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Edited Transcript of VIVO.OQ earnings conference call or presentation 8-May-20 2:00pm GMT

Q2 2020 Meridian Bioscience Inc Earnings Call

CINCINNATI Jun 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Meridian Bioscience Inc earnings conference call or presentation Friday, May 8, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bryan Baldasare

Meridian Bioscience, Inc. - Executive VP, CAO, CFO & Secretary

* Charles Wood

Meridian Bioscience, Inc. - VP of Corporate Strategy, Business Development & IR

* John P. Kenny

Meridian Bioscience, Inc. - President, CEO, Executive VP of Diagnostics Business Unit & Director

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Conference Call Participants

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* Andrew Frederick Brackmann

William Blair & Company L.L.C., Research Division - Associate

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Meridian Bioscience Second Quarter Fiscal 2020 Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Charlie Wood, Vice President, Investor Relations. Thank you. You may begin.

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Charles Wood, Meridian Bioscience, Inc. - VP of Corporate Strategy, Business Development & IR [2]

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Thank you. Good morning, and welcome to Meridian's Fiscal 2020 Second Quarter Earnings Call. With me are Jack Kenny, Chief Executive Officer; and Bryan Baldasare, Chief Financial Officer. Please note that our SEC filings, our earnings press release and slides to accompany this call are available on our website at investor.meridianbioscience.com. We will post a copy of these prepared remarks after the call.

With regards to our calendar, Jack and Bryan will be participating in a virtual fireside chat as part of the William Blair Annual Growth Stock Conference on Tuesday, June 9, 2020. Details of that event will be posted to our website as they are finalized. We are working on a schedule of other events that will provide opportunities to virtually connect with investors.

Finally, our Q3 fiscal 2020 earnings call is currently scheduled for Friday, August 7, 2020. Before we begin today, let me remind you that the presentation and the company's remarks include forward-looking statements. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond the company's control, including risks and uncertainties described from time to time in the company's SEC filings. The company's results may differ materially from those projected. And note in particular that these forward-looking statements may be affected by risks related to the COVID-19 pandemic. Meridian makes these statements as of today, May 8, 2020, and undertakes no obligation to publicly update them. Additionally, throughout this presentation, we refer to non-GAAP financial measures specifically operating expenses, operating income, operating margin, net earnings and earnings per share, each on an adjusted basis. A reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures and other related discussion are included in our press release. And now I'd like to turn over the call to Jack.

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John P. Kenny, Meridian Bioscience, Inc. - President, CEO, Executive VP of Diagnostics Business Unit & Director [3]

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Thanks, Charlie. These last 4 months have been a tremendous challenge for us as an industry, a company and for me personally. The dynamics of this pandemic have been changing weekly and at times daily. I'm extremely proud of how our Meridian team came together and executed under such uncertainty and demonstrated the strength of the company that we are transforming.

First and foremost, our focus was the health and well-being of our employees. All aspects of our business mobilized to support the broader team from IT, who enabled over 40% of our workforce to seamlessly begin working remotely in a matter of days to facilities who enhance the procedures and adjusted the office environment to minimize potential exposure to coronavirus and maximize our ability to socially distance in the workplace.

As a leadership team, we evaluated Meridian's business continuity plans across our global footprint and made enhancements responsive to the unique situation of this pandemic. We are fortunate that to date, we have no known cases of COVID-19 among our employees, and our global team continues to meet the needs of our customers.

We are rebuilding the company for long-term sustained growth. And as such, our response to this situation was carefully crafted to both keep us on track and efficiently maximize our contribution to the global response. As demonstrated in prior outbreaks like the Zika virus in 2015, our Life Science division is built for rapid response. Back in January, we were one of the first companies supporting COVID-19 test development.

The team quickly ramped up production of our molecular reagents optimized for RNA virus detection and got them in the hands of diagnostic companies in China to develop tests for the growing outbreak. As the virus began to spread around the world, the team accelerated worldwide test development by launching a program to provide samples of our superior reagents at 0 cost to diagnostic companies developing new COVID-19 tests.

The largest IVD manufacturers want to work with us because of our high-performance and quality reputation and our reagents are now being used in over 35 COVID-19 assays developed by companies in China, Australia, Europe and the United States.

The demand has been extraordinary, and the team should be commended for their continued efforts to keep pace with this contagion. In parallel, the Life Science research and development team began work on the products that would be needed in the subsequent phases of this battle. Last week, we launched a new master mix designed to bypass the need for an RNA retraction (sic) [RNA extraction] step, which not only saves time and cost, but also eliminates the dependence on the extraction kits that have an insured supply.

And recently, we launched a series of recombinant viral antigens necessary for the manufacturer of COVID-19 antibody assays. Demand for these products has been high, and we will play a major role in supporting the development and manufacture of millions of serology tests being run around the globe.

On the Diagnostics side, our response was much more tactical to ensure limited disruption to our strategic imperatives. To get test kits to our customers in the shortest time possible, we focused on identifying a U.S. manufactured serology assay with performance that met our standards. After a great deal of diligence, we partnered with Syntron Bioresearch to distribute their QuikPac II coronavirus test. Designed and manufactured in San Diego, this test detects IgG and IgM antibodies to COVID-19 human serum, plasma or whole blood.

Initial customer demand has been positive, and we expect to begin shipments later this month. In molecular, the revogene is an ideal platform for infectious disease testing with its small footprint, simple operation and ability to deliver results on 8 samples simultaneously in about 70 minutes. The team in Québec has revised the design of the revogene respiratory panel to include COVID-19 in addition to flu and other respiratory viral targets.

We plan to see EUA status from the FDA for the COVID-19 target later in this fiscal year of 2020, in time for the next respiratory season, and we'll follow-up with a 510(k) submission for the Flu A/B/RSV and COVID-19 targets in time for the 2021 and 2022 respiratory season.

Of course, not everything has been about coronavirus. Our Diagnostics research and development team has built key technology centers in Québec for molecular diagnostics, Cincinnati for lateral flow based immunoassays and Billerica for our chemical -- electrochemical sensor blood -- electrochemical sensor-based blood chemistry. These locations are working on robust pipelines that position us well for long-term sustainable growth.

In March, the first of these products, the Curian analyzer and HpSA assay received FDA clearance. This is a tremendous milestone in the transformation of Meridian as it is the first internally developed product released in several years. Consistent with the innovations of the revogene platform, the Curian platform couples simple sample preparation and workflow with an intuitive user interface and improved performance. Early in the quarter, we were also busy evaluating the acquisition of Exalenz Bioscience and later preparing for the integration. As previously announced, we closed that transaction last Thursday. We could not be more excited to have Exalenz join the Meridian family. As a reminder, our vision for diagnostics is centered on gastrointestinal disease and pediatric point-of-care testing bridged by testing for respiratory illnesses.

This acquisition supports continued strength and focus on GI. There are 4 approaches to H. pylori testing, stool antigen, urea breath, serology and invasive endoscopy procedures. Meridian is the leader in U.S. stool antigen testing, and Exalenz has innovative urea breath testing platform called BreathID. Serology testing can have lower sensitivity as compared to other tests and may not identify an active infection. In the face of accumulating evidence on this topic, reimbursement for serology tests has declined, and in some cases, is nonexistent. The test also has started to lose favor with clinicians. Not only will we be able to leverage Meridian's U.S. sales force to grow share of the urea breath testing market, but we will also be able to accelerate the shift away from serology as the only U.S. company offering both noninvasive approaches to active infection diagnosis.

We look forward to incorporating the BreathID analyzer and assay into our portfolio as building of the momentum that the Exalenz team has created.

Now I will hand the call over to Bryan to talk about the financials for the quarter.

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Bryan Baldasare, Meridian Bioscience, Inc. - Executive VP, CAO, CFO & Secretary [4]

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Thank you, Jack. As we reported earlier today, Meridian had an excellent second quarter with consolidated revenues of $57.3 million, up 14% from $50.2 million in the second quarter of fiscal 2019. Excluding the impact of foreign currency exchange rate changes, revenues were up 15%. This was record revenue for a fiscal second quarter, driven by Life Science also with record quarterly revenue.

Gross profit margin topped 60% in the quarter, up from 58% in the second quarter of last year. This is the blend of a dramatic increase in Life Science gross margin and an expected reduction in Diagnostics, which I will discuss further in the segment reviews.

On an adjusted or non-GAAP basis, second quarter operating income was $12.1 million with a margin of approximately 21%. Adjusted operating expenses were $22.4 million, up $4.3 million year-over-year. Also on an adjusted basis, non-GAAP net earnings were $10 million and non-GAAP diluted EPS was $0.23.

The year-over-year increase in operating expenses includes approximately $2 million in cash incentive comp, reflecting better performance relative to plan at this stage of the year versus the prior year. Additionally, we spent an incremental $1.6 million in R&D, primarily on new product development and clinical trials and recognized an increase of approximately $900,000 and purchase accounting amortization from the acquisition of GenePOC in the third quarter of fiscal 2019.

Despite the year-over-year increase in spending, our operating expenses were still lower than our expectations, driven primarily by the deceleration in spending on clinical trials and product development resulting from the COVID-19 pandemic as well as delays in filling open positions. On a GAAP basis, operating income was $11.8 million, with operating expenses of $22.7 million. In addition to the aforementioned operating expense drivers, GAAP operating expenses were impacted by a year-over-year reduction and a contingent consideration obligation for the acquisition of GenePOC, partially offset by an increase in acquisition-related expenses. GAAP net earnings were $9.4 million and GAAP diluted EPS was $0.22. Now I'd like to drill into the specifics of our 2 operating sectors. In Diagnostics, revenues were $34.9 million, up about 4%. And for the first time in 5 quarters, we saw year-over-year growth. On a constant currency basis, revenues were up about 5%. This growth was driven by the outperformance of our respiratory products, partially offset by declines in gastrointestinal.

Towards the end of the quarter, we benefited from increased demand for our respiratory tests as people testing negative for COVID-19 sought further diagnosis for their symptoms. At the same time, we started to see reduced demand for nonurgent testing. Of note was the continued stabilization of our molecular business, posting modest growth for the quarter.

Gross profit margin for the segment was approximately 57%, down from the same quarter last year, but in line with our expectations. The year-over-year decrease was primarily driven by product mix and continued pricing pressure on our higher-margin H. pylori products.

Diagnostics operating income on an adjusted basis was $3.3 million with a margin of approximately 10%. The decreased margin year-over-year is consistent with our plan for the segment that exceeded our expectations due to lower-than-expected spending in clinical trials and product development as well as delays in hiring.

Progress on clinical trials and related product development stalled as much of the U.S. ceased operations for nonessential businesses. We also have a few vacancies across the functions of the organization that has been slower to fill.

Our Life Science segment delivered revenues of $22.4 million, up about 33% year-over-year or 34% on a constant currency basis, delivering the highest quarterly revenue in the history of the segment. This outperformance was driven by sales of our molecular reagents, primarily as a result of the COVID-19 pandemic. We estimate that increased revenue from the pandemic was approximately $5.6 million. Outside COVID-19, the business generally performed as planned. Ordering patterns for non-COVID related products with our top IVD manufacturing customers returned to normal for the quarter. However, it is not clear if they will make up all of the shortfall from Q1 during the remainder of the year.

In addition to outperformance on revenue, gross profit margin saw a dramatic improvement up over 1,200 basis points to 65%. In order to meet the expected demand, batch sizes were increased, which does not require a linear increase in cost of goods.

Adjusted operating income more than doubled in the quarter to $10.9 million, a margin of 49% as a result of the unprecedented revenue and strong gross margins. One of our strengths continues to be our balance sheet.

During the quarter, we increased the capacity on our line of credit to $160 million in conjunction with the announcement of our acquisition of Exalenz Bioscience. As of March 31, we had $49.6 million in cash and borrowing capacity of approximately $111 million under our line of credit. Subsequent to the end of the quarter, we drew an additional $50 million to fund the acquisition, and as of the end of April, have borrowing capacity of approximately $61 million.

Now turning to our guidance. Our performance fiscal year-to-date was well above our expectations. We are slightly ahead of last year's first half revenue and already delivered adjusted diluted EPS at the upper end of our original guidance range for the full year. Despite the turmoil from the COVID-19 pandemic and related uncertainty, we expect this strong performance to continue with our Life Science business more than compensating for the temporary reduction in demand for nonurgent care tests in our diagnostics business. Based on this dynamic, we are raising our guidance for the year. We now expect consolidated net revenue for fiscal 2020 to be between $230 million and $236 million. The global COVID-19 pandemic has led to unprecedented demand for our molecular life science products, and we are seeing significant demand for the related immunoassay product line that we recently launched. Our guidance assumes COVID-19 related sales of $43 million to $47 million in the second half with sales peaking in our third quarter and beginning to taper in our fourth quarter. This results in a revenue range for Life Science of $110 million to $114 million for the full fiscal year.

At the same time, in the last few weeks of March and throughout April, we saw increasing headwinds on our non-respiratory Diagnostics business. As a result of this trend, we now expect revenue for the Diagnostics business to be between $120 million and $122 million for the full year. This assumes a 40% reduction in volumes for our third quarter, with a recovery to a 25% reduction in volumes for our fourth quarter. This softness in demand was partially offset by modest contribution from the Exalenz acquisition and sales of the COVID-19 serology tests that Jack mentioned earlier. The uncertainty of the impact on revenue mix between products and segments complicated forecast of gross profit margin. But you should expect to see the same dynamics in the second quarter with higher margins for Life Science, offset by lower margins for Diagnostics. We expect adjusted operating margin of between 18% and 19%, and adjusted diluted EPS of $0.70 to $0.75. This includes spending on clinical trials and product development -- this includes lower spending on clinical trials and product development, while shelter-in-place orders still remain offset by the incremental operating expenses from the acquisition of Exalenz and increased cash incentive comp expense from the outperformance relative to our plan. Importantly, this guidance reflects our current visibility into market conditions for our products and our current assumptions about the extent and duration of the impact from this pandemic. We expect that our visibility will improve throughout the quarter, as local governments around the world begin to relax shelter-in-place orders and health care systems return to normal operations with respect to diagnostic testing for infectious diseases and blood chemistry. We will keep you updated as the situation evolves. And now I will hand the call back over to Jack to offer some final thoughts.

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John P. Kenny, Meridian Bioscience, Inc. - President, CEO, Executive VP of Diagnostics Business Unit & Director [5]

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Thanks, Bryan. We are certainly in strange times. And while there is global uncertainty, we think that the value of what we are building at Meridian is becoming more clear every day. We continue along our journey to execute our strategies towards sustainable revenue and earnings growth while also investing in our businesses where needed. The Curian analyzer is the first of many new internally developed products we plan to bring to market in the coming years. Combine its new HpSA assay with the addition of the Exalenz team and the BreathID platform, and we are solidifying our leadership in H. pylori testing and advancing our goal of being the health systems' trusted partner for gastrointestinal disease testing.

The revogene platform has led to the stabilization of our molecular business and repositions us for growth with cutting-edge molecular technology that delivers simple sample prep, high throughput and multiplexing capabilities. Our LeadCare business has returned to growth in the first half of 2020. With our investment in the next generation, we are confident that we will continue to expand in pediatric point of care. We were one of the first to respond to COVID 19. Yet again, Meridian Life Science has demonstrated its ability to rapidly respond to global health crises with critical materials and volumes that meet the demand. The dynamics of this pandemic have highlighted the quality of our reagents and antigens and open the door to future partnerships with diagnostic companies around the globe. We continue to stay focused on the strategy that we laid out 18 months ago, while at the same time, contributing to the fight against this global pandemic with the most effective assets of Meridian.

I'm very proud of the dedication of the one Meridian team in this challenging time and energized about our future as a company. Now Bryan and I are here to answer any questions that you guys may have.

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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 Andrew Brackmann with William Blair.

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Andrew Frederick Brackmann, William Blair & Company L.L.C., Research Division - Associate [2]

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So really not much of a surprise here. I want to start on the Life Sciences side. Jack, can you maybe provide a bit more color on the COVID-19 impact you're expecting here in the back half of the year? I guess how did you build up to these assumptions? And then moving forward, how should we be thinking about this with respect to your current manufacturing capacity, the infrastructure and supply chain for you guys to deliver more of these products should there be demand?

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John P. Kenny, Meridian Bioscience, Inc. - President, CEO, Executive VP of Diagnostics Business Unit & Director [3]

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So I'll certainly start on this, and Bryan, you can wrap around me. So as Bryan mentioned in our -- in the guidance that we put out there, we have seen very, very strong demand. I think the molecular product demand was kind of the first peak, if you will, in the testing -- for the testing that was going on. So we started to see that growth in Q2, and that continues in Q3. So we have pretty good visibility to the orders on the molecular front as people have tried to secure test for the coming months.

Whether that continues on at the same levels in Q4, we don't know. We've anticipated that will start to taper, but that it's not going to go away as we get into Q4 and beyond. What we're starting to see now is increased demand on the immunoassay side. There's a lot of talk about these antibody tests being out there to be able to determine if people have been exposed to the virus.

And the demand for those products is great. Lourdes and her team on the Life Science side have been working aggressively to expand all the capacity that we have. And we are doing this, that part of the good news to this, Andrew, I would say, is that the capacity is not just in one location. We have been ramping up and doing an amazing job in Germany -- in our facility in Germany to ramp up a lot of the molecular production, and that continues. We have expanded that multiple fold versus what our capabilities were with large batches. And at this point, we've been able to meet the demand that's out there. We certainly are approaching a point where it's getting more challenging, but we've done a very nice job. And the other -- the main products that we're now coming out with new tests are the immunoassay side, and those are primarily made in the United States. And so they're at a different facility. So it reduces our risk, if you will, of overwhelming any facility, and so we are ramping up production capabilities on that front right now. I will tell you, demand is very strong for that. We kind of anticipate that, that testing volume will ramp in Q3 and continue into Q4 as we go forward, and that's really what we put in our guidance.

So we've done a very nice job. We have processes in place to manage our supply chain. The leadership team is getting together on a frequent basis to discuss where we have vulnerabilities, and we really have minimized those. We do not purchase significant amounts of products from China, and so we are not really reliant upon Chinese suppliers for key components that we put into our components that we make in the Life Science business. So we feel we're well positioned to continue to support this. And we are continuing to explore opportunities from where and how we can ramp up capacity. Bryan, do you want to add anything?

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Bryan Baldasare, Meridian Bioscience, Inc. - Executive VP, CAO, CFO & Secretary [4]

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Sure. Andrew, if I can just add to Jack's comments there. Very important that the assumptions that we are articulating around our raised guidance are based on the visibility that we have into market conditions today. And as I commented earlier, as we get better improved visibility, as you would expect, as the pandemic -- we start to come out of the tail end of the pandemic, if you will, we'll update you accordingly.

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Andrew Frederick Brackmann, William Blair & Company L.L.C., Research Division - Associate [5]

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Got it. And then, I guess, just sticking on the Life Sciences side here for a second. I guess broadly speaking here, as we come out of the pandemic, can you maybe talk about the competitive position that you guys previously had before this, where you think that is now? And then moving forward, how that's going to evolve over time to strengthen your business?

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John P. Kenny, Meridian Bioscience, Inc. - President, CEO, Executive VP of Diagnostics Business Unit & Director [6]

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Absolutely. So a couple of things. As you know, in our Life Science business, we have an immunoassay part of our business and a molecular part of our business. Our immunoassay part of the business has been selling into the IVD manufacturers for 20, 30 years. We have longstanding, very, very strong relationships with some of the largest diagnostic companies for immunoassay testing. And so that -- I would describe those positions as continuing to develop. Those types of customers are in need, and they're actively working on projects for coronavirus, and the ability to work with them is certainly opening the doors for us to continue to partner with them at high levels, and we believe that, that will occur. The exciting part for us is the molecular area. Because if you remember, in our strategy, we repositioned our molecular business. We pivoted that business 18 months ago. Moving it away from -- we used to sell primarily into research facilities, go to research Triangle Park and walk through and sell them key antibodies and supplies to build tests and things of that nature. We have pivoted it and focused our energy on the IVD manufacturers for molecular. What this situation has done is they were in need of a quick response to this COVID situation, and it opened door for us in a number of manufacturers around the globe evidenced by the 35 manufacturers that we are now inside of their COVID-19 molecular tests.

I would also see that Andrew, if you saw, we had a press release that went out in the last week, a few days ago, they talked about one of our partners that essentially QuantuMDx that noted that we work with them on the COVID-19, but this has clearly led towards a partnership for us to continue to work as they develop their portfolios from a molecular standpoint. So we firmly believe that, that we will respond appropriately during this pandemic, and we have no idea what that's going to bring. Is that going to be a few months? Is it going to be a year? We honestly don't know, none of us do. But we truly believe that we're in a position in the long run to partner with these diagnostic companies. Because this is first of mind. I can assure you every diagnostic company is in critical states trying to prepare and bring products to market, and the companies that help them to do that are certainly in a good position going forward.

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Andrew Frederick Brackmann, William Blair & Company L.L.C., Research Division - Associate [7]

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Got it. And then just maybe last one on the Life Sciences side before switching to Diagnostics. But going back to capacity for a minute, I just want to make sure that we have this correct. Can you maybe give a little bit more -- a more quantitative answer to sort of what you guys are seeing with respect to your current capacity and output? What are those facilities running at sort of a percentage of the total capacity? And then as you begin to ramp that, is that ramp just for sort of your current demand? Or is that in anticipation of future demand as well?

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John P. Kenny, Meridian Bioscience, Inc. - President, CEO, Executive VP of Diagnostics Business Unit & Director [8]

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So I don't know that I've got the exact percentages, but I can give you directional feedback. What you saw in the Q2 performance was molecular -- molecular business starting to ramp up. And I think the example would be you're making this vial-ready material and you might make a 1-liter batch or a 2-liter batch. We're making those batches in much higher quantities, more like 20-liter batches now. So we've increased the capacity significantly on that front. And then the key to that is obviously expanding the batch size, which we've done, which has enabled us to meet this demand as we go forward here at the end of Q2 and into Q3. But then the other key to that is keeping our people healthy. So in addition to wanting to take care of our employees because that's the right thing to do, we also want to make sure that they're in a position to be able to come to work to be able to make these products that are so important to fight the pandemic around the globe. So from a capacity standpoint in Germany, I wouldn't say that we are fully at capacity. We are finding ways to continue ways to make more. But we are getting closer to that high point of capacity, I would say, in the molecular front. On the immunoassay front, in this quarter, we anticipate building from a lower percentage. Batch sizes are also being increased on the immunoassay side, making these recombinant antigens. And we are scaling that up as well. I would describe that as that may reach approaching 100% capacity later in Q3 based on the demand that we're seeing.

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Bryan Baldasare, Meridian Bioscience, Inc. - Executive VP, CAO, CFO & Secretary [9]

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Yes. And just to add to what Jack saying, I'm not going to quantify this, Andrew, but there is manufacturing capacity above the guidance range that we have put out there.

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Andrew Frederick Brackmann, William Blair & Company L.L.C., Research Division - Associate [10]

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Okay. That's perfect. And then, I guess, maybe switching to diagnostics here for a minute. I recognize sort of the outlook here is more dependent on patient volumes and when regular testing comes back. But as you think about this in sort of a normalized environment, Jack, can you maybe talk about your sort of level of comfort as to whether or not we've sort of seen the bottom of that new curve that you've talked about in the turnaround here?

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John P. Kenny, Meridian Bioscience, Inc. - President, CEO, Executive VP of Diagnostics Business Unit & Director [11]

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So glad to talk about that, Andrew. We came into Q2, and we had no idea about coronavirus, right? Nobody was talking about coronavirus on January 1. And so our Diagnostic business, we firmly believe that we would be in a position in Q2 to return to growth coming into the quarter. I describe our Q1 performance was exactly in line with what we thought would occur in Diagnostics, and Q2 also is delivering. We had a very calm quarter, if you will. Our Diagnostic business was predictable and it was delivering as we expected. And even as the COVID stuff blew up, we saw more respiratory stuff happen, and some of the other stuff went down, but ultimately, Diagnostics delivered actually better than we had anticipated in Q2. Now obviously, Q3 is going to be massively affected as everybody, nobody is going to see the doctor for noncritical care things, and that will start to change. But we firmly believe that we are coming out of the bottom of that U. And we think that we're starting on that path back for growth. We don't know the impact of how coronavirus is going to impact that curve. But I can tell you that we are gaining momentum in our Diagnostic business. And so we're really excited about what happened with Life Science, and we can make a positive impact. But we're equally excited about our Diagnostic business and the prospect for that business. We think it's going to be a nice return over the coming years. And we haven't even gotten to the point of significant R&D. The investment we've made in R&D will really start to pay off the offensive products, if you will, about a year from now. It would have been about 9 months from now, the clinical trials have been slowed up a little bit. So we anticipate new products hitting the market as we come into next year. And then the Exalenz addition, there's huge opportunity for us with Exalenz. So Andrew, we are very excited about our Diagnostic business, and we think that this is a beginning of a nice run for that business.

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Andrew Frederick Brackmann, William Blair & Company L.L.C., Research Division - Associate [12]

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Great. Great. And then last couple, just sort of on the COVID-specific Diagnostics products. First, on the RP panel, sort of what are some of the key hurdles that remain for bringing that product to market, recognize the timing as you guys have said, but sort of what are some of the technical hurdles there? And then maybe a similar question on the Life Sciences side, on the capacity front, what's your capacity to manufacture, not only the assays for that RP panel, but also the instruments there?

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John P. Kenny, Meridian Bioscience, Inc. - President, CEO, Executive VP of Diagnostics Business Unit & Director [13]

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Yes. So let me start a little bit with the capacity. So we didn't immediately go after the -- put the COVID onto our test. We did not do that right out of the chute. And part of the reason why we didn't do that, Andrew, was we still have been ramping up our capacity. If you go make a COVID test and you can't deliver it to the market, it doesn't give you a lot of good. And we have a limited number of instruments still with about 150 instruments that are out in the market right now. And we weren't in a position to be able to go make hundreds of instruments to go support the situation. So we, by design, slowed that up. However, when we were looking at the overall approach, we know that you need to have a COVID assay in your respiratory panel in the future. There's no way around that. This is going to be with us. Even if this virus goes away over time, it's going to be with us and be a very important marker in the respiratory panel. So I want to just give you a little bit of that perspective. I would also say that from a hurdle standpoint, we are in the midst of working on the -- doing the development work on the COVID assay. There's obviously developmental risk that you always have with the product, although we do believe that we have a robust platform, and we have a stronger scientist. So we think that, that is a minimal risk here in the situation. We also believe that coming a little bit later with our test, we're going to try to make sure that we could build a good EUA test. Some people rush really quick. And we want to make sure that we take the time so when we come out in the fall, we can have a test that is performing very well. Now what you don't do in an EUA environment is all the clinical trial work to the same level that you would do later. So we're going to build a great test, do some clinical work to test like alpha site to do some work on that upfront in the summer with the goal of submitting for an EUA later in the summer. And then participate in this season, we'll also have the ability to make more instruments and more PIEs by the time we get to fall. So we'll be in position to appropriately respond to our customers. And then we'll be in the midst of doing our work to move towards clinicals for the RSV, Flu A/B/RSV and COVID. The test that we will have, Andrew, is going to -- if you remember the PIE has different wells, so the COVID will be in well 3, I believe it is, and the Flu A/B/RSV is in well 1. The intent of doing that is we're going to even put the -- Flu A/B/RSV will be in our kit. It's just going to be hidden in mask, which is what we've talked with the FDA, want to do it in the right way with the FDA. So we're developing both of those so we can keep those both moving, so we can get them into clinicals in this next flu season. So we're ready to go in the future for that -- for that larger panel. So hopefully, that gives you a little perspective on that.

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Andrew Frederick Brackmann, William Blair & Company L.L.C., Research Division - Associate [14]

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Yes. That's great. And before just moving on as my second question, I just want to make sure I heard that right. What did you say is the number of installed base, what the installed base was for revogene? Just wonder if that's correct.

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John P. Kenny, Meridian Bioscience, Inc. - President, CEO, Executive VP of Diagnostics Business Unit & Director [15]

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I believe there are 148 systems is where we are right now, yes.

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Andrew Frederick Brackmann, William Blair & Company L.L.C., Research Division - Associate [16]

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Perfect, perfect. And then I guess just last one on the serology product. Obviously, there's been a lot of news on these. Can you maybe talk about sort of the performance of that assay, and how that might stack up with the new FDA guidance that's out there. And then any comments on sort of demand for that product moving forward?

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John P. Kenny, Meridian Bioscience, Inc. - President, CEO, Executive VP of Diagnostics Business Unit & Director [17]

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Yes. It's fair. Absolutely, Andrew. So a couple of things. We completely -- we're excited that the FDA is tightening things down. I think you've seen a lot of people that have never made these types of tests before coming to market. Now the ability to actually make the original test and to maybe in your lab, make it work, that can happen. And there's a lot of people out there doing it. I can assure you that as a company that makes these tests, making it in a lab and making it in high production and having it work consistently out in the field is a different story altogether. So when we were out there, and we knew that we were not going to take this on ourselves internally because of the other projects we had, we were out searching and talked to a number of different companies that were making these tests. One of the things that impressed us about Syntron that we worked with was their clinical trial -- they had over 600 specimens in the work that they had done. So if you look at the data that's in the package insert for them, that basically shows a sample size of over 600. And so when you're doing the study, the larger the study, the better chance -- the better chance you're going to have of the performance being accurate. So we also believe that the performance of that test was believable versus what we know the difference to be between lateral flow test and molecular test. There is going to be a difference. You have a different performance characteristic. And the performance characteristic is based on what we saw looked more appropriate. Now we are still working with them, and they still have work to do to get through the process. I'd say the biggest thing that this has done, it's just made it a little bit slower for companies like Syntron to work their way through the FDA than it originally looked like it was going to be, but we view it as a positive because we need to weed out the companies that can't make a good test and we're anxious to have this test, get the right process completed so we can go out there. We have started selling this product to our customers. Customer interest is high. The demand is there, and we believe that they will coexist with the lab-based antibody test. So you may draw blood and send it into the core lab to run an antibody test on some of the large immunoassay systems that are out there. But there's also a need at times where you might want to use a finger stick and be able to do a rapid test to feel to tell quicker. So we think they both have a position. So we certainly can't speak everything about the product. It is in our product, but we have good confidence that these -- this is a company that builds high-volume lateral flow immunoassays, and we think that they're in position, the best position in a quick time frame to build a good test.

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Operator [18]

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(Operator Instructions) And there are no further questions at this time. I will turn it back over to our speakers for closing remarks.

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John P. Kenny, Meridian Bioscience, Inc. - President, CEO, Executive VP of Diagnostics Business Unit & Director [19]

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So just in closing, first of all, if we can tell, we're excited about the performance that we had in the quarter. We do believe that we're in a position as a company to show the world what we can do as we go forward. We appreciate the support of our shareholders. We look forward to delivering for you as we go forward and also helping in this time -- great time of great need within the world with a global coronavirus pandemic. So thank you very much for joining, and we appreciate talking to you and look forward to talking to you all soon. Thank you.

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Operator [20]

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Thank you, ladies and gentlemen. That does conclude today's conference call. We thank you for your participation and ask that you please disconnect your lines.