I mean you said differently, it's just a project or diagnostic vendors or labs could use and is that opportunity you're exploring?

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Peter Wrighton-Smith, Oxford Immunotec Global PLC - CEO & Executive Director [14]

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Yes, absolutely. So as I mentioned in my prepared remarks, the company has, through the course of the work in this TB, has been really pioneering some new technology for measuring the immune system. And that can be deployed in many different areas. And it's not just us who has a need to purify white blood cells for use in functional life cell assays. And so over time, we've got our hands full right now deploying that automation for TB. But over time, absolutely, we would like to explore that technology in the digital markets.

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Operator [15]

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(Operator Instructions)

Your next question comes from the line of Tycho Peterson with JPMorgan.

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Ruizhi Qin, JP Morgan Chase & Co, Research Division - Analyst [16]

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This is Julia on for Tycho. First, starting off in China. Could you elaborate on the pricing adjustment that you talked about? And when do you expect pricing to eventually settle out? And how much incremental improvement should we expect in 2020? And then regarding the registration renewal in China, how much risk is embedded in your guidance, if any?

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Matthew T.E. McLaughlin, Oxford Immunotec Global PLC - CFO [17]

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Julia, it's Matt. Thanks for the question. I'll take the first part, and then I'll hand it over to Peter on the registration. So with respect to the pricing adjustment, it was around $1 million that we booked in Q4 associated with the Q3 shipment. So that was basically retroactively adjusting the pricing in Q3. And if you look at it on a gross margin basis, it's roughly -- it rounds to about 200 basis points of gross margin in both Q3 and Q4. So that's just broadly how to think about it. In terms of the overall pricing in China, there's still some dynamics that we've got to see play out over the next kind of quarter or 2. And that really depends on the mix. So we've had roughly 90% of our customers convert from Fosun over to Shanghai Pharma, and we're -- Shanghai Pharma still in the process of contracting with them. And so really, it depends on the end user segment. Is it a Tier 2 distributor? Is it a lab? Is it a hospital? And then what province are we selling into? So depending on that mix in terms of how it shakes out, that will then give us a much clearer view on the average pricing in the country. So that's kind of what we're working through as we get into early 2020.

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Peter Wrighton-Smith, Oxford Immunotec Global PLC - CEO & Executive Director [18]

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So taking your question, Julia, about reregistration. So as I mentioned in my prepared remarks, we believe we are close to reregistration. And there isn't a material impact on the business right now because we have adequate stock in the market to continue to serve demand, and we will do for some time. On the basis, both that we have stock to cover us for the time being and because of our expectation that we will receive the reregistration in a timely way, our guidance is based on the fact that there isn't a material disruption to supply in the marketplace.

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Ruizhi Qin, JP Morgan Chase & Co, Research Division - Analyst [19]

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Got it. That's helpful. And then in the U.S., I was wondering if you have a rough sense of when you would expect the T-Cell Select approval? And are there any contributions embedded in your guidance? And then in terms of seasonality, how -- what's the magnitude of the sort of the shift in seasonality between first half and second half that we should be thinking about?

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Peter Wrighton-Smith, Oxford Immunotec Global PLC - CEO & Executive Director [20]

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Okay. So as it relates to T-Cell Select, as I said in my prepared remarks, we will give time lines once we submitted and have feedback from the agency. So at this point in time, I'm not going to give that, other than to say that we do not expect it to materially impact revenues this year, which I think was part of a good question. As it relates to seasonality in the first half, as I mentioned, Quest is, now they've got comfortable with us as a supplier, is seeking to take down the inventory levels from the inventory level they inherited when the transaction happened. And that's somewhere in the $1 million to $2 million range headwind for us this year, largely in the first half.

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Operator [21]

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Your next question comes from the line of Bill Quirk with Piper Sandler.

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Rachel Marie Vatnsdal, Piper Sandler & Co., Research Division - Research Analyst [22]

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This is Rachel on for Bill. So first off, could you just give us some more color on guidance and the pacing over the year? And then next, following up on the registration renewal comments. So you mentioned you have adequate stock for the time being. Could you just talk about the color on that? And how long you think that stock will last? And then do you have any more specifics about when you think you will receive registration? I know you said you think it will come soon. But just given the delays in the process from the coronavirus disruption, if you've had any conversations or any color on that, that would be great as well.

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Peter Wrighton-Smith, Oxford Immunotec Global PLC - CEO & Executive Director [23]

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Rachel, it's quite difficult to hear you. So I'm going to answer the second question, which I heard, and I'm going to ask you to repeat your first question, we didn't catch that. So on the reregistration renewal, based on current utilization in the market, we've got months rather than weeks of stock left in the market. And as I mentioned, we're seeking to get additional stock into the country, which if it clears customs, will continue to elongate that pathway. It is -- estimating time lines of regulatory agencies is always difficult. It's not something that's in our control. But as I said in my prepared remarks, we have not -- we don't have any outstanding questions from the agency. We believe we're close, and given that we have that much stock in the market, we believe we will obtain it in time before we're out of stock in the market. Would you please repeat your first question?

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Rachel Marie Vatnsdal, Piper Sandler & Co., Research Division - Research Analyst [24]

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Yes. So my first question was, could you just give us some more color on guidance and the pacing over the year?

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Peter Wrighton-Smith, Oxford Immunotec Global PLC - CEO & Executive Director [25]

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Right. So I mean, obviously, Q1 will be light, as I've said, because of general seasonality in the business. Specifically, Asia is always kind of weak seasonally in Q1. And obviously, that's exacerbated by the coronavirus outbreak. The U.S., seasonally, is generally weaker in Q1. But obviously, in the first half of this year, as I said, the Quest destocking will impact the business to the tune of $1 million to $2 million over the course of the year. But that's falling in the first half, primarily. Matt, is there any comments you'd like to make about the rest of the year?

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Matthew T.E. McLaughlin, Oxford Immunotec Global PLC - CFO [26]

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No. I think the rest of the year, as we look out, to kind of Q2, Q3, Q4, once you see the uptick from Q1, Q2 will be our biggest quarter of the year, I think, is what we expect, just given seasonality, both in the U.S. and Japan. But it will be relatively consistent with Q3 and Q4. I don't see any big peaks or valleys in those other quarters.

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Operator [27]

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I am showing no further questions at this time. I would now like to turn the conference back to Dr. Peter Wrighton-Smith, Chief Executive Officer.

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Peter Wrighton-Smith, Oxford Immunotec Global PLC - CEO & Executive Director [28]

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Yes, thank you all for joining us to discuss our fourth quarter and full year 2019 results. We look forward to updating you on our next quarterly call.

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Operator [29]

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