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Meridian Bioscience Inc (VIVO) Q3 2019 Earnings Call Transcript

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Meridian Bioscience Inc (NASDAQ: VIVO)
Q3 2019 Earnings Call
Jul 30, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Marcella, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Meridian Bioscience Fiscal Third Quarter Earnings Conference call. [Operator Instructions]

Thank you. Bryan Baldasare, Interim Chief Financial Officer, you may begin your conference.

Bryan Baldasare -- Interim Chief Financial Officer

Good morning, and welcome to Meridian's 2019 fiscal third quarter conference call. I am on Page 2 of the presentation. By now, you should have access to a copy of the earnings press release. If you have not received a copy, please go to the Investor Relations section of our website to access a copy of the press release and this morning's presentation.

Before we begin today, let me remind you that 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. The Company undertakes no obligation to publicly update any forward-looking statements.

Moving to Page 4, additionally, throughout this presentation, we refer to non-GAAP financial measures, specifically operating expenses, operating income, net income and earnings per share. A reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures is included in our press release, which is available on our website.

With that behind us, let's move right into our third quarter results on Slide 5. As we reported earlier today, consolidated revenues for the third quarter of fiscal 2019 were $48.4 million as compared to $51.7 million in the third quarter of fiscal 2018. This represented a 6% decrease or about a 5% decline, excluding the impact of foreign currency exchange rate changes.

On a segment basis, our Diagnostics business revenues were down about 9% and our Life Science business revenues were essentially flat for the quarter. Gross profit margin declined 350 basis points during the quarter, with both our Diagnostics and Life Science segments experiencing lower margins. For our Diagnostics segment, product pricing, particularly for H. pylori products had an unfavorable impact on margin, and for our Life Science segment, product mix between immunoassay reagent products and molecular reagent products had an unfavorable impact on margin.

On an adjusted or non-GAAP basis, third quarter operating income decreased to $8.9 million or 18% compared to $10.8 million a year ago. The effect on operating income from the sales decline in our Diagnostics segment was softened somewhat by a lower SG&A spending in both our Diagnostics and Life Science operating segments. Our acquisition of the GenePOC business added approximately $900,000 to our adjusted or non-GAAP basis operating expenses, including approximately $300,000 in purchase price amortization. The adjusted operating margin in the quarter exceeded 18%, which was down from approximately 21% in the third quarter of 2018. Also on an adjusted basis, net earnings of $7 million and diluted EPS $0.16 decreased 10% and 11%, respectively, in the quarter.

On a GAAP basis, operating income was $6.5 million, included acquisition-related restructuring and litigation costs of approximately $2.5 million in this quarter compared to combined litigation and restructuring cost of approximately of $2.1 million in last year's quarterly results. GAAP net earnings and diluted EPS in the quarter decreased 26% and 25%, respectively.

Now let's turn to the next slide, which highlights our operating segment results for the quarter. As previously mentioned, Diagnostics revenues declined 9% to $33.1 million, predominantly driven by one, significant competitive pressure in our molecular products, most notably C. difficile, which continues to experience significant volume declines. And two, although expected and planned, contract pricing changes done in 2018 for a number of customers including our two largest national reference laboratory customers contributed to a 13% decline in our H. pylori products for the quarter.

Additionally, our LeadCare products experienced a 5% decline in revenue during the quarter and are flat on a year-to-date basis. The decline in the quarter was driven by a combination of lower instrument capital sales for analyzers and lower kit volume for consumables, both stemming from selected larger health system customers who are new accounts in 2018 that had one-time analyzer purchases coupled with bulk kit volumes. Despite the addition of the GenePOC business for one month, operating expenses in our Diagnostics segment were lower during the current quarter as a result of one, organizational streamlining activities completed in 2018; two, lower FDA quality system remediation costs for our Billerica manufacturing facility in the current quarter; and three, lower compensation costs for sales commissions and corporate incentive bonus. Diagnostics operating income decreased 27% to $6.5 million on an adjusted basis. Operating margins on an adjusted basis for Diagnostics in the quarter were 20%, down 480 basis points from a year ago.

Life Science revenues were down 0.3% in the quarter to $15.3 million or up slightly over 1% on a constant currency basis. The flatness in the overall Life Science revenue reflects 5% growth in immunological reagent products, offsetting a 9% decline in molecular reagent products. China experienced a rebound in customer order activity during the quarter, resulting in a 14% increase in revenue over the fiscal 2018 third quarter. We expect a similar revenue contribution for China during our current fourth fiscal quarter. Life Science adjusted operating income increased 16% and a quarter to $4.3 million as a result of significantly lower costs overall, realizing the effects of restructuring and organizational streamlining activities in 2018. Adjusted operating margins for Life Science in the quarter were 28%, up 390 basis points from a year ago.

Now, we'd like to turn over the discussion to our CEO, Jack Kenny.

Jack Kenny -- Chief Executive Officer

Thanks, Bryan. Let's start here on Page 7 with a refresher on the strategic fit and rationale for our recent acquisition. On June 3rd, we finalized the acquisition of GenePOC and its revogene molecular diagnostics Systems. This acquisition is an important and critical component of our plans to strengthen the Diagnostics segment of our business. The strategic fit of the revogene platform and the research and development and manufacturing teams in Quebec made this a very attractive acquisition. Having immediate access to a state-of-the-art molecular platform, with four existing FDA cleared tests, will enable us to protect our current molecular business that has been under attack for the past 12 to 24 months. The manufacturing team and infrastructure in Quebec will support our anticipated volume needs into the foreseeable future. Execution of our plans to convert our current customers using our alethia platform to build a strong referenceable install base will enable long-term success for Meridian and fits perfectly into our strategy to be our customers' go-to-partner for gastrointestinal and respiratory testing.

Let's now move on to Page 8. As we have discussed before, the revogene platform is truly a state-of-the-art molecular system that enables sample-to-answer capabilities. The technology is able to efficiently run both individual molecular tests, for example, C. difficile, as well as multiplex tests with up to 12 targets enabling smart panels to be run. The front-end sample preparation for the revogene system is much better compared to our current alethia system and will be attractive to our customer base. Ease of use is a common theme that we are hearing from our customers who are currently considering the revogene system. Ease of use, high reliability and quality results make this a very attractive platform for our customers considering a decentralized testing model.

Page 9 highlights some of the key elements of the revogene system and consumables, which made this very attractive to Meridian. In addition to ease of use of use, compact design and quality that appeal to our customers, the revogene instrument and consumables have low manufacturing costs compared to competitive PCR systems on the market today. The elegant for practical consumable PIE design provides us with competitive advantages around manufacturing cost, which we believe will be helpful in healthcare environments under cost reimbursement pressures and also provide us with good profitability as we grow the molecular part of our business.

Let's move now to Page 10. One of the attractive features to this acquisition was the perfect fit between the revogene system and its current menu of four FDA-cleared assays and the imminent need to convert our existing alethia customer base that has been under competitive attack. Over 80% of our current alethia revenue comes from Group A Strep, Group B Strep and C. diff assays. The ability to immediately go to our existing install base and offer them a state-of-the-art sample-to-answer molecular system will enable us to build a strong reference base and provide us a platform for future growth. This is the key part of our focus and we are moving aggressively on execution. Although we are very early on in the process, we are actively converting customers from our alethia system to the revogene system and results to date are ahead of expectations.

Moving now to Page 11. We want to provide an update on our integration efforts. Our approach to the integration is what we like to describe as a warm welcome. Our intent was to move aggressively to integrate the GenePOC team and products into the Meridian organization. On the day we closed, June 3rd, myself and a few other key Meridian employees were in Quebec to kick off integration activities. Within a few short weeks, the site was fully branded Meridian and the functional integration teams are well into their projects. Overall integration activities are off to a strong start with great collaboration. New product development is progressing and several quick wins have taken place since the close on June 3rd.

On the commercial front, we did not retain the previous US sales team from GenePOC, but rather brought this product to our existing commercial team. We aggressively worked to train our sales teams to execute the strategy and the teams are having meaningful initial success. To quote our head of manufacturing from GenePOC, wow in just a few short weeks, the medium team has placed more systems than GenePOC had closed in the previous 18 months. We need to focus on ramping up production. We remain excited about the revogene platform and the team from GenePOC joining Meridian. This is a critical early step in our turnaround of the Diagnostics business that will help us to build a sustainable growing business for years to come.

Now let's move to Page 12. While the acquisition of GenePOC was a critical step in our strategy for the Diagnostics business, we also has been working hard at driving improvements in our new product development programs to build a stronger pipeline of new products for immunoassay and blood chemistry. A robust pipeline of new products is critical to the success of our strategy. We have been making good progress. This year, we've enjoyed five new products with our acquisition of the GenePOC -- excuse me of the revogene platform. Importantly, as we look forward over the next 24 months, we anticipate four new products in 2020 and have a strong pipeline of seven new products we anticipate in 2021. We have built a new team to focus on our new product development processes and are committed to delivering new products that align with our business strategy around gastrointestinal testing and pediatric point-of-care testing.

While, we anticipate continued business challenges in the near term, we have built a new strong team that is focused on stabilizing the business in the next 12 to 18 months and building a sustainable growth engine for the Diagnostics business on a long-term basis.

Let's finally move to Page 13 to discuss our Life Science business. As we have shared before, our Life Science business sells key components to IVD manufacturers for their FDA, CFDA and CE Mark tests. As we pivoted the Life Science business last year, we changed the direction of our efforts on the molecular side of the business to focus on IVD customers as we are on the immunoassay side of our business versus directly selling to researchers. This year, we moved the focus of our sales team away from academia and into IVD manufacturers. Academia is now being called on by our distribution partners and our direct sales force is calling primarily on the IVD manufacturers selling both immunoassay and molecular key components. We remain committed to this strategy and have great confidence in the long-term growth potential with this approach. In our molecular area, we have many customers interested in our products and working through the validation and approval process. We anticipate ramping of the molecular business within IVD manufacturers over the next 12 months as their products receive FDA, CFDA and CE Mark approvals and these customers will move into larger bulk orders. We anticipate a return to growth in our Life Science business in Q4 2019 and into fiscal 2020 as the full realization of the strategy kicks in.

With that, Marcella, I'd like to open it up to any questions that our listeners may have.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Brian Weinstein. Your line is open.

Andrew Brackmann -- William Blair -- Analyst

Hi, guys. This is actually Andrew Brackmann on for Brian.

Jack Kenny -- Chief Executive Officer

Hey, Andrew.

Andrew Brackmann -- William Blair -- Analyst

Hey, Jack. Maybe just kicking this off on GenePOC. Appreciate the commentary on the integration and sort of the transparency moving forward on the number of placements. But now that this asset is sort of under the Meridian umbrella, can you maybe help us frame the opportunity with some numbers around the installed base that you're trying to convert, some annuity per boxes, estimates? What I'm really trying to get to here is the revenue opportunity if you swap out the total installed base.

Jack Kenny -- Chief Executive Officer

So I'll start with -- first of all, Andrew, as mentioned before, we're off to a good start. We trained our sales force in mid-June, a week after the close, is when we train the sales force. So they've been out as of late June time frame out talking to customers. Response has been outstanding from customers. In a few short weeks, we had some closes. We anticipate Q4 and beyond that we will provide you a quarterly update on all of the placements that we have. So expect in Q4 and going forward that will regularly provide you with the number of placements that we have. We anticipate, Andrew, that we'll have certainly 50 or more types of placements here in Q4 as we work toward building up this business and to move the install base. We're focusing our efforts on our larger customers that are doing at a minimum at least $20,000 worth of business with us and some of them are much higher than that, could be several hundred thousand dollars that they're doing with us.

So when we look at our overall book of business, we have a US-based molecular business; it's in the low $20 million -- low $20 million range, $22-ish million business. And the intention is to work aggressively over the coming 12 to 24 months to convert that business over. Now, there is some of that business that will remain on alethia for sure in products like CMV or new tests that we just had, pertussis and other types of tests that will remain in that area. So we will have both alethia business and the revogene products as we go forward.

But I think, Andrew, if you start thinking about -- I've alluded to this before, the toughest thing to do is to get your first 200 or 300 placements, because our customer base is a conservative customer base that, you know, don't like to be the first ones in town. And so we're really focused aggressively on getting to that first 200, 300 placements over the next 12 to 18 months in the United States and, of course, in Europe and in those markets as well, and then building that to build to increase the number of competitive placements that we have.

So I think, Andrew, if you think about, certainly in the near term, 50 or more placements in a quarter is what we think is very attainable and certainly we'll be pushing on that front. And I think you could look at our accounts being somewhere in the neighborhood of $20,000 to $40,000 per instrument kind of range is probably the type of range that you're going to see from a revenue through these instruments. Hopefully that helps.

Andrew Brackmann -- William Blair -- Analyst

Okay. That's helpful, Jack. And then maybe just one on GenePOC gross margin. I know, you and I have talked about sort of the cartridge design here on the (Technical Issue) provide some color on the gross margin profile for that business in the near term and then how should we factor some gross margin expansion as we think about the U curve as that plays out? Thanks.

Jack Kenny -- Chief Executive Officer

So I think that we anticipate, and Bryan, you can clean me up here if I'm off. We anticipate gross margins will have a little bit of dilution early on. You know, you've got to build your volume up and get your cost down as you build your manufacturing up. But we believe in the relatively near term that our cost position on GenePOC can be very similar to what we've enjoyed on the alethia products. So in the next 12 to 18 months, we think we can get into the similar types of costs that we have on that, which would mean your margins, 12 to 24 months out, start being very similar to what we have today. We do think that there is further decreases with the PIE design and all that, that we can drive and some other work that we're doing, working with our Life Sciences group as well to take-out cost as well in a very creative way. So, Bryan, anything to add?

Bryan Baldasare -- Interim Chief Financial Officer

That's exactly right, Jack. In the near term, over the next few months, we'll have to deal with overhead absorption as we ramp up production but in the not too distant future. Once that's behind us, we can expect I think comparable margins to what we have in the Diagnostics business today.

Andrew Brackmann -- William Blair -- Analyst

Okay, thanks. And then just one last one on the guide, I want to get too bogged down on the near term here, but it does look like the fourth quarter operating margins cut down pretty substantially. Any one thing that we should be aware of that might be in the quarter there, is that GenePOC acquisition costs or something else? Thanks.

Jack Kenny -- Chief Executive Officer

I'll start with this and Bryan can add. Our business from a profit standpoint has done better than we anticipated throughout the year. We are trying to make sure that we've taken cost out where appropriate, but continue to invest in things to help us to build where we want to go. We will see increased cost in the quarter dramatically because we'll have a full quarter of the GenePOC instead of a $900,000 that we had in this quarter. Think of that kind of tripling because you'll have three months of run rate for the GenePOC products. We also see some increases in our spend as we work through expenses in our new product development pipeline as well. So good investments. I think that we anticipate that you'll see that will create some short-term profitability challenge versus the previous quarters. Bryan, anything to add?

Bryan Baldasare -- Interim Chief Financial Officer

Yeah. So for fiscal 2019, when we had talked about guidance back in April, when we closed our second fiscal quarter, we were disclosing operating margins on an adjusted or non-GAAP basis of 17% to 18%. As we've come through the third fiscal quarter here and our outlook for the fourth quarter, we think for the year we'll be in the 18% to 19% range on operating margin.

Andrew Brackmann -- William Blair -- Analyst

Got it. Thanks, guys.

Jack Kenny -- Chief Executive Officer

Thanks, Andrew.

Operator

Your next question comes from the line of Bill Quirk. Your line is open.

Jack Kenny -- Chief Executive Officer

Hey, Bill.

Bill Quirk -- Piper Jaffray -- Analyst

Hi. Good morning, everyone. Thanks for all the details, guys, in terms of system placement, expectations, average revenue, etc. Just a couple of, I guess, kind of cleanup questions on that topic. In terms of the revogene placements -- so you're placing those under reagent rental deals, right? There's no capital cost associated with that that we should be monitoring...

Jack Kenny -- Chief Executive Officer

I would say the majority of what we anticipate will be reagent rentals. The market is heavily weighted toward that. I think as we get into fiscal 2020, we'll look at training our sales force to -- a lot to this comes down to how you sell as well. And so we'll be training our sales force to get capital where we can. But I think for the most part, 90% or more of them will be region rentals in the near future for sure.

Bill Quirk -- Piper Jaffray -- Analyst

That makes sense. That's obviously where the market's going and it has been here for a couple of decades. And then just be clear, though, I think in kind of a previous administration with Illumigene originally, my understanding was there wasn't a whole lot of contractual revenue really tied into those placements. I'm assuming, Jack, that that every time you're placing a revogene there are some minimums that these customers going to have to head and take that back correct?

Jack Kenny -- Chief Executive Officer

Bill, that's a great question. So since I joined about 18 months ago, one of our efforts was to really improve our commercial excellence for the overall team. And one of the key focus areas in the 18 to 21 months or whatever I've been here has been contracting our business. We have moved a significant portion of our business that was not contracted to contracted business and so that continues, and as we rolled out the revogene, we fully anticipate essentially 100% of that business being contracted. And our customers are working with us and early reception has been positive, our sales force is quite frankly doing better than we anticipated with that.

Bill Quirk -- Piper Jaffray -- Analyst

Okay. No, that's fantastic news. Thank you. And then one more -- one housekeeping one for me and then kind of bigger picture question. So first on the housekeeping, apologies, but can you repeat the H. pylori comment in terms of the growth impact as it relates to the reference lab pricing dynamics?

Jack Kenny -- Chief Executive Officer

So, Bill, I'll do this, and Bryan, you can add to this is as appropriate. As we -- as you know, we've had -- we own the market for H. pylori. We had the patent for a number of years. We're off of patent and there's competitors coming into that space. One of the key initiatives for us about a year ago was really to try to protect and lock up our LabCorp and Quest business, right, the big two reference labs. And so we worked with those customers to build a contract, a multi-year contract, with them going forward. In those contracts, one of the keys to the contract was is that there would be pricing stepping down over time. And so we kind of had planned price erosion as the best way to think of it. And we felt that it was appropriate a win for those customers, but also appropriate for us as well. And so we implemented a lot of that. We anticipate the next round of those price reductions occurring here in the summer and fall. And so when we talk about that business, we do have a few million dollars of price erosion that's planned as we kind of step the pricing down on those products overall. Bryan, anything to add?

Bryan Baldasare -- Interim Chief Financial Officer

So that's one of the factors that I mentioned previously around our gross profit margin percent when you compare periods. The current year has a price erosion in it, the prior period does not.

Jack Kenny -- Chief Executive Officer

So I would also just add to that, Bill, that we plan for this price erosion. We're actually performing better on H. pylori than we had planned because we anticipated price erosion there. And also in your other products, we have non-Quest, LabCorp types of accounts, but we are seeing some level of volume increase that helps offset that a little bit. So one of our strategies is to help build this market because we do believe it's an untapped. It still has a small percentage of the testing that should be done moving things from serology or other types of testing, breath, and/or no testing whatsoever. So for us, we anticipate continued price erosion over the next couple of years and increased volumes offsetting that and that's really the dynamic that we're faced in H. pylori.

Bill Quirk -- Piper Jaffray -- Analyst

Understood. And just to follow up there, is -- what the -- the pricing dynamic itself, what did that do specifically, I guess, to the overall H. pylori growth in the quarter? I'm just trying to get that -- I missed that comment in your prepared remarks.

Jack Kenny -- Chief Executive Officer

We were down 13% in the H. pylori in the quarter. I apologize, Frank can look that up real quick.

Bill Quirk -- Piper Jaffray -- Analyst

Okay. And then...

Jack Kenny -- Chief Executive Officer

We were actually -- so, Bill, we were actually down 13%. We had anticipating being down slightly more than that. So it was actually -- that was one year it was a little better than we had anticipated.

Bill Quirk -- Piper Jaffray -- Analyst

Okay, understood. Thank you for the clarification there. And then just, I guess, last question from me. This is the bigger picture one is, if we think about all the moving pieces between the new systems, the transition of some of the card immunoassay business and the alethia molecular, how should we be thinking about or when should we be thinking rather about the Diagnostics business starting to grow again? Could we see this as soon as 2020 or do you think some of the pricing dynamics with things like H. pylori push that into 2021? Jack, how are you -- I don't -- I'm not trying to get at early guidance here, but just kind of big picture directionally, how close are we at the bottom of your curve there to get on Slide 10?

Jack Kenny -- Chief Executive Officer

We envision that we -- 2020 will still not have growth in our Diagnostics business. We think with the price erosion in HpSA, molecular stabilization and the other stuff that we're doing that we will not have growth in 2020. We do believe that we'll start returning to growth in 2021, as we'll have some new products that have come in with the stabilization of molecular business and the price erosion will have worked its way through for the most part on the H. pylori. So we are looking at the next 12 months or so, 12 to 18 months, quite frankly, Bill, being a grind in the Diagnostics business that we have to work our way through. We have a plan for it, getting some of these new products through and we're making good progress like we mentioned. But there is no quick fix to this. This is going to be bumpy for the next 12 months, at least in Diagnostics. So returning to growth in Life Science will be important for us. And commercial execution on the Diagnostics side is really the focus. And I'm cautiously optimistic on that front, but we've got a lot of work to do.

Bill Quirk -- Piper Jaffray -- Analyst

Understood. Okay. Thanks, guys. Appreciate all the questions.

Jack Kenny -- Chief Executive Officer

Thanks, Bill. Appreciate it.

Operator

Your next question comes from the line of Catherine Schulte. Your line is open.

Jack Kenny -- Chief Executive Officer

Hi Catherine.

Catherine Schulte -- Robert W. Baird -- Analyst

Hey. Thanks for the questions. On the molecular life science business, any color on how many customers you have in pilots or validation on the IVD side?

Jack Kenny -- Chief Executive Officer

I don't know that we've got a clear number on the number of side. I'll give you a little bit of color though, our Executive Vice President, who runs a Life Science business, was recently in China and her trips to China, she had -- obviously, we have a large immuno business there, but the molecular business is just developing. Her return from that trip came back to say that we have a number of customers with multiple products that they've got currently that they're put in front of the CFDA looking for approval. So she came back with multiple customers from China and felt very, very bullish that that we have this bolus of products that are there. And I unfortunately, Catherine, don't have very clear numbers on that. That's something that we can work toward trying to get more clarity as we go forward.

Catherine Schulte -- Robert W. Baird -- Analyst

Okay. And then any thoughts on the CFO search and a potential timeline to finding a permanent replacement?

Jack Kenny -- Chief Executive Officer

So a couple of different things. Very fortunate to have Bryan, who's been with our Company about 20 years or so?

Bryan Baldasare -- Interim Chief Financial Officer

20 years.

Jack Kenny -- Chief Executive Officer

Couple of years. He looks like he is 19, but he's been here for 20 years. We're very fortunate to have Bryan and Bryan has stepped in and done an amazing job over the last month of making sure that we're on track. We will be looking as we get into the later parts of the summer, internally, Bryan is going to have a very, very strong look at this role for sure, as well as any external candidates with the intention of really as we get into the fall, probably late fall before we kind of finalize this as we go forward. I have high confidence it internally and also that there's external folks that have expressed interest that we will not have issue having a great replacement, but we're in very good hands with Bryan, I can assure you that.

Catherine Schulte -- Robert W. Baird -- Analyst

Okay, great. And then going back to revogene, any plans from a commercialization perspective on international side?

Jack Kenny -- Chief Executive Officer

Yeah. I didn't mention it in the presentation, but we have actively rolled our training through the EMEA sales group that we've got. So we've got a sales team in EMEA that was trained in early July on the products and they are now in the last couple of weeks just started approaching customers. We do believe that carbapenemase is a product that could be very, very important in that market, as well as some of the other products on the instrument that we have today. So we anticipate our bulk of our energy being US followed by EMEA. We're not going to put initial focus on other parts of the globe. We're going to focus our energy on being great in the United States and good in the EMEA. That's our plans.

Catherine Schulte -- Robert W. Baird -- Analyst

Right. Great. Thank you.

Jack Kenny -- Chief Executive Officer

Thank you very much.

Operator

[Operator Instructions] Your next question comes from the line of Mark Massaro. Your line is open.

Jack Kenny -- Chief Executive Officer

Hey, Mark, how you doing?

Mark Massaro -- Canaccord -- Analyst

I'm doing well. Thanks, Jack. Yeah, so I guess a bunch of questions. My first one, I guess, you certainly managed the bottom line well. I think you did say in your prepared remarks that there are some sales people that may have had lower commissions than in the prior year. It looks like the whole sales and marketing expense came in 21% down year-over-year. Can you just give us an update on the number of direct territory carrying reps you've, notably on the molecular side? And can you just clarify the comment that you did not retain the sales people on the revogene product?

Jack Kenny -- Chief Executive Officer

Absolutely. So a couple of things. First of all, Mark, the 21% reduction in our commercial, a lot of that came from the Life Science side, just to start. So if you look -- if you broke it down our Life Science side of the business, we could change our go-to-market approach. We used to have a large sales force that was calling on these academia and they were going out trying to get a researcher to buy $200 worth of product. So moving that over to distribution enables them with several hundred feet on the street to go to those markets. It created a short-term problem for us because we have to give them margin at the distributor. So that's part of the reason the molecular business was down on the Life Science, so just to give you some perspective.

But we have a much more efficient go-to-market on the Life Science, and that's where some of the savings came. On the Diagnostics side, there were some savings on the SG&A side as well, but it was not as dramatic as it was on the Life Science. From a Diagnostics standpoint, we have 28 in the United States sales reps that cover territories that are selling the molecular products, as well as our other products. We also have a small group of people that work with IDNs, to include [Phonetic] management of that is some three or four people that work with some of the larger IDNs that we have. So those 28 people are going to be the key kind of bread and butter for us as we roll out revogene. The folks from GenePOC had a get a small team in the United States of probably in the neighborhood of about 10 people if you added everybody up and we did not feel the need to bring those 10 people across because we have good coverage with our 28 sales reps and our coverage across the United States.

So, you know, we anticipate that we'll continue with those 28. And we do believe they've all got a good install base to try to go work from initially. And we also, at the same time, we're quoting and starting to see competitive activity on the revogene side as well that we look forward in Q4 to starting to talk about.

Mark Massaro -- Canaccord -- Analyst

Excellent. Thank you for that. And I know when you acquired GenePOC, according to my notes, I thought the base molecular business was in the $26 million to $30 million revenue range. I think today you talked about a low $20 million molecular base. I know that your molecular business was down, I think, 21% this quarter. Can you just help us frame, is $20 million call it the base that you're looking to protect? And then I appreciate the color around the expected throughput per box on revogene. Can you can you also remind us on the install base? You know, going back years ago, I thought you had as many as 1,500 systems on Illumigene.

Jack Kenny -- Chief Executive Officer

Yeah. So let me start a couple of things, first of all. I'll start with the install base. I think your install base of Illumigene is in the ballpark. We have a ton of Illumigenes or what we call alethia now that have very low volume that are running just, pertussis or Chlamydia and gonorrhea, if it's in Europe. So there's kind of these one-off smaller tests, malaria, things of that nature. We don't anticipate that that install base will all convert. So from a number standpoint, we anticipate our molecular business is going to be in total somewhere in the neighborhood of $25 million this year, it's where it'll end. But when I'm talking in the low $20 million kind of range, I'm really talking in the US business because we have $3 million or $4 million or so in EMEA of molecular business and so it's a little different situation there. It's much more stable there than it was in the United States market. It's more flattish in that market. So we do anticipate that Europe can begin to grow as carbapenemase and these other products start to hit that marketplace. So I think you're $20 million-ish range of converting is not an unreasonable number, $18 million to $20 million, Group A, C. diff, GBS is probably in the ballpark of the business opportunity that we have to convert. And so we'll be actively working to do that. I think when you start talking about conversion, we don't necessarily believe that one revogene equals one alethia. In many cases, a revogene system can run more throughput and more capabilities than an alethia could.

So we kind of envision that we will replace, there's several hundred, put yourself in the neighborhood of 400 or so systems totally with pretty good revenue running through those boxes that are in Group A, Group B and C. diff. And those are the types of targets that we're going after first to try to go protect. We anticipate we'll continue to keep alethia systems in our customers to run pertussis, we have a growth that's occurring with our congenital CMV test and some of the other products. So our smaller volume tests on alethia are actually flat or growing. So really the decline in the molecular business has been in those big three tests that we've talked about converting. Bryan, anything to add to that?

Bryan Baldasare -- Interim Chief Financial Officer

I think that's good.

Mark Massaro -- Canaccord -- Analyst

Great. And that's super helpful. I know you mentioned that the Diagnostics business is going to take some time to turn around. I wanted to pick your brain, Jack, on just the uptake that you expect on revogene for the big three assays, C. diff, Group A and Group B. I guess what I'm getting at is, the industry has shifted largely to mini panels for GI and respiratory. I know that those are in your development plans, but can you just speak to your confidence that those assays, notably C. diff, can sort of hold its turf until some of the panels come on the market?

Jack Kenny -- Chief Executive Officer

So our early indication from our customers gives us great confidence that we can protect this base. It's actually, Mark, off to a better start, the energy level, the amount of customers that are wanting to work with us on paperwork is moving faster than we had anticipated. So we are more optimistic now than we were before we closed on the deal, I'll just start with that. While panels are going to be an important part going forward, there is still a significant marketplace for individual tests like Group A Strep, C. diff, GBS as an example. So, you know, the Group A Strep market, we're actually seeing a lot of activity on revogene with Group A Strep, because customers are trying to get a platform in place before the strep season hits when the kids go back to school in a month or two. And so we have a lot of customers that are aggressively looking at that. That seems to be our leading thing right now with a sense of urgency with our customers.

The Group B Strep for prep testing in pregnant women will continue. We think that's an important market. And our solution is so much more compelling for our customers that we feel that we can convert those, and quite frankly start winning competitive business on some of these tests. And then, as we said before, the most important is C. diff and protecting that base. So, Mark, we have high confidence, but as I've alluded to before, you got to get 200, 300 placements out there in the next 12 to 18 months. We've got to get a couple hundred replacements because our customers, I'm sure you guys have gone out and sat with lab customers. They're conservative folks. And knowing that two or three or four other people in town have it and they love it. It makes it that much easier when you're trying to go win those next account.

So we do anticipate the panels. The first things we are focusing on are the gastro and the respiratory panels. We're making good progress on those. And those also have key milestones in our acquisition. So we know that everybody is very incented to driving those products through and trying to deliver those. When I start talking about growth, Mark, in 2021 and beyond, it's we've stabilized our base, if you will, in the next 12 to 18 months, it's stabilized. We're getting some growth from carbapenemase, as we now have that test and we're going to have a swab carbapenemase as well, which we think will be very compelling in the future. And then last but not least, we're starting to have these incremental new test, the panels coming out that we can go to our install base to close and try to add them onto those, but equally important, going to new customers with a broader menu offering. So -- and that's the model we're running here, Mark.

Mark Massaro -- Canaccord -- Analyst

Great. And then I don't think I heard you talk about Magellan as it relates to the FDA. But do you have any expectations to relaunch your venous blood-based tests by the end of the year? And can you just give us an update on the additional information hold on the product, on the platform?

Jack Kenny -- Chief Executive Officer

So as we disclosed in Q2, I believe it was we disclosed that the FDA had come in and put in AI hold on our venous blood submissions. We have been working with the FDA on that. There's some studies; if you look in our 10 Q, you'll see more information in regards to the work that we're doing and what the FDA is doing to do some of their own analysis as well. We do not anticipate the venous blood products coming back in this fiscal year or in -- we are not planning on that in the near term. I can't speak beyond that. But certainly in the next six to eight months we don't anticipate any positive movement from that -- in that product line.

Mark Massaro -- Canaccord -- Analyst

All right. That's it for me. Thank you.

Jack Kenny -- Chief Executive Officer

Nothing has really changed on that, Mark, from where we were in the spring, in all honesty.

Mark Massaro -- Canaccord -- Analyst

Okay, thanks again.

Mark. Thank you.

Operator

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

Jack Kenny -- Chief Executive Officer

Well, thank you very much for joining us on this call. We hope that we've been able to provide you an update in regards to our business and where we're going. We look forward to putting our head down and building a stronger business and look forward to talking to you again in the coming quarters. Thank you very much and have a great day.

Operator

[Operator Closing Remarks]

Duration: 40 minutes

Call participants:

Bryan Baldasare -- Interim Chief Financial Officer

Jack Kenny -- Chief Executive Officer

Andrew Brackmann -- William Blair -- Analyst

Bill Quirk -- Piper Jaffray -- Analyst

Catherine Schulte -- Robert W. Baird -- Analyst

Mark Massaro -- Canaccord -- Analyst

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