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Edited Transcript of QTNT earnings conference call or presentation 4-Nov-19 1:00pm GMT

Half Year 2020 Quotient Ltd Earnings Call

Saint Helier Nov 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Quotient Ltd earnings conference call or presentation Monday, November 4, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher J. Lindop

Quotient Limited - CFO

* Franz Walt

Quotient Limited - CEO & Director

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Conference Call Participants

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* Brandon Couillard

Jefferies LLC, Research Division - Equity Analyst

* Joshua Thomas Jennings

Cowen and Company, LLC, Research Division - MD & Senior Research 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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Greetings, and welcome to the Quotient Limited Second Quarter Fiscal Year 2020 Financial Results Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Chris Lindop, Chief Financial Officer for Quotient Limited. Thank you. You may begin.

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Christopher J. Lindop, Quotient Limited - CFO [2]

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Thank you, Melissa, and good morning, everyone, and welcome to Quotient's Earnings Conference Call for our Second Fiscal Quarter ended September 30, 2019. Joining me today is Franz Walt, Chief Executive Officer of Quotient.

Today's conference call is being webcast live through an audio webcast, and a replay of the conference call will be available later today at www.quotientbd.com.

During this call, Quotient will be making forward-looking statements, including guidance and projections as to future operating results. Because such statements deal with future events, actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements can be found in Quotient's filings with the U.S. Securities and Exchange Commission as well as in this morning's release. The forward-looking statements include guidance -- including guidance and projections provided during this call are valid only as of today's date, November 4, 2019. And Quotient assumes no obligation to publicly update these forward-looking statements.

With that, I'd like to turn the call over to Quotient's Chief Executive Officer, Franz Walt.

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Franz Walt, Quotient Limited - CEO & Director [3]

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Thanks, Chris. It's a great pleasure to review with you today so many positive developments achieved in the past 3 months. We have made it clear for some time that we believe that the combination of our expanded IH and the initial SDS menu will be highly effective product offering, providing significant benefits to the future customers of MosaiQ. With this in mind, we are delighted to have completed the critical V&V study for the expanded IH microarray with results that inspire confidence in both its upcoming European and U.S. field trials and its ultimate value for customers around the world.

In October, we also successfully completed our first U.S. field trial for the initial SDS panel. This is important because the initial SDS menu and the MosaiQ device are subject to a 510(k) approval. This means we can expect a faster review process than a traditional BLA, which should accelerate the time required to have an approved product in the hands of our customers in the U.S. for evaluation. If all goes well, this will be during the first half of next calendar year.

With respect to the field trial data, we had some questions on CMV specificity, so let me set the record straight. CMV is a very common virus with more than half of the population having had infection. However, unlike other viral infection, people with CMV positive results are allowed to continue to donate blood. The only blood bag labeling that occurs with respect to CMV is CMV negative. This is done because CMV negative blood is required for a small patient population.

So what blood bankers are looking for is CMV negative donation and a relatively small number of false positive results have no impact on the donor sector. For this reason, we have focused on a very high sensitivity in the design of the CMV assay. We are confident, based on market precedence, that CMV product can be approved with specificity as low as 90%. And the CMV sensitivity of 99.7% plus the outstanding performance of the syphilis assay give us great confidence in the future of this menu.

When you add to this the successful completion of the recent MosaiQ annual manufacturing facility audit, the initiation of 3 additional hypercare launch sites and early customer feedback, which has been overwhelmingly positive, I feel very confident that we are on track for meaningful commercial success in the near future.

We have continued to consistently deliver on the plans that we made over 1.5 years ago. While everything is moving forward as planned, the acceleration of the initial SDS U.S. field trial have gone a little better than we originally expected. But there also have been a couple of short delays which impacted the timing of the expanded IH menus, V&V study due in part to our raw material supply challenge that we have now resolved, and also to delayed access to certain rare sample material required for verification testing.

The good news is that we've [this deferral overcome] . The milestones achieved represents the end, the development for our first commercial menu. That is, the expanded IH and initial SDS microarray. Remember that this combination will allow customers to replace 2 different technology platforms and much of the manual testing, which is required today, while providing 'walk away' automation, enhanced productivity and a more comprehensively characterized blood products from each unit of donated blood.

From here on, our development efforts will be focused on the expanded SDS menu, which will include 7 additional tests on our molecular panel which ultimately includes up to between 8 and 10 tests. We expect to publish performance data on each of these menus in the near future, so please stay tuned.

Everything now is about menu expansion and market access, and this quarter's performance on the key milestones which we reported, reinforces my confidence on both fronts. This combination of [blood] products, will delivered even greater productivity and cost savings to customers and unlock significant profit expansion for Quotient.

Turning to the conventional reagent, Alba by Quotient business, we had another outstanding quarter, recognizing product sales of $7.1 million, a record for our second quarter. In the quarter, gross margin on product sales also trended positively over the prior year. Increased volume, pricing and ongoing operational improvements, following our move to the new state-of-the-art Allan Robb Campus, late last fiscal year, contributed to this positive trend. This time last year, we were in the middle of the transition period, and we were incurring costs of both our previous manufacturing facility as well as the cost of the new campus.

Milestone payments earned from the development of certain rare antisera reagent for a key OEM customer also contributed $750,000 of other non-product revenues in the quarter.

With that, let me hand over the call to Chris Lindop, our CFO, who will provide more color on business performance so far this year and on the outlook for the rest of the year. Chris?

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Christopher J. Lindop, Quotient Limited - CFO [4]

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Thanks, Franz. I'm happy to report that our second quarter product sales of $7.1 million increased by 14% from last year's second quarter and exceeding our original guidance range of $6.3 million to $6.7 million.

In the first half, product sales were $15.3 million, an increase of 8% from $14.1 million in the first half of last fiscal year. The increase in product sales is attributable to both OEM customers and to direct and distribution sales. As Franz noted, total revenue included other revenues of $750,000 earned in connection with the development and approval for sale in the U.S. of certain rare antisera for our largest OEM customer, for which there was no comparable amount in the prior year.

In the quarter, OEM sales of $4.7 million grew 7% year-over-year and represented 66% of product sales, while direct customer and distributor sales of $2.4 million increased 28% year-over-year and represented 34% of product sales. Product sales from standing orders in the quarter were 71% versus 70% last year. And for the first half of the fiscal year, OEM sales grew 4%, and direct sales grew 18%.

Shifts in the timing of red cell reagent ordering can cause quarter-to-quarter variability year-over-year, which tend to average out over longer comparative period.

Gross profit on product sales in the quarter of $3.1 million increased from $1.7 million last year. In the quarter, gross profit was impacted positively by top line growth, yield, mix and pricing increases. In addition, last year, we incurred approximately $200,000 of duplicate facility costs in the second quarter related to the company's former manufacturing site. The gross margin on product sales was 44.1% compared to 27.1% last year. The relocation to the new biocampus, the Allan Rob Biocampus, is an investment in future growth and efficiency opportunities. And in the short term, gross margins have been negatively impacted by the higher cost base of this -- of the facility, which in the quarter included $408,000 of incremental noncash expenses, offset in part by increased volumes, improved yields and contracted price increases. The transition of manufacturing to the ARC was completed in the fourth quarter of last year.

In the second quarter, the operating loss was $18.4 million compared to $21.1 million last year. Operating expenses decreased $440,000 from last year to $22.3 million. The year-over-year comparison includes an increase of $400,000 in sales and marketing expense and a $100,000 increase in research and development expense, offset by an $800,000 decrease in general and administrative expenses. Last year's general and administrative expenses included $300,000 related to the transition to our new facility in Scotland, and $500,000 of other costs and advisory fees, which did not recur this year.

Stock compensation expense was $1 million in the second quarter, down from $1.2 million in the prior year. In the second quarter, net other expense was $8.5 million compared with $6.3 million in the same quarter last year. Net other expense consisted of $7.3 million of interest expense and $1.2 million of foreign exchange loss arising from the revaluation of monetary assets and liabilities denominated in foreign currency.

Interest expense payable currently in cash of $4.3 million increased $800,000 over the prior year as a result of incremental borrowings during the first quarter of this fiscal year. Accrued noncash interest expense related to an estimated future royalty payable to the note holders also increased as a result of the incremental future royalties under the senior note facility following the December 2018 note restructuring and the April 2019 note issuance. Overall, our net loss for the quarter was $27 million or $0.41 per ordinary share.

Moving to the balance sheet. Cash and other short-term investments were $72.8 million on September 30, while senior notes outstanding were $136.3 million, net of an outstanding, offsetting, excuse me, long-term cash reserve account of $8.7 million. On September 30, accounts receivable were $4.3 million and inventory totaled $18.1 million. Capital expenditures amounted to $1.4 million in the second quarter.

Now moving to guidance. We are confirming previously provided guidance ranges for product revenues of between $30 million and $31 million. We have reduced our estimated operating loss for fiscal year 2020 to between $75 million and $80 million. Estimated operating losses included approximately $18.5 million of noncash expenses such as depreciation, amortization and stock compensation. Capital expenditures are now expected to be between $5 million and $7 million for the full fiscal year. Other revenue estimates for the full year of $1 million include $250,000 of product development revenue that is contingent upon achievement of regulatory approval for certain products under development. And as such, the receipt of the remaining portion of these milestone payments involve risks and uncertainties.

For our third fiscal quarter, we expect product sales in the range of $7.1 million to $7.5 million compared with $6.7 million in the third quarter of fiscal 2019.

Now let me turn the call back to Franz.

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Franz Walt, Quotient Limited - CEO & Director [5]

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Thank you very much, Chris. So moving now to the future and to what you can expect over the next 12 months.

As I have noted, our focus will be on menu expansion and commercialization. Of course, menu availability will be achieved in the near term by the submission of our expanded IH microarray following our European and U.S. field trials, which we plan to start first in Europe later this quarter.

This product, when combined with the initial SDS microarray, will provide a highly differentiated and value-added offering to our customers. As I have mentioned, our near-term menu expansion highlights will include the completion of an independent evaluation of our molecular testing platform by a blood center laboratory. The purpose of this exercise is to both obtain customer usability data and also to permit a customer to use and understand the power of the platform in advance of commercial availability.

Today, molecular testing requires the pooling of at least 16 samples of donated blood due to the price charged for such tests and the time involved in each testing cycle. When one of these pools test positive for a targeted disease state, pool must be unpicked, so to speak, retesting each individual donation to identify the impacted donor.

Our vision is for all the required molecular test will be loaded on a single low-cost microarray, so that in a continuous uninterrupted automated workflow, each donation can be tested individually, not pooled as they are at the present time, allowing blood centers to save time and money against today's standard of testing. This is only possible through the unique advances we have made in the last 5 years in microarray-based molecular multiplexing.

Also, with respect to menu expansion later this year, we plan to present the first performance data for our expanded SDS menu, which will include 7 additional test only formally required around the world to ensure blood safety. We plan to complete V&V for expanded SDS in the first quarter of 2020, paving the way for field trials and subsequent submission later that year.

This product will represent a powerful opportunity for customers already using our expanded IH and initial SDS menu. By simply replacing the initial SDS cassette with the expanded SDS menu, they will then be able to retire a third testing platform, which is used today exclusively for serological testing. Our customer will get all the donor testing results they need for immunohematology and serologic -- and serology in a single automated workflow using 1 technology, providing 2 different testing modalities, huge efficiency and savings for customers and a significant growth in revenue per quarter.

With respect to commercialization, as we reported, we have initiated 4 out of the total of now 10 hypercare launch sites so far this year. The initial take on such issues as effectiveness of the setup, ease of use and training have all been very positive. We expect to learn a lot from these early customer interactions which will commit us to make our platform even better, but early indications are very positive.

The initial addressable target market for MosaiQ is both highly developed and substantial. Our initial focus will be on the $2.3 billion transfusion market on the donor side, which addresses the combined need of safety and the compatibility of donated blood. This so-called donor market is highly concentrated, operating on an almost industrial scale and uniquely able to benefit from throughput automation of standard testing panels which MosaiQ multiplex microarray provides.

And I believe that the capabilities which make MosaiQ a unique and valuable technology for transfusion diagnostics will also have tremendous future potential for all the very large diagnostic screening applications, such as those required by the commercial plasma industry and in the central laboratory in panels of immunoassay and molecular tests that are required for the diagnosis. But near term, we will continue to be absolutely focused on execution of the remaining steps to bring MosaiQ to market in the donor portion of transfusion diagnostics initially in Europe.

With that, I'd like to thank all our employees and partners for the tremendous contribution towards the continued success of Quotient.

I will now ask the operator to begin the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Brandon Couillard with Jefferies.

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Brandon Couillard, Jefferies LLC, Research Division - Equity Analyst [2]

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Franz, just on the molecular data. Could you just update on when do you expect to have that feasibility data available to share with us? What form will it take in terms of will it be presented in terms of concordance or sensitivity specifically? And then thirdly, is molecular even really on the radar screen of customers who are kind of looking at MosaiQ right now? And how significant do you think that might be in terms of influencing their decision to perhaps adopt MosaiQ today understanding that there might be a pathway towards some form of molecular capabilities in a few years?

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Franz Walt, Quotient Limited - CEO & Director [3]

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Yes. So I think molecular testing is very much on the radar of our customers because they are obliged by law to do all 3 types of testing: IH and SDS and molecular so they can't go without it. I think, initially, they will be extremely happy getting the first combination because that's a significant reduction of complexity, and it also replaces manual work.

Then for us, the upside are really the expanded SDS and then the cherry on the top, the MDS application. So MDS, for us, works on the bench that we know. Now we would like to give it to a customer to do a clinical trial. And a study -- with a study protocol to prove it's scalable, and it works in the hands of a third party, not only on our bench.

The plan is to execute this trial in November. If everything goes right, it also depends on customer availability. But the current plan is now from November, and then we will, shortly thereafter, publish the data, and it's head-to-head comparison versus cobas from Roche. So we are trying to benchmark us here against the state-of-the-art application.

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Christopher J. Lindop, Quotient Limited - CFO [4]

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And the menu that we'll focus on is what they call the big 3, HIV, HBV and HCV.

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Franz Walt, Quotient Limited - CEO & Director [5]

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Yes.

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Brandon Couillard, Jefferies LLC, Research Division - Equity Analyst [6]

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Very good. And then just on the other 7 SDS markers that comprise the 2.0 expanded SDS microarray. Talk about the relative difficulty of dealing with those other 7 markers compared to syphilis and CMV, whether they're a little bit more complicated to work with at all or not, and just your level of confidence in terms of the performance of the other 7.

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Franz Walt, Quotient Limited - CEO & Director [7]

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Yes. So we made already quite some progress. And as I indicated in my prepared remarks before, we will show some data as soon as they are available for disclosure. And we are very confident, otherwise, we wouldn't make this statement. I mean, every test is difficult in itself. And unless it's complete, you don't know what you -- what kind of hurdles you can expect. But so far, we have taken all of them. For me, in a simplified manner, I think the IH hurdle was the biggest one to take. It has kind of proven that printing red blood cells on glass on a microarray is more difficult than straightforward chemistry. So IH2, I think, was the most difficult one. It works for immunoassays that we have proven with the 2 -- with the SDS panel with the MVS syphilis, and we have high -- very confident that we can scale it up to [9] (inaudible).

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Brandon Couillard, Jefferies LLC, Research Division - Equity Analyst [8]

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And the last one, just on the hypercare launch sites. Any initial feedback you can share from the initial 4 placements? Talk about timing of the other 7 and specifically, what are some of the things you hope to and expect to learn from the sites in terms of feedback as they sort of install and begin running tests?

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Franz Walt, Quotient Limited - CEO & Director [9]

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I think it will be another -- it depends when the customers are starting the hypercare launch, but I think between another 6 to 9 months until everything is completed. The initial feedback from the hypercare sites in Europe are very positive, and it's all about convenience. I recall, for instance, that the first site mentioned, "Oh, it takes only 2 days to get everything up and running and everybody trained, and it takes like 7 days with the competitor's." Then -- but with the competitor, if you have IH2 and the SDS, we have more than one platform and manual testing. So that, of course, progressively contributes to the length and complexity of doing the same with alternative solutions. So it's all about the convenience. Because we were always saying we are not in the business of inventing new tests. We are in the business of providing the tests which are required in a better package. Workflow optimization and virtual optimization provides then an economic benefit and savings, of course.

So positive feedback, but all about convenience. So the positioning is correct. They're not talking about the test, because the tests are performing. They're talking about how the workflow has improved. And even if we talk to customers who are now lining up, also here in the U.S., one later comment to me. "Well, I'm really looking forward in curious to see what MosaiQ can do to my workflow improvement." So that's -- I think we get this reconfirmed.

But we also got positive feedback from the U.S. field trials. These are not hypercare sites, but field trial sites for SDS. And I think one feedback I remember, because I really liked it was, "It's the best instrument I have seen in 27 years." So that means, in other words, they have not seen any innovation whatsoever. And 27 years is a long time, so like forever. So I think they are really happy that finally, a small company comes and tries to make their life easier. And all the comments we hear are about convenience, ease of use, workflow improvement. They're surprised how comprehensive it's going to be when we talk about the expanded IH that would -- can be if you can do everything in one go and we don't have to do manual testing. And if that's really possible, I think it will be, not affordable, but for us, it's approximately the same cost whether there [are fewer many] sales from [1] microarray. So positive feedback.

We are on 10 sites. We originally calculated that we have the resources to support 8, but then 1 customer didn't take no for answer, then another one heard about it and also wanted to be part of it as well. But because they don't take so much work, it's actually easier to do than we initially thought. We can now accommodate 10 instead of 8.

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Operator [10]

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Our next question comes from the line of Joshua Jennings with Cowen.

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Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [11]

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Just a follow-up on your last data search. It sounds like you're getting tremendous feedback from hypercare sites [and] field trial sites. AABB was just held a few weeks back. And can you talk just about the funnel that's developing? And that you talked historically about kind of a number of potential tenders that you could be involved in, but any incremental color just in terms of how that demand funnel is just progressing?

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Franz Walt, Quotient Limited - CEO & Director [12]

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Yes. On the AABB, we had like [80] customers attending demonstrations, yes. And if you recollect, the 2 customers are accounting for over 90% of the business in the U.S. So these were employees. Of course, [with] these 2 customers and some smaller ones, so it's really a relevant, relevant presentation.

And my take is, in Europe, the tender processes are more rigorous. And in the U.S., there is more flexibility. So given the short regulatory approval times in Europe, we will have the portfolio, first in Europe, but a slower take up in the U.S. because it takes longer to get through the BLAs, processes. We will have the portfolio maybe a year later than in Europe, but the take-up will most likely be steeper and faster because there is more flexibility in how organized the process is for our customers.

So we have visibility, and we know all the tenders and there is actually a tool, Internet-based tool available for manufacturers that everybody has transparency on what the upcoming tenders are. I think the good thing for us is that most of our customers have actually -- or potential customers, I have to say, have postponed the tender in order to be able to evaluate this technology and consider it for their lab. And so more than half take out as well, so it's incorporated. So I don't know how this is going to [be lead] but it's an additional flexibility.

So we have not lost any tenders because there were no tenders in the last few months. So now it all depends how long will it take until have our IH2 approved. SDS is still in the approval process based on the questions we have received. [The no-shows stopped with that.] It's just having the nerves and sitting it out. But we need the IH2 as well because this is the combination. And pending when this is available, we will have more transparency on what tenders are we now eligible too, yes. Because this can be a few months, more or less. It's very difficult to predict.

But we have transparency. We are planning for that, and we are using now the hypercare launch phase actually, as a pre-tender phase to give the customers the opportunity to play with the technology, become familiar, and also to write the tender specification later on in a way that we have a chance to win. So I think we're not losing any time here. That's something we would need to do anyhow afterwards.

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Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [13]

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And the other...

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Christopher J. Lindop, Quotient Limited - CFO [14]

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There is a tremendous amount of customer awareness. There's probably 100% in the U.S. and about 95% in Europe that you have received detailed briefings of this product and they expressed interest. So...

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Franz Walt, Quotient Limited - CEO & Director [15]

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And I have never seen that in the industry that a product is not yet in the market has like weighted average over 95% awareness in the developed market. Yes.

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Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [16]

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Great. That's helpful. I just wanted to follow-up from the press release about the raw material supply challenge with the expanded IH2 test or microarray. I mean, just 2-part question. One, I mean, can you just give any more detail in terms of why -- how this is solved? And why there's no room for it happening again? And then two, just to be clear that this did not have any impact on the results of the V&V testing.

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Christopher J. Lindop, Quotient Limited - CFO [17]

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Yes. It was a change in process of a supplier, that has happened in any supply chain. And we obviously detected quality issues with the supply on our receipt and we then went back in and worked with the supplier to revalidate their processes to make sure that we have reliable supply going forward.

It just takes time. There's a business cycle that [takes] through, and we're talking about weeks, not months. But it obviously delayed our ability to start the V&V. And it didn't -- no, because we then...

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Franz Walt, Quotient Limited - CEO & Director [18]

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The good thing is our internal quality system fixed it up. And we didn't do and proceed with faulty materials.

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Christopher J. Lindop, Quotient Limited - CFO [19]

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Right.

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Franz Walt, Quotient Limited - CEO & Director [20]

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And we never had problems with this supplier. We have to say here that it was always great, but they had a change -- a change in process, didn't tell us about it. We picked it up. We went back and now, all is corrected and the next batch was okay.

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Christopher J. Lindop, Quotient Limited - CFO [21]

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Yes.

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Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [22]

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Excellent. And then just lastly, on just the expanded IH2 menu. You have the V&V results. Can you just help us -- remind us the steps here in terms of moving to U.S. field trials, one? And then two, just how U.S. field trials do differ materially or just minorly from the V&V test? And potentially why the concordance levels can go up from V&V to field trials?

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Franz Walt, Quotient Limited - CEO & Director [23]

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Yes. So we have to work out the study protocols with the customers. We have to wait until the customer is ready to actually execute these field trials. And we believe there is a probability of even improved performance. Before I go here further, I have to say, the performance that we have here today, we are absolutely confident that's all we need and it will be competitive in the market. I mean, you have like 22 tests instead of 10. So you have twice as much than everybody else. So replacing a lot of manual work.

The -- normally, the quality of the results goes up because the blood is fresh. You have to picture if we do internal V&V study, we have to get the samples from the lab, and a lot of the samples actually came from the U.S. and some of the samples were up to 5 days old before we could actually do the testing. But in real life, they do testing immediately. But in real life, they do testing immediately. So it's on the first day or maybe on second day latest. But nobody waits for 5 days. And of course, the quality of the testing you can -- do erode with every additional day, and I think beyond 5 days, you cannot even test it any more. So the pure fact that the blood is going to be fresh should provide slightly higher results, although the results we have are adequate. Chris, if you want to add some additional color.

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Christopher J. Lindop, Quotient Limited - CFO [24]

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Just that we'll likely do this in 3 sites in Europe and that the end will be measured in thousands, not hundreds, but we're absolutely confident that the size of the V&V was powered to give us statistically relevant results. And then just exactly what Franz said, fresher blood should give us better results. And what we saw between initial V&V for the initial IH microarray and the field trial results for the initial IH microarray were -- certainly, you can go back and look at that historically and see that they trended.

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Franz Walt, Quotient Limited - CEO & Director [25]

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And it's also an automated system. So you don't need skills like manual work. And you should worry then about [that] the IH technicians are as capable as our internal people? No, because you just load it and you walk away for 8 hours until you read the test results. So just because a different person is loading it, it will not end with different results. And that, in combination with fresh blood samples, I think makes us confident.

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Christopher J. Lindop, Quotient Limited - CFO [26]

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And we showed this data to our customers at AABB and the anecdotal response was just fantastic. They're thrilled. So...

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Operator [27]

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Our next question comes from the line of Sung Ji Nam with BTIG.

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Sung Ji Nam, BTIG, LLC, Research Division - Director and Life Science & Diagnostic Tools Analyst [28]

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Congrats on the quarter. Most of my questions have been answered, so I just have a couple of quick ones. Could we anticipate some revenue recognition from your hypercare sites, given the timing of some of the tenders before you receive CE mark for the expanded IH array?

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Franz Walt, Quotient Limited - CEO & Director [29]

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Oh, you need the CE mark to officially participate in the tender. So we need the IH2 CE mark, expanded IH CE mark and the SDS one CE mark. So this is the hypercare base. The intention is really to make the customer familiar with the solution, with the system we have, also for us to get feedback. And actually, they are already now trying out the latest panel. So there are more -- the hypercare sites are working right now, at this very moment, with the initial serological disease screening microarray. So this one is not yet approved, so they cannot use the test for -- as a test of record. They can use it for research only. But it's all we want, because we would like to get feedback on the latest products in development so we can incorporate any potential feedback in the late stage of the developing process. So it's really -- it's like a soft launch. It's like, it's premarketing. It's a kind of, yes, teasing the customer to adopt this technology.

And if we would wait until everything is the CE mark, we would lose valuable [month] because the customer would need to go through this process and conclude for himself that this is the right technology to adopt anyhow. So I think we are trying to achieve 2 things: to shorten the adoption afterwards and to get feedback for our microarrays, even if they are not CE mark. But for the official trial, you have to have CE mark products. For the official end, you have to have CE mark.

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Sung Ji Nam, BTIG, LLC, Research Division - Director and Life Science & Diagnostic Tools Analyst [30]

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Okay, great. And then just for -- I'm not sure if I missed this. But for the initial SDS microarray that's has been submitted for CE mark. It sounds like some of the questions you're getting, everything is moving along as expected. Did you guys update us on potential timing there, what you're thinking -- do you think that can happen before the...

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Franz Walt, Quotient Limited - CEO & Director [31]

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What we always said -- we always said up to 9 months, and -- to be on the safe side and for a couple of other reasons there, the things which are changing in the regulatory processes in Europe. But it looks like it's fast, much faster than that. Yes.

The questions we got on the initial IH at that phase were of different nature than the questions we've got now because nothing to do with testing anymore, more with administrative-type operations. And we answered the last question [to be] operating for that response.

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Christopher J. Lindop, Quotient Limited - CFO [32]

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And there's a couple of fact points on that. We submitted right at the end of June, June 29 to 30. And our first CE mark, which included device manufacturing facility and the more complicated IH1 took 7 months. So we're in that range from 0 to 7. And as we say, we're -- based on the questions we're hearing, we're hopeful that...

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Franz Walt, Quotient Limited - CEO & Director [33]

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But I think it would not be smart if we give -- we, of course, have an anticipation, but it will not be smart to reveal this. Otherwise, the authorities may teach us a lesson. I think it's -- they know what they're doing. They need their time, and we are here to help to understand the products and answer their questions. But everything is progressing as planned.

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Operator [34]

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Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Walt for any final comments.

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Franz Walt, Quotient Limited - CEO & Director [35]

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Yes. Thank you very much. So thank you, everybody, for joining us on this call today. So Quotient continues to make considerable progress, as you have heard on MosaiQ, and we look forward to its initial commercial launch next year in Europe and a year later then in the U.S. So thank you very much.

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Operator [36]

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Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.