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Quotient Ltd (NASDAQ:QTNT)
Q2 2020 Earnings Call
Nov 4, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Quotient Ltd. Second Quarter Fiscal Year 2020 Financial Results Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instruction].

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

Chris Lindop -- Chief Financial Officer

Thank you, Melissa and good morning everyone and welcome to Quotient's earnings conference call for our second fiscal quarter ended September 30, 2019. Joining me today is Franz Walt, Chief Executive Officer of Quotient. Today's conference call is being webcast live through an audio webcast and a replay of the conference call will be available later today at www.quotientbd.com.

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

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

Franz Walt -- Chief Executive Officer

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

In October, we also successfully completed our first U.S. field trial for the initial SDS panel. This is important because the initial SDS menu and the MosaiQ device are subject to a 510(k) approval. This means we can expect a faster review process than a traditional BLA, which should accelerate the time required to having a proved product in the hands of our customers in the U.S. for evaluation.

If all goes well, this will be during the first half of this calendar year.

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

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

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

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

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

From hereon, our development efforts will be focused on the expanded SDS menu, which will include seven additional tests on our molecular panels, which ultimately include up to between 8 and 10 tests. We expect to publish performance data on each of these menus in the near future, so please stay tuned. Everything now is about menu expansion and market access, and this quarter's performance on the key milestones, which we reported, reinforces my confidence on both fronts. This combination of products will deliver even greater productivity and cost savings to customers, and unlock significant profit expansion for Quotient.

Turning to the conventional reagent Alba by Quotient business, we had another outstanding quarter, recognizing product sales of $7.1 million, a record for our second quarter. In the quarter, gross margin on product sales also trended positively over the prior year. Increased volume, pricing, and ongoing operational improvements, following our move to the new state-of-the-art Allan Robb campus late last fiscal year, contributed to this positive trend.

This time last year, we were in the middle of the transition period, and we were incurring costs of both our previous manufacturing facility, as well as the cost of the new campus. Milestone payments earned from the development of certain rare antisera reagents for our key OEM customer, also contributed $750,000 of our non-product revenues in the quarter.

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

Chris Lindop -- Chief Financial Officer

Thanks Franz. I'm happy to report that our second quarter product sales of $7.1 million increased by 14% from last year's second quarter and exceeding our original guidance range of $6.3 million to $6.7 million. In the first half, product sales were $15.3 million, an increase of 8% from $14.1 million in the first half of last fiscal year.

The increase in product sales is attributable to both OEM customers and to direct and distribution sales. As Franz as noted, total revenue included other revenues of $750,000, earned in connection with the development and approval for sale in the U.S. of certain certain rare antisera for our largest OEM customer, for which there was no comparable amount in the prior year.

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

Shifts in the timing of red cell reagent ordering can cause quarter-to-quarter variability year-over-year, which tend to average out over a longer comparative period. Gross profit on product sales in the quarter of $3.1 million increased from $1.7 million last year. In the quarter, gross profit was impacted positively by topline growth, yield, mix and pricing increases. In addition, last year we incurred approximately $200,000 of duplicate facility costs in the second quarter, related to the company's former manufacturing site.

The gross margin on product sales was 44.1% compared to 27.1% last year. The relocation to the new BioCampus; the Allan Robb BioCampus, is an investment in future growth and efficiency opportunities, and in the short term gross margins have been negatively impacted by the higher cost base of the facility, which in the quarter included $480,000 of incremental non-cash expenses, offset in part by increased volumes, improved yields and contracted price increases. The transition of manufacturing to the ARC was completed in the fourth quarter of last year.

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

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

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

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

Now moving to guidance, we are confirming previously provided guidance ranges for product revenues of between $30 million and $31 million we have reduced our estimated operating loss for fiscal year 2020 to between $75 million and $80 million, estimated operating losses included approximately $18.5 million of non-cash expenses, such as depreciation, amortization and stock compensation.

Capital expenditures are now expected to be between $5 million and $7 million for the full fiscal year. Other revenue estimates for the full year of $1 million include $250,000 of product development revenue, that is contingent upon achievement of regulatory approval for certain products under development and as such, the receipt of the remaining portion of these milestone payments involves risks and uncertainties. For our third fiscal quarter, we expect product sales in the range of $7.1 million to $7.5 million, compared with $6.7 million in the third quarter of fiscal 2019.

Now let me turn the call back to Franz.

Franz Walt -- Chief Executive Officer

Thank you very much, Chris. So moving now to the future and to what you can expect over the next 12 month. As I have noted, our focus will be on menu expansion and commercialization. Of course menu availability will be achieved in the near term by the submission of our expanded IH microarray following our European and U.S. field trials, which we plan to start first in Europe later this year. This product, when combined with the initial SDS microarray, will provide a highly differentiated and value-added offering to our customers. As I have mentioned, our near-term menu expansion highlights will include the completion of an independent evaluation of our molecular testing platform by a blood central [Phonetic] laboratory. The purpose of this exercise is to both obtain customer usability data, and also to permit a customer to use and understand the power of the platform in advance of commercial availability.

Today molecular testing requires the pooling of at least 16 samples of donated blood, due to the price charged for blood test and the time involved in each testing cycle. When one of these pools test positive for a targeted disease state, the pool must be unpicked, so to speak, retesting each individual donation to identify the impact of the donor. Our mission is for all the required molecular tests to be loaded on a single, low-cost microarray, so that in a continuous uninterrupted automated workflow, each the nation and be tested individually, not pool as they are at the present time, allowing blood centers to save time and money again today's standard of testing. This is only possible through the unique advances we have made in the last five years in microarray based molecular multiplexing.

Also with respect to menu expansion later this year we plan to present the first performance data for our expanded SDS menu, which will include seven additional tests, only formulas [Phonetic] required around the world to ensure blood safety.

We plan to complete V&V for expanded SDS in the first quarter of 2020, paving the way for field trials and subsequent submission later that year. This product will represent a powerful opportunity for customers already using our expanded IH and initial SDS menu, by simply replacing the initial SDS cassette with the expanded SDS menu, they will then be able to retire a third testing platform, which is used today exclusively for serological testing. Our customers will get all the donor testing results they need for immunohematology and serologic per serology in a single automated workflow, using one technology, providing two different testing modalities. Huge efficiency and savings for customers, and a significant growth in revenue per quarter.

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

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

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

With that, I'd like to thank all our employees and partners for their tremendous contribution toward the continued success of Quotient. I will now ask the operator to begin the Q&A session.

Questions and Answers:

Operator

[Operator Instructions]. Our first question comes from the line of Brandon Couillard with Jefferies. Please proceed with your question.

Brandon Couillard -- Jefferies -- Analyst

Hi, thanks. Good morning.

Chris Lindop -- Chief Financial Officer

Good morning, Brandon.

Brandon Couillard -- Jefferies -- Analyst

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

Franz Walt -- Chief Executive Officer

So I think molecular testing is very much on the radar of our customers, because they are obliged by law to do all three types of testing, IH and SDS and molecular, so they can't go without it. I think initially, they will be extremely happy getting the first combination, because there is a significant reduction of complexity. And it will also replace this manual work. Then, for us the upside, namely the expanded SDS, and then the cherry on the top, the MDS application.

So MDS for us works on the bench, that we know. Now we would like to give it to our customers to do clinical trials and study -- with the study protocols, to prove it's scalable and it works in the hands of a third party, not only on our bench. The plan is to execute this trial in nothing -- but if everything goes right, it also depends on customer availability, but the current plan is now for November, and then we will shortly thereafter publish the data, and its head-to-head comparison versus the Cobas from Roche. So we are trying to benchmark us here against the state-of-the-art application.

Chris Lindop -- Chief Financial Officer

And the menu that we will focus on is what they call the Big 3; HIV, HPV and HCV.

Brandon Couillard -- Jefferies -- Analyst

Very good. And then just on the other seven SDS markers that comprise the 2.O expanded SDS microarray. Talking about the relative difficulty of dealing with those other seven markers compared to syphilis and CMV, whether they are a little bit more complicated to work with at all or not, and just your level of confidence in terms of the performance of the other seven? Thanks.

Franz Walt -- Chief Executive Officer

Yeah. So we made already quite some progress. And as I indicated in my prepared remarks before, we will show some data as soon as they are available for disclosure and we are very confident, otherwise we wouldn't make this statement. I mean every test is difficult in itself, unless it's complete, if you don't know what kind of hurdles you can expect. But so far we have taken all of them. For me in a simplified manner, I think the IH which was the biggest block to take, it has kind of proven that printing red blood cells on glass -- on a microarray is more difficult than straightforward chemistry.

So IH2 I think was the most difficult one. It works for immunoassays that we have proven with the two -- with the SDS panel, with CMV and syphilis and be high -- very confident that we can scale it up to [Indecipherable].

Brandon Couillard -- Jefferies -- Analyst

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

Franz Walt -- Chief Executive Officer

Yeah, I think it will be another -- it depends when the customers are starting the hypercare launch. But I think between another six to nine months, until everything is completed, the initial feedback from the hypercare sites in Europe are very positive, and it's all about convenience. I recall for instance that the first site mentioned, oh it takes only two days to get everything up and running and everybody trained, and it takes like seven days with the competitor. Then, but with the competitor, if you have IH2 and SDS, we have more than one platform and manual testing. So that of course progressively contributes to the length and complexity of doing the same with alternative solutions.

So it's all about convenience, because we are always saying, we are not in the business of inventing new tests. We're in the business of providing the tests which are required in a better package. Workflow optimization and workflow optimization provides then an economic benefit, that's savings of course.

So positive feedback, but all about convenience. So the positioning is correct. They are not talking about the tests, because the tests are performing, they are talking about how the workflow has improved, and even if we talk to customers who are now lining up, also here in the U.S. one made the comment to me; well, I'm really looking forward and curious to see what MosaiQ can do to my workflow improvement. So that's -- I think we can actively [Phonetic] confirm. But we also got positive feedback from the U.S. field trial. But these are not hypercare sites, but field trial sites for SDS, and I think one feedback I remember, because I really liked it, -- it's the best instrument, I have seen in 27 years. So that means in other words, they have not seen any innovation whatsoever. And 27 years is a long time, like forever.

So I think they are really happy that finally a small company comes and tries to make their life easier, and all the comments we hear are about convenience, ease of use, workflow improvement. They are surprised at how comprehensive its going to be when we talk about the expanded IH2 [Indecipherable] that you can do everything in one go, and we don't have to do manual testing, and if that's really possible, I think it will be not affordable, but for us its approximately the same cost that [Indecipherable] many sites from microarray. So positive feedback.

Brandon Couillard -- Jefferies -- Analyst

Very good. Thank you. ***13***

Franz Walt -- Chief Executive Officer

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

Operator

Thank you. Our next question comes from the line of Joshua Jennings with Cowen. Please proceed with your question.

Joshua Jennings -- Cowen & Company -- Analyst

Hi, good morning.

Chris Lindop -- Chief Financial Officer

Good morning, Josh.

Franz Walt -- Chief Executive Officer

Good morning.

Joshua Jennings -- Cowen & Company -- Analyst

Thanks. Just to follow up on your [Indecipherable] as you get tremendous feedback from hypercare sites and field trial sites. AABB was just held few weeks back and can you talk just about the funnel that's developing and that you talked historically about a number of potential tenders that you could be involved in and any incremental color, just in terms of how that demand funnel is progressing?

Franz Walt -- Chief Executive Officer

On the AABB, we had like 80 customers attending demonstrations and if you recollect, the two customers are accounting for over 90% of the business in the U.S. So these were employees, of course with these two customers and some smaller ones. So really relevant presentation. And my take is in Europe, the tender processes are more rigorous, yeah and in the U.S., there is more flexibility. So given the short regulatory approval times in Europe, we will have the portfolio first in Europe, but a slower take-up. In the U.S., because it takes longer to get through the BLAs processes, we will have the portfolio maybe a year later than in Europe, but the take-up will be most likely be deeper and faster, because there is more flexibility in how organized the process is for our customers.

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

So we have not lost any tenders, because there were no tenders in the last few months. So now it all depends how long will it take, until we have IH2 approved. SDS is still in the approval process, based on the questions we have received, there is no showstopper there, it's just having the nerves and kicking it out. But we need the IH2 well, because this is the combination. In pending, when this is available, we will have more transparency on what tenders are we now eligible to, because this can be a few months more or less, its very difficult to predict. But we have transparency. We are planning for that and we are using now the hypercare launch phase actually, as a pre-tender phase to give the customers the opportunity to play with the technology, become familiar and also to write [Phonetic] the vendor specifications later on, in a way that we have a chance to win. So I think we are not losing any time here. That's something we would need to do anyhow afterward.

Joshua Jennings -- Cowen & Company -- Analyst

And the other two...

Chris Lindop -- Chief Financial Officer

there is a tremendous amount of customer awareness. Its probably 100% in the U.S. and about 95% in Europe, that have received detailed briefings of this product and have interest expressed interest.

Franz Walt -- Chief Executive Officer

Yeah, and I have seen that in the industry, that the product is not yet in the market, has like weighted average over 95% awareness is the development.

Joshua Jennings -- Cowen & Company -- Analyst

Great, that's helpful. I just wanted to follow-up from the press release about the raw material supply challenge with the expanded IH2 test or microarray. I mean just two part question, one, I mean can you just give any more detail in terms of how this is solved in why [Speech Overlap]? And then two, just to be clear that this did not have any impact on the results of V&V testing?

Chris Lindop -- Chief Financial Officer

Yeah, it was a change in process of a [Speech Overlap] this could happen in any supply chain and we obviously detect its quality issues with the supply on our receipt, and we then went back in and worked with a supplier to revalidate their processes, to make sure that we have reliable supply going forward. It just takes time. There is a business cycle that takes through and we're talking about weeks, not months, but it obviously delayed our ability to start the V&V, and it didn't because...

Franz Walt -- Chief Executive Officer

The good thing is, our internal policy system ticks down, and we didn't do and proceed with faulty material, and we never had problems with the supplier. We have to say here, it always great, but they had a change, a change in process, didn't tell us about it. We picked it up, we went back and now of course it's corrected. And the next batch was obtained.

Chris Lindop -- Chief Financial Officer

Yeah.

Joshua Jennings -- Cowen & Company -- Analyst

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

Franz Walt -- Chief Executive Officer

Yeah, so we have to work out the study protocols with the customers. We have to wait until the customer is ready to actually execute these field trials. And we believe there is a probability of even improved performance. Now before I go even further, I have to say the performance that we have today, we are absolutely confident that all we need -- and it will be competitive in the market. I mean you have like 22 tests instead of 10, so you have twice as much than everybody else. So replacing a lot of manual work. Normally, the quality of the results goes up because of blood pressure. You have to picture, if we do internal V&V study, we have to get the samples from the labs and a lot of the samples actually came from the U.S. and some of the samples were up to five days old, before we could actually do the testing. But in real life, they do testing immediately. So on the first day or maybe on second day latest, nobody waits for five days, and of course the quality of the testing you can do erodes with every additional day, and I think beyond five days, you cannot even test anymore.

So the pure fact, that the block is going to be fresh, should provide slightly higher results. Although the results we have of test [Phonetic]. Chris, if you want to add some additional color?

Chris Lindop -- Chief Financial Officer

Just that we'll likely do this in three sites in Europe and that the end will be measured in thousands, not hundreds. But we're absolutely confident that the size of the V&V was powered to give us statistically relevant results, and then just exactly what Franz said, fresher blood should give us better results and that -- what we saw between the initial V&V for the initial IH microarray and the field trial results, for the initial IH microarray, where you can go back and look at that historical information, you can see that [Speech Overlap].

Franz Walt -- Chief Executive Officer

And it's also an automated system. So you don't need skills like manual work. You should worry then about the ISO technician as capable of our internal people. No, because you just loaded and you walk away for eight hours and then you read the test results. So just because a different person is loading it, it should not with different results, that's in combination with fresh blood samples. I think makes us confident, and we showed this data to our customers, the ABB and the anecdotal response is fantastic. They're thrilled.

Joshua Jennings -- Cowen & Company -- Analyst

Okay, thanks for the answers.

Chris Lindop -- Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Sung Ji Nam with BTIG. Please proceed with your question.

Sung Ji Nam -- BTIG -- Analyst

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

Franz Walt -- Chief Executive Officer

You need the CE mark for officially participating in the tender. So we need the IH2 CE Mark, IH CE Mark, and the SDS-I CE Mark. So this is the hypercare phase, the intention is really to make the customer familiar with the solution, with the system we have, also for us to get feedback, and actually, they are already now, trying out the latest panel. So they are not -- the hypercare sites are working right now at this very moment with the initial Serological Disease Screening microarray. But this one is not yet approved, so they cannot be used the tests for -- as a date of record. But they can use it for research only. But that's all we want, because we would like to get feedback on the latest products and development, so we can incorporate any potential feedback in the late stage of the developing process. So it's really -- it's like a soft launch. It's like -- it's a pre-marketing, it's a kind of -- teasing the customer to adopt this technology. And if we would wait until everything is CE marked, we would lose valuable months, because the customer would need to go through this process, and conclude for himself, that this is the right technology to adopt anyhow. So I think we are trying to achieve two things, to shorten the adoption afterwards and to get feedback for our microarrays, even if they are not yet CE marked. But for the official trial, you have to have CE Marked product, for the official and you have to have CE Mark.

Sung Ji Nam -- BTIG -- Analyst

Okay, great. And then just for -- I'm not sure if I missed this, but for the initial SDS array that's been submitted for CE Mark, sounds like from the questions you're getting, everything is moving along as expected. Did you guys update us on potential timing there? What you're thinking? Do you think that could happen before the...

Franz Walt -- Chief Executive Officer

But we always said, up to nine months and to be on the safe side and for a couple of other reasons, things which are changing in the regulatory processes in Europe. But it looks like it's much faster than that. The questions we got on the initial IH, at that phase were of different nature than the questions we've got now. Because nothing to do with testing anymore, more with administrative type of questions. And we answered the last question, so we are just waiting for their response.

Chris Lindop -- Chief Financial Officer

And then couple of fact points on that, we submitted right at the end of June 29th, June 30th and our first CE Mark, which included device manufacturing facility and a more complicated IH-I, took seven months. So we are in that range from zero to seven and as we say we're -- based on the questions we're hearing, we're hopeful that...

Franz Walt -- Chief Executive Officer

But I think it would not be smart, if we give -- we of course, have an anticipation, that it will not be smart to reveal this, otherwise the authorities may teach us a lesson, I think it's -- they know what they're doing, they need assignments. We are here to help, to understand the product, and answer the question. But everything is progressing as planned.

Sung Ji Nam -- BTIG -- Analyst

Great. That's all for me. Thank you.

Franz Walt -- Chief Executive Officer

Thank you.

Operator

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

Franz Walt -- Chief Executive Officer

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

Operator

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

Duration: 41 minutes

Call participants:

Chris Lindop -- Chief Financial Officer

Franz Walt -- Chief Executive Officer

Brandon Couillard -- Jefferies -- Analyst

Joshua Jennings -- Cowen & Company -- Analyst

Sung Ji Nam -- BTIG -- Analyst

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