Bio-Techne Corp (TECH) 2017 Q2 法說會逐字稿

Good morning and welcome to the Bio-Techne earnings conference call for the second quarter of FY17.

(Operator Instructions)

I would now like to turn the call over to Mr. Jim Hippel, Bio-Techne's Chief Financial Officer. Please go ahead, sir.

Thank you and good morning; thanks for joining us this morning. On the call with me is Chuck Kummeth, our Chief Executive Officer for Bio-Techne.

Before we begin, let me briefly cover our Safe Harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the Company's future results. The Company's 10-K for FY16 identifies certain factors that could cause the Company's actual results to differ materially from those projected in the forward-looking statements made during this call. The Company does not undertake to update any forward-looking statements as a result of any new information or future events or developments. The 10-K, as well the Company's other SEC filings, are available on the Company's website located in the Investor Relations section.

During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to the most comparable GAAP measures are available in the Company's press release issued early this morning in the Bio-Techne Corporation website at www.BioTechne.com.

With that, I'll turn the call over to Chuck.

Thank you, Jim, and good morning, everyone. Thank you for joining us for our second-quarter conference call.

I'm happy to report that we are tracking to our FY17 performance goals. The Company delivered 2% organic growth in the second quarter and so far has delivered 6% organic growth year to date. Our second-quarter results were negatively impacted by the timing of OEM shipments within our diagnostics division. Year to date this division has grown 5% and has growth and spread evenly throughout the first two quarters. Bio-Techne would be reporting 4% organic growth in Q2.

Looking at our performance by our major regions and end markets, I would sum it as follows: consistent with prior quarters, Europe and APAC continue to perform very well, while China continues to experience shipment delays to immunocell therapy customers, as the local CFDA continues to work through regulations to prevent another [Baiyu] scandal in the country. Meanwhile, the US saw a bit of a slow-down of biopharma's growth cooling.

Now some details on each of the regions. In Europe high single-digit growth was broad-based throughout the region but was focused on the biopharma end markets. The research activity cycle with our biopharma customers has been high for a number of quarters now and we're positioned to benefit by supplying them the top-quality reagents and innovative instruments that make our experiments successful and productive. To capture more of the growth opportunities in Europe, we continue to expand our geographical penetration by converting distribution to a direct sales model, just as we did with the acquisition of Space in Italy, which gave us a direct sales model in Southern Europe. In the second half of FY17 we'll be looking to expand our direct sales model in Iberia and parts of Eastern Europe.

As with Europe, many of the themes we saw in the Asia region for the past several quarters continued in the second quarter. In China our western reagent brands continued to grow well north of 20% in Q2 and our instruments grew north of 15%. However, a major exception continues to be our PrimeGene brand, which is heavily impacted the CFDA crackdown on cell therapies administered by hospitals due to the Baiyu scandal earlier this year. PrimeGene is a key supplier of reagents to hospital who use these therapies and is our go-to brand in our China-for-China strategy. We understand that the CFDA is making progress on these regulations for hospitals using cell therapies, which will stimulate growth in this treatment again. And PrimeGene is well-positioned to fully participate in this growth, given its GNP quality. But we probably have a couple more tough quarters ahead before the regulation process is complete and the therapies resume as they did before the scandal.

As for the rest of the APAC, overall the region continues to perform well. We experienced double-digit growth in Korea for our reagents with our [instant placements] throughout the region overall. Japan growth was flat; the first quarter in many years without a decline. So it appears we've reached the bottom there and we'll be looking for modest growth going forward.

The biggest change in the market we saw in Q2 compared to the past several quarters was a slowdown in growth we experienced in the US markets, especially in the biopharma end markets. Interestingly, our order activity was actually strong, but the average size of the orders was down. The reasons for lower order sizes vary from customer to customer but the major themes center around timing of various research projects. We continue to monitor this end market carefully but have no reason at this point to believe there is a longer-term shift from research activity by our biopharma customers.

Now for a little color on our Q2 performance by division. The biotech division grew 2% organically in the second quarter, with proteins growing in the low single digits while antibodies and assays grew in the mid single digits. Growth in antibodies was led by our Novus brand, where our digital marketing campaigns and continued enhancements to our website continue to pay off. Our growth in assays for the quarter was driven by our Luminex products, where we now offer the instrument as well as the consumables, a total customer solution package that is also paying dividends in terms of growth and royalties for the content we provide for these assays filled by other providers.

Offsetting some of the growth from our three main product categories already mentioned was the headwind we faced with our PrimeGene brand in China, which I've already discussed, as well as a decrease in the large custom projects by our biopharma customers in the US. As I mentioned in my original commentary, we believe this pause in large purchases by our biopharma customers in the US to be temporary but something we are monitoring closely.

Also part of the biotech segment, and our newest business unit as a result of the acquisition we made last August, Advanced Cell Diagnostics continued in Q2 with fantastic growth of over 50% on a stand-alone basis. As a reminder, ACD marks Bio-Techne's entry into the genomics field and market. Second, and more importantly, its innovative and [vertical] technology has the potential to change traditional pathology practices. RNA in situ hybridization is a transformative technology facilitating and improving the monitoring of gene expression pattern at the single-cell level, while retaining the morphological context of the tissue being analyzed. ACD's technology serves both research and diagnostics markets, expanding Bio-Techne's presence in the clinical lab setting. Each and every day we become more enthusiastic about the opportunities that lie ahead for this business unit and the great team we have in Newark, California, to seize them.

Moving on to protein platforms. This division also continued with its growth (inaudible) after marking it the fourth quarter in a row of double-digit organic growth. Our newest iCE instrument, Maurice, continues to be well received by our customers, leading the Biologics product line to strong double-digit growth. Simple Plex, our automated multi-ELISA platform, also continued to win new customers. Meanwhile, existing simple Plex customers increased their usage of the instrument, which resulted in a 50% increase in revenue from cartridges used on this platform.

Finally, the simple Western product line led by the Wes instrument, continues to be adopted as the new standard for the way Western blots are done in the lab. In Q2 we saw strong double-digit growth in instrument placements, with a record 72 Weses sold during the quarter, making a total of over 600 Weses now in the field.

Finally, our diagnostics division reported revenue in the quarter that was lower than last year. As we've discussed many times before, this division is the lumpiest of our businesses due to delivery patterns of its (inaudible) diagnostics customers. This has been especially true since our acquisition of Cliniqa over a year and a half ago. This business develops controls and assays with shelf life much longer than other product lines within the diagnostics division. Over the long term, we expect this business to be a solid mid single-digit grower. To give some further evidence of that, the shorter shelf-life product lines within the division did achieve mid single-digit growth in Q2. Also, you may recall that Q1 was very strong for the division, with nearly 20% growth. When you average the two quarters together, year-to-date growth is over 5%, right in line with the historic trajectory. The long-term product pipeline for diagnostic division remains very strong and we believe this will allow us to maintain at least a mid single-digit growth trajectory for years to come.

As we've increased our picks and shovels keep building, serving our diagnostics customers over the past several years, in the second quarter we dipped our toe deeper into the diagnostics market with an investment made in Astute Medical Incorporated, a diagnostics company devoted to improving patients' healthcare outcomes through the identification and validation of novel biomarkers. Astute Medical has launched diagnostic assay for acute kidney injury using key biomarkers and other products in Bio-Techne's large number of reagents, with a strong pipeline of additional diagnostic solutions under development. This transaction allows Astute access to our reagents for further assay development while providing Bio-Techne an ongoing revenue stream based on this assay success in the diagnostics end market. We are very excited about the strategic partnership we have with Astute Medical and believe this investment will give Bio-Techne an avenue to yet another market where the Company can leverage its large portfolio of reagents and accelerate revenue in years to come.

In closing, we finished the first half of FY17 in a trajectory that is in line with our long-term financial goals. These goals include achieving annual growth of mid single digits in our biotech division, at least mid single-digit growth in our diagnostics division, and double-digit growth in our protein platforms division. These growth rates, together with ACD's strong double-digit growth, will propel Bio-Techne forward as a leader in the life science tools space.

We just finished a refresh of the Company's five-year strategic plan, a process we go through every year with our executive team and our Board of Directors, to fine-tune our strategies and ensure that they are still the right ones to provide strong returns for our shareholders and other stakeholders for years to come. I am pleased to report that although there were no major changes to our key strategies that we have been pursuing over the past several years, we are more energized by the opportunities ahead of us in each of our businesses as we continue to build out our own life sciences business portfolio.

With that, I will turn the call over to Jim, who will provide more details on our financial performance for the quarter.

Thanks, Chuck.

I will provide an overview of our Q2 financial performance for the total Company and then provide some color on each of our three segments. Starting with the overall second-quarter financial performance, adjusted EPS decreased 8% to $0.81. The impact of foreign exchange fluctuations represented a headwind to EPS of approximately $0.03. GAAP EPS for the quarter was $0.17 compared to $0.69 in the prior year. The biggest driver for the lower GAAP earnings are non-cash purchase accounting costs and continued consideration revaluation associated with recent acquisition. Q2 revenue the quarter was $131.8 million, an increase of 9% year over year, with organic revenue increasing 2%. Second-quarter reported sales include the 9% growth contribution from acquisitions, partially offset by a 2% unfavorable foreign exchange headwind.

By geography, the US grew low single digits, with growth comparable in both biopharma and academia. Europe grew in the high single digits, with biopharma sales growth in the mid teens and low single-digit growth in academia. China's organic growth was in the mid single digits in the second quarter, with double-digit growth in our Western brand being offset by the impact of the Baiyu scandal on our local China-for-China PrimeGene brand. After many quarters of decline, Japan appears to have bottomed out in Q2, with flat organic growth. Excluding Japan and China, the rest of APAC grew in the mid teens organically in the second quarter. Note that all references made to growth rates by region and end market exclude our OEM sales, which mostly occur in our diagnostics segment.

Moving on to the details of the P&L, total Company adjusted gross margin was an even 71% in Q2, increasing approximately 20 basis points from the prior year due to favorable mix. Foreign exchange had a nominal impact on adjusted gross margins year over year.

Adjusted SG&A in Q2 was 25.7% of revenue, 335 basis points higher than last year. The SG&A increase was driven by the acquisition made since the beginning of the fiscal year and strategic investments made in our core businesses to support growth. R&D expense in Q2 was 10.1% of revenue, 100 basis points higher than last year, mostly due to the acquisition of ACD in Q1. The resulting adjusted operating margin for Q2 was 35.2%, a decrease of approximately 420 basis points from the prior-year period. Recent acquisitions contributed 340 basis points of decrease, with the remainder largely attributable to strategic investments made throughout the past year.

Looking at our numbers below operating income, net interest expense in Q2 was $1.7 million compared to $0.4 million of net interest expense last year. The higher interest expense is due to a $400 million line of credit which was opened in Q1 to replace our previous $150 million line of credit, as well as funding the acquisition of ACD last August. Other non-operating expense for the quarter was $0.9 million compared to $0.3 million in the prior year quarter with unfavorable transactional FX in the current quarter driving the variance. Our adjusted effective tax rate in Q1 was 30.6%, an increase of 50 basis points from the second quarter of last year due to a greater percentage of cash flow income being generated in the US.

In terms of returning capital, we continue to pay our dividend and paid out $11.9 million in the quarter. Average share rose up less that 1% over the year-ago period, at 37.5 million shares outstanding. Turning to cash flow on the balance sheet, $41.6 million of cash was generated from operations in the second quarter, and our investment in capital expenditures was $2.9 million. We ended the quarter with $115.5 million of cash and short-term available for sale investments. Our long-term debt obligations at the end of Q2 [totaled] $343.7 million, relatively flat from the end of Q1. Going forward, our capital deployment priorities remain opportunistic M&A, our dividend, and paying down the debt.

Now I will discuss the performance of our three business segments, starting with the biotechnology segment. Q2 reported sales were $86 million, with reported revenue increasing 13%. Acquisitions contributed 13% to revenue growth. Foreign exchange negatively impacted growth by 2% and organic growth was 2%. Organic growth was broad-based in all major product lines, but partially offset by lower PrimeGene revenue in China and timing of larger biopharma customer projects in the US. Adjusted operating income for the biotech segment increased 1% in Q2 compared to the prior year. Adjusted operating margin was 45.9%, a decrease of 600 basis points year over year, due entirely to the ACD acquisition. Excluding the ACD acquisition, adjusted operating margins were essentially flat to the prior year.

Turning now to the diagnostics segment, reported revenues in Q2 was $24.3 million, with reported inorganic growth decreasing 5% from the prior year. Solid growth in blood- and glucose-based controls was more than offset by the timing of OEM shipments in the diagnostic assay and reagent product line. Due to the fluctuations of OEM ordering patterns from quarter to quarter, [Management] also monitors trailing 12-month revenue growth to smooth out these timing impacts. For the end of Q2, TTM revenue growth for the diagnostics segment was 12%. Diagnostics segment adjusted operating income decreased 21% in Q2. And adjusted operating margin was 23.8%, a decrease of 460 basis points from the prior year. The lower adjusted operating margin was primarily attributable to lower sales volume.

Moving on to our protein platforms segment, net sales in Q2 were $21.5 million, an organic increase of 12% from the prior-year period, with recent acquisitions contributing 1% to growth and unfavorable currency translation impacting revenue by approximately 2%. Growth for this segment was broad-based in most major regions and product lines, with particular contrition from our Biologics product line. Adjusted operating income in Q2 for the protein platforms segment was $1.8 million, representing adjusted operating margin of 8.6%, an increase of 70 basis points from the prior year. Strong volume leverage drove the year-over-year improvement, partially offset by the operating costs associated with the Zephyrus acquisition and unfavorable FX.

In summary, we had solid revenue execution across all of our businesses and managed our costs to reflect the timing realities we faced with our OEM customers and diagnostics and with our larger biopharma customers in the US. We ended the first half of our FY17 on a trajectory we expected, with yearly organic growth of 6% and year-to-date adjusted operating margin at approximately 35%. Looking ahead to the full-year FY17, we still expect overall Company organic growth to be similar to FY16. For those who pay particular attention to the [cannibalization] of our results, we do expect Q3 to be similar to Q2 with regards to organic growth and profitability for both our protein platform and diagnostics divisions. For the biotech division, we expect improved organic growth in Q3 versus Q2, assuming biopharma research spend picks up in the US. We also expect overall adjusted operating margin to improve due to a larger mix of revenue coming from the biotech division.

That concludes my prepared comments. With that, I will turn the call back over to Amelia to open the line for some questions.

(Operator Instructions)

Dan Leonard, Deutsche Bank.

I was hoping you could elaborate a little bit more on what you called a cooling in biopharma. Was it broad-based? Were there a couple -- it sounds like you might be flagging a couple of specific projects. But anything further you could offer would be helpful.

I think it's a combination of two things. One is we definitely have some timing issues in some projects, some bigger things affecting our numbers we thought, for sure. The second thing is we talked about our lower order sizes. Usually we don't see them go down in fourth quarter. We usually see, call it the end-of-year budget flush, or whatever, but we didn't see the end-of-year budget spending that we usually see and orders going down is something very atypical. It was broad-based, so it was definitely something kind of marketing in the market more of less.

We've done a very detailed analysis of all of our key accounts in Bio-Techne in particular, and we can definitely point to a lot of project timing. So I'm not too worried.

And then the improvement you're expecting in biopharma in Q3 and then presumably in Q4 as well, can you -- how much of a bounce-back are you really expecting? And do you have any leading indicators which would support that?

No, I think it'll happen when it happens. We talked about the same thing a couple of years ago with Germany, if you remember, and we had a similar situation and it bounced back very strong. It's been strong ever since.

I will point out too, you noticed our numbers are good solid mid-single-digit growth in our antibodies and decent numbers in our proteins, a little bit lower due to things we just talked about. But a lot of the projects are worked around our ELISA kits. Our ELISA kits are a little bit off. That's one of the bigger reasons that can speak of project timing. It was a little more lumpier than the run rate buying of antibodies and proteins. So it's more evidence.

Okay, thanks, Chuck.

Puneet Souda, Leerink Partners.

Hi, Chuck and Jim, thanks for taking my question. Overall if you could elaborate a bit on the PrimeGene situation, how long do you think that will take to turn around? What's the regulatory requirements, could you educate us a little bit there? Seems like a number of other players have benefited from this, given their regulatory products that they already had approved in the market but seems to be hurting you a little bit. So educate us a little bit when this can recover back.

Yes, in terms of a Company like us in China, we're pretty narrow compared to most. We don't have much of an instant business to go in there, it's very small. We're just getting off the ground there with all that, getting off the ground with ACD. We're left to our reagents, our core business, which has seen a 20%-plus growth for going on four years here now.

PrimeGene, as you know, we bought as an asset so we had a China-for-China strategy with a brand outside of R&D systems. We do sell R&D systems brand into the segment as well, but to a large degree, mostly it's hospitals, it's clinical setting in China which do a lot of their own research and sell a lot of their own therapies. Buy from PrimeGene, they buy locally. There are other local competitors other than us that we would also be seeing this, but there is nothing public. Nothing you would really see.

That's the gist of it. We're probably two quarters in with two quarters to go. It is definitely material to PrimeGene and it is big enough where it affects our numbers overall for China. We still had growth but without that, if you go back and normalize what we were doing with PrimeGene, in some cases a couple of years ago growing as much as 50% in growth, you'd see a much different situation at this point right now for our overall numbers. So it will come back.

The way to watch and see where we are at is to be checking in hospital by hospital, which there are lots of them, which we're doing and some of them are getting their certification. Clearly people are looking for and there's demand for these solutions and there's pressure, I think, to get things done. It won't be like the other crack-downs they have done that are a little longer term in China.

We're expecting another two quarters or so we're should be hope we see back to normal. We're expecting 20%-plus growth again with PrimeGene. Obviously a year from now, a couple easy comps.

Got it, okay, thanks for that. On the diagnostics segment, one quick one on that. Trying to understand, as you have done work with Astute and as you're trying to grow further into that segment, help us understand a little bit of the regulatory risk and the reimbursement risk and how we are thinking about those as, it seems to me that strategy-wise you're thinking a little bit more aggressively in the diagnostic segment.

The strategy is simple. Dealing with the risk, we are not doing it, they are. They're our strategic partner and they've done it before. This is the team that was the core of BioCyte years ago. They have done this before. They've created the hockey stick that we're predicting in this Company.

They have screened hundreds of our reagents. They worked with us directionally a long time, they've been a really good customer for a few years now. We just got very close. And given what we want to do within the therapeutics with our reagents and our global strategy, it just made sense to get closer.

They found success. They're buying multiple reagents from us that have turned into biomarkers that there is IP around, and it is a big issue. Acute kidney injury is a massive problem for cost in the US. We haven't looked outside yet. And it is already approved. It's selling and ramping, and quickly.

Then we are not talking yet about what is left in the pipeline. They're busy already on new things that they've found in our freezers and we have other indications coming out of the coming years. We hope this is a great foray for us to get in, in a profitable area of diagnostics, not the low-end side of things. Where there's good reimbursement, this is all covered under the DRG. And we expect the new things that we do will go as well.

Then we'll hopefully go outside the US at some point as well. It could be very good. Again, we're really leaning on their regulatory experience, their clinicals, and their overall cash position to drive us, which we think is very strong.

Okay, guys. Thanks so much for the questions.

Catherine Schultz, Robert W. Baird.

Hey, guys, thanks for the questions. Curious how the quarter came in relative to your expectations, if you look segment by segment. Was there a big surprise there? Or was it pretty much in line with what you guys had been thinking?

It is certainly more disappointment that we like. It's is why you see us making all the comments, if we normalized diagnostics, it is forever lumpy. The 20% quarter last quarter which would put us over 10% organic growth, well, it's 5% to 6% lower. So if we put that in and say it was a level run rate business, which it's not, where would we be at? We'd be at mid-single-digit growth as a Company, kind of where we need to be as a minimum.

I think some of the softness in biopharma due to the timing and mainly due to projects around ELISA kits in particular, it was unfortunate. It will bounce back; I think we are okay there.

Antibodies, I'd be more worried if we saw antibodies crumbling or something. But antibodies are strong, stronger than ever; we are doing great.

The website is working. We are growing in every region.

And then also Europe; Europe is steady as she goes. It has been as good as last quarter and we see better looking forward, with an acceleration in our instrument businesses which are getting bigger and bigger, and getting more critical mass over in these areas where we're staffed up a little bit. We have some great leadership now in Europe around protein platforms division and doing the same now in Asia.

And lastly Japan. Been over two years since I can tell you we were at a flat in Japan, we've been negative. And a strong negative. We're hoping that is coming back strong.

So overall, a mixed bag. Would have liked to have seen a 4% or 5% overall net, but we didn't get that. I think, as Jim commented on earlier, year to date we are right where we said we would be because were so strong last quarter. And maybe that's still a little bit in this quarter, some of that. We've always said that this year we hope to end somewhat a little bit better than last year and that. But we're on our thesis.

Again, lastly I will say is we are not in a quarter-to-quarter gain here. We have made massive changes in this Company. We have more than doubled in headcount; we have almost doubled in size. We've quadrupled in sites globally.

That's a lot of change and it's changes you aren't going to see in one or two years. We're investing for the long term. If you're going to look to a five-year ride with us, you're going to see the results coming and coming and coming.

And don't forget, it's just August, it's just five, six months away we had a 50% grower which would add 2 full points of organic growth. ACD is doing absolutely fantastic for us. And hopefully a year after or two after that, we will see a split coming on line if things keep going the way that they do. With the contracts we have in place, we will be able to capitalize on that arrangement. So anyway, it is not a one-quarter gain and we're okay.

That makes sense. And then one follow-up. For academic customers here in the US, low-single-digit seems about in line with what you guys usually do. Have you seen any changes in spending or sentiment since the election? Or does it seem like it's still business as usual?

It is business as usual. I would say there's a little bit of a softness of things on biopharma for the end of the year. We will call it Trump policy-itis, whatever. But for the most part we expected maybe a little worse there. It is steady as you go.

I attribute that to really our strong teams, we have got a great commercial engine now, the website is really good. Fisher had a better quarter than the previous one. Those all play to, I think, a better ending on the academic side.

Great, thank you.

Amanda Murphy, William Blair.

Hi, it's Aurko in for Amanda. Just a quick follow-up question on ACD. Now that you are about two quarters in, you seem really happy with it. What are some of the things that you would think you can improve? And ow do you expect it [behave in] this dilution as it moves over the next couple of quarters? And the second question is, can you walk us through a bit more of how pricing pressure of drugs would impact your business?

The first question, and you're not coming in real clear, but I'm hearing you ask about ACD, if you see things we can improve or the dilution going forward?

Yes, both of those.

We have an earn-out with them and it goes through the calendar year. At over 50% growth, our strategy in the short term is to stay out of their way. They are doing fantastic. We are working on commercially working together both in Asia, as well as Europe. The teams are getting closer to starting to cross-sell. Seems there is really a no risk to the earn-out potential.

For the most part, they're doing great. They actually were ahead of plan on top and bottom line this quarter. We are involved, obviously, since we bought them. But we're commercially trying to stay out of the way, more or less, in terms of how they want to run their business for the short term while they're working on their earn-out. On the dilution, I will pass that off to Jim here.

Yes, I'd say on the dilution aspect of it is that we would expect a same level of dilution, at least in the near term, that we saw most recently this quarter. As we start to close out the fiscal year, that dilution will become less and less, we believe, in FY18. We still have a trajectory to be profitable.

You got to keep in mind that despite, with their fast growth, where about some of that new growth is coming from now, is in the diagnostics space. Up until now they've been really focused on the research only. But with fair amount signed up market in the diagnostics, in diagnostic pathology, they continue to invest in commercial resources to capture that market.

And remember, those solutions are already approved at [Lica] and they're moving forward and selling. It's going very, very well.

I also mentioned the publication count for ACD technology, this RNA in situ had a relation now of well over 600. It is screaming. The adoption pick-up, which is something you want to watch, and this is so far looking very, very favorable. So the open question is, how long can they last at 50% growth and we are thinking for many, many quarters yet. So that is the goal.

Got it. And then the other question, which is a quick follow-up from an earlier comment, how would you talk about how pricing pressure would impact your business in the drug space?

We are pretty far down the food chain when it comes to the pricing on drugs. I guess overall I'm pretty hopeful. I think this administration, I think, is going to do the right thing hopefully. I think corporate tax rates and tax holidays are going to help overall investment in spending, I think. All those things are going to help healthcare, I think, in our industry. I don't foresee any real reaction or issue with us in terms of drug pricing. We're very much still heavily on the research side as a Company.

Got it, thank you.

Matt Hewitt Craig-Hallum Capital Group.

Hi, this is Charlie on for Matt. Thanks for taking our questions. First, can you discuss how to the cross-selling efforts are going? We talked a lot about it last quarter, I don't know if we talked about it too much here.

I think it seems to be lopsided more towards instruments that towards consumables. It just so happens that you have a highly trained professionals selling assays consumables that may be masters or PhD people. They know a lot how the solutions work and how to use the instruments. So that really can hand off leads and they can actually work.

It isn't quite the same in a side when you got real assay experts, real instrument experts in the field understanding a lot about assays and reagents. It is a little bit lopsided, that's why we need to focus on this. I think it is still early, but we're seeing really good benefits, especially in Europe. I think some of the strong results we've seen in Europe, it's coming from just exactly that.

The teams are smaller and more closer together, in some cases sharing even leadership. And it's working quite well. We're not trying to merge divisions like within like the Danaher or Thermo or 3M or something. This is still a pretty little Company.

We're not talking large teams. We have probably 150 or so people globally, commercially now 50 or so in Europe, less than that in the US because of the Fisher situation. It's not hard to get them working together and playing together. I am very bullish on it, actually.

I think we have yet to see the big benefits in Asia; I think that's still coming. And as we build out teams in more and more cities in China and we build out the assets there, it is going to be really good. And I wouldn't even count ACD out of that. There's going to be a lot of ACD to come too in the coming years.

Okay, thank you. That is helpful. And then the 21st Century Cures Act, are we seeing any dollars starting to flow out of that? Or is that still in the works?

I hear it is still in the works. I would say we have not seen any yet.

Okay, thank you. That's it for me.

Paul Knight, Janney Montgomery Scott.

Hello, good morning, this is Catalina [Ibanez-Ventoso] on for Paul Knight. I was wondering if you could be a little more specific on the initial activities that can be attributed to the outstanding performance of ACD.

The performance of ACD, but what about -- what kind of performance?

The initial activities in this franchise that has led to the outstanding performance of them.

I mentioned earlier 600 publications is an awful lot for a young technology Company. It is really growing; it is virtually a little bit everywhere. It is in a lot of clinical settings as well. There is a research side as well as the diagnostics side. So, with Lica all signed up and selling solutions that leverages their large sales force.

This group also has a fairly decent size sales force, 20, 30 reps, in that range and we're just started to build it out in Europe, as I mentioned. There is a commercial model to this where even though it is a reagent type of solution, it won't get to the 50%-plus op margin we see in our protein business because there is commercial sales that are needed. You need to sell the solution.

It is all about take-up of pathologists moving from an IAC solution to more of a genomic version. And it is going really well, so we test it and we talk about it. We are measuring. And what is that true addressable market? We think it is $1 billion-plus. There is a lot of pathology out there. The take-up is pretty fast and the results are outstanding.

Another thing I will let you know is there's a lot of smaller labs. A lot of places doing IAC and doctors and pathologists and they're [having] the leverage and outsource a lot of current research, the experiments or the testing they want done. They may, in many cases, be waiting a week or two weeks for results. That is without automation. With automation it could be even worse.

This is a solution that works on current automation. You get the results very quickly. You, as a pathologist, can even work on a scope, on a slide, in your office and get results. It works that well.

That is also helping pick things go quicker. There's a lot of adoption because it is after solutions very accurate. There is roughly 30% of all IAC solutions are missing antibodies they need to be flow-specific. We don't know for sure that you're finding what you're looking for. There just this a gap in the antibody portfolio that fills in, at least they're starting, right? A good 30% addressable part of the market.

Thanks, that was helpful. Could you also elaborate more on your partnership with your field medical which have never take which is already a commercial product? What additional products do they have under development which are the receive some areas that they are focused on? Curious on that.

There is a second solution that is very closely tied to this, the [Neffercheck], it's called [Nefferclear], which is in clinicals right now. But it is working. We're looking at different solutions for different reagents that we have. We have a pipeline we can't talk about.

Okay, I understand. Thank you.

There is more than one. There are at least two we are looking at right now. And I should point out too, that it took -- it was 150-plus different reagent screening that this team, which is really good at this stuff, had done before that they found what they were looking for. Really good specificity.

Great.

With no further questions in the queue, I would like to turn it back over to Mr. Kummeth for any additional or closing remarks.

All right, thanks, everyone, for attending and definitely we are on our path this year. We look forward to next quarter and giving you hopefully terrific results. Talk to then. Thank you.

Ladies and gentlemen, that does conclude today's conference. Thank you all for your participation and have a wonderful day.