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Oxford Immunotec Global PLC (NASDAQ:OXFD)
Q4 2019 Earnings Call
Mar 2, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen and welcome to the Oxford Immunotec's Fourth Quarter and Full Year 2019 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to turn the call over to Matt McLaughlin, Chief Financial Officer.

Matthew McLaughlin -- Chief Financial Officer

Good morning and thank you for joining us to review Oxford Immunotec's financial results for the fourth quarter and full year 2019. Before we begin I'd like to caution listeners that comments made and financial information provided during the conference call include certain statements that are estimates, forward-looking and or subject to various risks and uncertainties. This information reflects our current expectations, assumptions and currently available data, and are neither predictions nor guarantees of future events or performance.

Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with our business including those under the heading entitled Risk Factors in our Annual Report on Form 10-K for the year ended December 31st, 2019 to be filed shortly and our quarterly reports on Form 10-Q. The Company disclaims any obligation to update or revise any forward-looking statements except as required by applicable law.

During the call, we'll also refer to certain financial information on a non-GAAP basis. We believe that non-GAAP financial measures taken in conjunction with GAAP financial measures provide useful information for both us and investors to evaluate the Company's performance. These include constant currency comparisons, pro forma revenue, gross margin, loss from continuing operations, EBITDA and adjusted EBITDA. Reconciliations between certain GAAP and non-GAAP results, such as EBITDA and adjusted EBITDA, are presented in the tables accompanying our earnings release, which can be found in the Investor Relations section of our website.

Further, as a reminder, in early November 2018, we completed the sale of our US Laboratory Services business to Quest Diagnostics. As such, the now divested US Laboratory Services business is shown as discontinued operations in the historical financials in our press release and forthcoming Form 10-K.

The discussion of our results and business update on today's call will be focused on our continuing operations and to assist investors in understanding the underlying performance of the Company's continuing operations, we will be comparing to certain unaudited pro forma consolidated information for the prior year periods.

This information, reflected the Company's estimated revenue and cost of revenue as of the closing date of the sale of our US Laboratory Services business to Quest had occurred prior to the respective periods. This information appears supplemental tables in our Q4 earnings press release. The pro forma adjustments in these tables were based on the information available at the time and assumptions that management believe were factually supportable and reasonable.

With that, it's my pleasure to turn the call over to Oxford Immunotec's Chief Executive Officer, Peter Wrighton-Smith.

Peter Wrighton-Smith -- Chief Executive Officer and Director

Good morning. On today's call, I'll provide a brief overview of our operating performance for the fourth quarter and full year 2019, before turning to an update on our business and our strategic priorities. Matt will than take over to discuss our financials before handing the call back to me to provide our 2020 financial guidance. We'll then open up the lines to take your questions.

For the fourth quarter 2019, we posted revenues at $18.1 million, above the top end of our expectations for the quarter. Total Company revenue grew 14% over the fourth quarter of 2018 on a pro forma basis. US revenue was $5.1 million. As expected, US revenue was slightly down compared to pro forma revenues for the same period in 2018, given the changed seasonality of the business.

You will recall that US pro forma growth was exceptionally strong in the first half, and we knew that would normalize in the second half. For the full year, the US grew 16% pro forma excluding blood donor screening versus 2018. Europe and rest of world revenues of $2.8 million were up 14% compared to the fourth quarter of last year or 16% on a constant currency basis. Highlights from the quarter were continued strong growth in our UK ODL business and good growth in France.

Asia revenues were $10.2 million for the fourth quarter of 2019, up 26% from the same period last year or 22% on a constant currency basis. China was particularly strong as we started with the advantages of going more direct into that marketplace and selling prices into that geography, including a pricing adjustment that related to Q3 shipments getting caught up with the new contractual price confirmed upon signing of the contract with Shanghai Pharmaceuticals in Q4.

For the full year 2019, our global revenues were $73.7 million, above the expectations we had at the beginning of the year. This represents year-over-year growth of approximately 12% of the pro forma 2018 revenues and growth of 15% when excluding blood donor screening revenues from the 2018 comparison. We saw approximately 15% growth in each of our geographical regions for the year, which demonstrates the broad-based growth drivers of the business as we displaced the skin test and convert customers to our superior products around the world.

We sold close to 4 million tests during the year, setting a new high watermark for TB volumes and bringing the cumulative number of tests we have now sold to nearly 20 million. In addition to our continued focus on driving revenue growth, we've also been very pleased with the progress in the Company's profitability metrics. We continued our track record of gross margin expansion coming in at 73.8% for the year, growing about 590 basis points over the pro forma gross margin in 2018.

In the year we were successfully repurposing the Company's spending around our new more focused business model bringing down operating expenditure. This opex reduction coupled with the continued growth in revenues and gross margins drove the Company to adjusted EBITDA of breakeven for the second half of the year.

Turning now to our key operating priorities and the business update. Our strategy is to grow our TB revenues across three vectors. Firstly, by converting from the skin test. The market is only about 20% converted from the skin test or IGRA technology. We continue to drive this conversion aided by guidelines that are becoming ever more favorable to IGRA.

Secondly, from overall market growth, our TB testing is continuing to grow as the world seeks to get control of the TB epidemic. This is being led by bodies such as the World Health Organization whose new 2018 latent TB guidelines should clear evidence for the benefit of systematic testing and treatment of latent TB and support IGRA testing globally for at risk populations.

Lastly, by taking share from IGRA competitors, we currently have about 25% of the IGRA markets, although we have shown that we can become a leading brand in several countries on the basis of differentiated performance and simplified analytical workflow. We are now able to strengthen our offer through providing automation and improved economics to labs.

Our key initiatives to support this strategy are to deliver automation to our customers globally, to improve economics for customers who choose these for TB, and thirdly to expand our sales and marketing teams and also use commercial partnership to add to our voice and reach in the market. Lastly, recognizing that more and more countries are or will establish screening programs, we need to continue to expand our geographical coverage to be able to take advantage of this market growth.

Commenting on each of these in turn, beginning with automation. Automating our tests has been a significant focus of our R&D effort and dollars over the past few years, and has culminated in a new technology called T-Cell Select. T-Cell Select is a platform technology which allows white blood cells to be purified using magnetic beads without impacting their function in a live cell test like ours. Cell separation is the key aspect of our technology and one that differentiates us from other IGRAs.

With T-Cell Select, this new process results in an exceptionally pure sample. Consequently, blood samples collected in the single standard blood tube can now be stored for up to 54 hours of room temperature before used in the test, significant increase over the prior 32 hour window. This further extends our unrivaled simplicity and logistics advantages for customers.

Perhaps more importantly, by using our new T-Cell Select accessory kit for the first time, customers have an automated solution for T-SPOT.TB. The use of automation will simplify workflow, improve throughput, and reduce hands-on time for labs performing T-SPOT.TB. We believe, it enables our existing customers to grow and enables us to win customers who've always wanted our test performance, for whom workflow was previously was a challenge.

For example, we recently won a significant tender from an opinion leading French Hospital to replace their prior IGRA with T-SPOT.TB running on automated platform. Also in installation and onsite qualification of its automation, I'm pleased to report this site has just gone live with T-SPOT.TB and this is in the process of switching volume over from its prior test.

We also started shipping products and placing automation with other customers in our Europe and rest of the world region and we have a very strong pipeline of interested customers. There is a regulatory process to go through to bring this product into additional jurisdictions, we are well into our US Studies for FDA approval and I'll report more on the anticipated launch timings once we have submitted and have received comments back from the agency.

Moving to improving economics for our customers, labs are under increasing financial pressure and is therefore, it is part of our strategy to constantly improve economics for our customers. In the US, the PAMA legislation is up ended pricing for laboratory testing. Under this new regime, reimbursement from most test is declining. However, T-SPOT.TB has a stable reimbursement level under a reimbursement code that is unique to our test. As we are able to make automation available in the US, we believe this will enable customers to improve their economics. More generally automation by reducing labor requirements makes our test more attractive for them to run.

Outside of automation, we can improve the economics for our customers, if we can increase the efficiency of our go-to-market channel and reduce the markups between us and our end customer. To that end, our recent transition of business model in China gives us more pricing flexibility in what is a large attractive and growing market for TB testing. We're also expanding the number of wholesalers we use in Japan, and which allows our key end customers to use their favorite vendor.

Lastly, as it relates to our UK ODL service, we're already part of the UK National Health Services logistics network to enable hospital to send us sample seamlessly, as though they were sending to any other part of the NHS. We are now working to become sink to the NHS's centralized laboratory information system. So the customers can order and receive results at the click of a button, reducing labor and cost to them in administrative tasks.

Moving now to sales and marketing and commercial partnerships. As we previously communicated a major focus of our recent sales and marketing expansion has been in Asia. Especially in China, where we are in transition to a new business model, away from our prior exclusive distribution partner to a model, whereby we take more direct control over sales, promotional and market development activities. This transition has been progressing well. We have pertained the vast majority of our end user customers through the transition, pricing is coming in line with our estimates, but it will still take some time for revenue mix to stabilize and therefore for us to know where pricing finally settles out.

The operational side of things are running smoothly with importation by Shanghai Pharmaceuticals and subsequent onward contracting and shipment to end user customers working well. Obviously, we can't talk about China, without also talking about the coronavirus outbreak. The outbreak has several effects in our business, which I'll take in turn.

Most importantly, our Chinese staff are all currently fit and healthy. However, as with much of the population, they're under some travel restrictions and mostly working from home, limiting their ability for example to make sales calls to grow our business there. Equally patients are largely staying at home and avoiding hospitals unless absolutely necessary and hospitals themselves are prioritizing coronavirus over other diseases.

Consequently, demand for testing is significantly lower than it would be under normal circumstances. We don't purchase anymore materials from China in our manufacturing and in polling our key suppliers they also do not rely on Chinese components. Moreover, we've been carrying a healthy stock of raw materials as part of our Brexit risk mitigation consequently, we believe there is low risk in our supply chain for the time being from the disruption to normal business activity in China.

Another item in China that we've been working through with the renewal of our registration. China requires that you reregister your product every five years. Applications must be submitted six months before exploration, although we timely submitted our renewal application approximately eight months prior to expiration, the renewal was not issued prior to the expiration of our license on December 11th, 2019. The registration renewal was delayed due to the national products National Medical Products Association or NMPA had scheduled an audit of our manufacturing facility, which they wanted to complete before signing off on the registration.

We now have the findings from the audit, which went well and the NMPA have not indicated that they have any further questions for us. We therefore believe that we've cleared all the substantive steps to obtaining reregistration and then therefore close to receiving it. However, we're also told the resources that within the NMPA have been diverted to prioritize coronavirus matters and hence they're somewhat distracted from and delayed in normal activity.

We currently have adequate stock in the market to meet demand for the time being. However, we will need to get registration in a timely way in order for us to be able to continue to serve the Chinese market with our interruption. As an added protection against delays, we're also shipping some more kits manufactured before the 11th, December to China. This will give us additional buffer stock in the market. I'll comment a little later on how these things impact our outlook for the year when I talk to revenue guidance for Q1 and the full year.

Turning to commercial partnerships. We continue to focus on the success of our relationship with Quest, who is a key partner for the Company in the US. As you know, a principal rationale for this transaction with Quest was a significantly increase the reach in competitiveness of T-SPOT.TB in the US market. We're now seeing this strategy bearing fruit. Quest continues to make progress on implementation, expanding availability of T-SPOT.TB through the commercial team and their joint venture network. T-SPOT.TB is now available in over 1400 patients service centers nationally, and growing overtime. I'm also pleased to report the Quest has started running T-SPOT.TB in their Chantilly laboratory to improve capacity and access to testing.

As a result, our sales growth request is increasingly coming from new ordering providers, primarily in physician offices. By the end of 2019, Quest has added over 20,000 new prescribers of T-SPOT.TB. We continue to collaborate well together, most recently on an initiative to drive IGRA usage in rheumatologists with the implementation of a rheumatology panel that includes T-SPOT.TB. And Quest leading the T-SPOT.TB and providers with immunocompromised patients. For all these reasons, we remain highly encouraged by the way the relationship with Quest is progressing and continue to expect it to result in further expanding growth opportunities.

We also have an important commercial partnership in Russia, which is generated strong growth for us in 2019, however we feel the market opportunity in Russia is significant, and there's a lot of headroom is still to grow there. Consequently, we're continuing to work closely with our commercial partners and pulling through the further growth there.

Lastly, turning to our commitment to expand our geographical coverage. We are also very proud to have been included in the product catalog of the Global Drug Facility or GDF. The mission of GDF is to facilitate worldwide equitable access Tuberculosis medicines and diagnostics. As of May 2019, GDF had delivered more than $2 billion in TB medicines and diagnostics to 142 countries. And GDF is the largest global provider of quality assured TB medicines, diagnostics and laboratory supplies in the public sector. The GDF is housed and administered by the WHO within the SPOT.TB. partnership.

The objective of the GDF also shape the markets. The GDF works for suppliers, donors and other stakeholders to ensure the availability of quality assured and sustainably priced products that responds to market needs. Secondly, to facilitate access. GDF provides technical assistance to facilitate the introduction and uptake of innovative medicines and diagnostics and client countries.

And finally, to provide best in cost procurement services to ensure the countries have access to the quality assured products they need, when they need them. We have agreed to sell T-SPOT.TB and associated accessory regions, a pricing which we believe will facilitate uptake of our test even in countries with the least resources. Following completion of final contracts, we look forward to partnership with the GDF to shape the market, facilitate access to our tests, a news that procurement network to streamline our access to new markets. We see this is a big step to opening up a major new channels to additional countries in light of the inclusion of T-SPOT.TB in the World Health Organization's list of potential diagnostics, and the changing WHO guidance which now includes a role for our test even in the highest burden countries.

Outside of TB, the Company continues to pioneer new technology to measure the immune system. And we have a longer term aspiration to leverage our technology in other areas. One such area is to utilize our technology to enable personalized medicine for transplant recipients. To manage that risk from cytomegalovirus or CMV infection. Two significant new pieces of evidence from our T-SPOT.CMV test have recently been published, which demonstrate the clinical value of our technology in measuring the immune response to CMV.

So the Company has been busy this past year of setting the foundations for growth into 2020 and beyond. Those foundations are also built from operational improvements to continue to support the Company's growth and improve efficiency. For example, we are augmenting our facility footprint in the UK to increase capacity, also this year, we are rationalizing our two US sites into one site and at the same time establishing an automation R&D and technical support capability ahead of future US approval.

We are also embarking on a project to replace antiquated operating and financial system with a new ERP system, which will once implemented give us new analytics and bring multiple efficiencies to current processes. The Company has transformed through the course of 2019 and notwithstanding the coronavirus curve ball. We come into 2020 with strong momentum and our focus on investing to drive further growth in the Company.

I'll now hand it over to Matt, he'll give you some more detailed comments on our financials.

Matthew McLaughlin -- Chief Financial Officer

Thank you, Peter. Our full GAAP results as shown in our press release issued today show the comparison of our Q4, 2019 with the GAAP numbers of our continuing operations for Q4, 2018. For the reasons I've already explained, when giving year-over-year comparisons, I'll be referring to the pro forma numbers for Q4, 2018 instead. To enable the comparison on a like-for-like basis to our Q4, 2019 results. You can find these tables at the end of our press release after the presentation of the GAAP results.

Total revenues in the fourth quarter of $18.1 million were up 18% versus GAAP revenues in Q4, '18 and up 14% from pro forma revenues in Q4, 2018. Breaking down our reported revenues on a regional basis. US revenue was $5.1 million, representing 28% of our revenue. Europe and Rest of World revenue was $2.8 million, representing 15% of our revenue. In Asia, revenue was $10.2 million, representing 56% of our revenue.

Turning to volumes in our TB business. In the fourth quarter, we sold approximately 250,000 tests in the US via kit sales and over 550,000 tests in our OUS region, both via kit sales and test process in our UK ODL service business. Gross profit for the quarter of $14.2 million was up 26% from the pro forma gross profit in the prior year period. Overall gross margin for the quarter was 78.3%, an increase of about 710 basis points from the prior year period pro forma number.

Breaking down margins by product, service split, product gross margin was 79.4%, and service gross margin was 58.5%. We saw an expansion in product margins of 700 basis points as we continue to pull through benefits of larger batch sizes, greater automation of kit manufacturing, as well as the benefits from fixed costs being spread over higher volumes. We also continue to gain a tailwind from the roll off of royalties as we move to protecting our products through Company generated IP.

However, we also benefited from a one-time adjustment related to our transition to new pricing in China. We also saw a strengthening in service margins both as we have eliminated the drag on margins from the blood donor screening service, and as we continue to grow volumes in our UK service lab.

Turning to operating expenses. Operating expenses increased by $400,000 or 3% from the prior year period. Sales and marketing expenses increased to $7.3 million, primarily driven by growth in the APAC region and our transition to a more direct model in China. Research and development expenses increased to $2.7 million due to timing of both new and ongoing clinical studies, particularly those that support automation. General and administrative expenses decreased to $6.1 million. Operating expenses for the fourth quarter included approximately $940,000 of share-based compensation. Net loss for the fourth quarter of 2019 was $1.6 million compared to a pro forma net loss of $6.9 million in the fourth quarter of 2018.

EBITDA for the fourth quarter of 2019 was a $3.2 million loss. Adjusted EBITDA, which excludes share-based compensation, unrealized FX gains or losses and unusual items remained around breakeven with a $931,000 loss for the fourth quarter of 2019. Both EBITDA and adjusted EBITDA are non-GAAP measures.

Turning to the balance sheet, we finished the fourth quarter with a very healthy cash position of $181 million. During the quarter, we repurchased $3.7 million of our shares at an average price of approximately $15.54 under our share repurchase program. I would note that in the first quarter, we've already purchased significantly more shares than we did in Q4 and to-date, we have purchased $13 million of stock under the program.

I'll now hand it back to Peter, who will discuss our business outlook.

Peter Wrighton-Smith -- Chief Executive Officer and Director

Thank you, Matt. For the full year 2020, prior to the coronavirus outbreak, we had expected revenues of between $83 million and $86 million, representing 15% year-over-year growth at the mid-point. On the assumption, the business returns to normal in China by the end of March, and then there is no material disruption to our ability to serve the market, we estimate the impact of the reduced demand for testing and the reduced selling days to be around $5 million for the full year. Consequently, our guidance for the full year including the impact of coronavirus in China is for revenues of between $78 million and $81 million. We will of course update our guidance on our next earnings call as we continue to watch how the coronavirus outbreak plays out globally.

Based on the mid-point of our annual guidance, we expect approximately 13% to 18% of full year revenues to fall in the first quarter. As seen in prior years, Q1 is typically the weakest quarter of the year of Asia. This is obviously exacerbated by the impact of the coronavirus in China, were testing consumption is down significantly. We therefore expect an unusually weak quarter in Asia before it picks up throughout the remainder of the year.

As I mentioned previously, we are shipping some additional kits to China, but we have some uncertainty about whether we'll be able to recognize this revenue in Q1. Consequently, we have a larger than normal range for Q1 with the extent of the range, principally reflecting whether or not the shipment clears customs before the end of Q1.

We expect strong continued year-over-year growth out of Europe and the sequential increase from Q4. In the US, in line with the new seasonal pattern, we expect sequential increase in Q4. This will be a little muted as Quest, now they have experience with us as a supplier is looking to take down stock levels over the first half to move to a more just-in-time shipment pattern.

Moving down the P&L, we're focused on continuing to drive our gross margins through investments in manufacturing, automation and economies of scale. And we see an opportunity for gross margins for the year to grow at least 100 basis points over 2019.

On the bottom line, given that we feel we're still in the early innings in TB, we're focused on making investments to maximize the long-term growth of the Company rather than trying to manage to a particular profitability target. Having said that, we do expect to maintain the Company around about the adjusted EBITDA breakeven level for the year as we make those investments. I would note, however, that there will be quarterly fluctuations not least due to fluctuations in quarterly revenue levels.

On the balance sheet side, our principal uses of cash is to continue our share buyback. We also intend over time to deploy cash to gain new product for us to develop and sell through our expanding commercial channel. These investments will be in R&D to develop additional test based on our technology, as well as opportunistically executing on business development and to M&A, if we see complementary assets, that will be synergistic to our current business.

That concludes our formal prepared remarks. We'll now open up the line for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Sung Ji Nam from BTIG.

Sung Ji Nam -- BTIG -- Analyst

Hi, thanks for taking the questions. May be starting out with T-SPOT CMV, Peter to the extent possible, could you talk about what the timelines look like for potential commercial launch? And then also remind us again what the total addressable market opportunity there could be?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Good morning, Sung Ji. Thanks for the question. So the way we're looking at CMV is we view this as a part of a longer-term play in our aim to diversify our portfolio over time. We will require regulatory approval in the US and for us to establish value based reimbursement. So we're in the process of evaluating the market opportunity, building out the business case and getting some more market feedback before we will apply significant resources to it.

Consequently, this should not be viewed as a revenue driver for the time being, at least. As it relates to the term here, that's one of the things that we're looking to gain clarity on and then probably [Phonetic], it will depend on what reimbursement level or what reimbursement pathway we would seek to take in the US. And hence I don't want to put out a figure right now until that work is complete.

Sung Ji Nam -- BTIG -- Analyst

Okay, great. And then just my follow up is on the coronavirus outbreak. I was wondering, you had announced that you are shipping some kits to China as a rollout test for TB. I was wondering what's the uptake on that front is? And then also, as you look at some of the other regions getting hit by the outbreak such as South Korea and Italy, could you kind of talk about, I guess remind us again, kind of your -- how you know how important those kind of regions might be?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Okay, yeah. Thank you for the question. So I think in terms of the shipment, I think you're referring to the donation of RMB3 million worth of kits to China. That's been very well received by the KOLs in China. And obviously, as we're building a more direct presence in China, you know, we view that as part of our reputation and brand building efforts in China. As it relates to other countries of coronavirus, we have not yet seen a disruption to our business in Japan and South Korea, for example, but obviously, if other countries were to impose the same kind of travel restrictions, and patients were to display the same kind of behaviors as we've seen in China, then clearly there would be a disruption in those countries.

We haven't reflected that in our guidance at this point, because obviously, it's still very early and as I said, we've not yet seen a disruption. I would know, of course that, Japan is material for us, but smaller than China and South Korea is a much smaller component of our revenue. So it's really Japan that would be the market we would be most focused on.

Sung Ji Nam -- BTIG -- Analyst

Great, thank you.

Operator

Your next question comes from the line of Doug Schenkel with Cowen.

Chris Lin -- Cowen and Company -- Analyst

Hi, this is Chris on for Doug. Thanks for taking my question. Just to follow up on the last question, could you comment on if you expect to recapture any of the lost revenue due to the coronavirus situation?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Hi, Chris. Yeah, thanks for the question. I mean, when we've seen these interruptions before, as we've seen, for example, in the US at first points in time, generally, the volumes just lost, because even though there might be pent up demand for testing you know healthcare systems are generally running pretty close to full capacity. And so they can't just double the amount of patients they see, just because there's pent up demand and so, you know, our assumption is that the demand is just lost.

Chris Lin -- Cowen and Company -- Analyst

Okay. And Peter, I believe you mentioned that there are 20,000 new prescribers of T-SPOT.TB in the US. Can you provide a bit more detail on the profile of these prescribers? Are they new to IGRAs or are they competitive conversions? And additionally, are there any more logistical barriers as it relates to ordering for this customer group?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yeah, so I don't have the answer on that, on who they are exactly and whether they are competitive takeaways or new to IGRAs. We're working through that. We're doing some survey work of that at the moment, which will give us better information to inform that. In terms of the logistical barriers, Quest has made very significant progress, on the electronic ordering system and results system. As I said, we're in about 1,400 patient service centers now getting closer and closer to the -- I think have, just over 2000, so that's making progress.

Quest is making progress on enhancing logistics ease and capacity for T-SPOT.TB, as I mentioned through the joint venture networks, but also through opening up or running T-SPOT.TB in their Chantilly lab. There still is some remaining steps to be made on the integration activities. But I think it's very encouraging that we're already seeing so many new prescribers of T-SPOT.TB and it kind of indicates the main rationale why we did the transaction which was to access parts of the market that we couldn't otherwise reach ourselves.

Chris Lin -- Cowen and Company -- Analyst

Okay. Can you also give us an update on your large account strategy with Quest? Are you seeing meaningful increase in a win rate or access to potential new large accounts? And how are you thinking about this dynamic in 2020?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yeah. So we actually have been working very successfully with Quest national accounts team and we have some -- have made some actually some very significant wins in the course of 2019. So, Chris you will know that our customer base prior to the transaction was one of those large accounts, typically hospitals and big public health accounts and we've certainly like -- clearly wanting to see growth in the physician office channel because that was the part of the market that we couldn't have accessed to before. But it doesn't mean we've taken off the accelerator as it relates to large accounts. And as I mentioned, we are working well with Quest on closing those and so that continues to be part of the growth story of the Company going forward.

Chris Lin -- Cowen and Company -- Analyst

Okay. And for my last question. Just on T-Cell Select, I guess this is a question on commercialization. Is there potential to commercialize that product or applications beyond TB testing? I mean you said differently, is just a project, but diagnostic vendors or labs could use in. Is that opportunity you're exploring?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yeah, absolutely. So as I mentioned in my prepared remarks, the Company has through the course of the work in TB has been really pioneering some new technology for measuring the immune system and that can be deployed in many different areas. And it's not just us who has a need to purify white blood cells are using functional LifeCell assays, and so over time, we've got our hands full right now deploying that automation for TB. But over time, absolutely, we would like to exploit that technology in additional markets.

Chris Lin -- Cowen and Company -- Analyst

Okay. Thanks for taking my questions.

Peter Wrighton-Smith -- Chief Executive Officer and Director

Thank you.

Operator

[Operator Instructions] Your next question comes from the line of Tycho Peterson with JP Morgan.

Ruizhi Qin -- JP Morgan -- Analyst

Hi, thanks. This is Julia on for Tycho. First starting up in China, could you elaborate on the pricing adjustments that you talked about? And when do you expect pricing to eventually settle out? And how much incremental improvement should we expect in 2020? And then regarding the registration renewal in China, how much risk is embedded in your guidance if any?

Matthew McLaughlin -- Chief Financial Officer

Hey, Julia, it's Matt. Thanks for the question. I'll take the first part and then I'll hand it over to Peter on the registration. So with respect to the pricing adjustment, it was around $1 million that we booked in Q4 associated with the Q3 shipment. So that was basically retroactively adjusting the pricing in Q3. And if you look at it on a gross margin basis it's roughly, it rounds to about 200 basis points of gross margin in both Q3 and Q4. So that's just broadly, how to think about it.

In terms of the overall pricing in China, there is still some dynamics that we've got to see play out over the next kind of quarter or two and that really depends on the mix. So we've had roughly 90% of our customers convert from Fushan [Phonetic] over to Shanghai Pharma and we're -- Shanghai Pharma still in the process of contracting with them. And so, really it depends on the end-user segment is at the tier 2 distributors, is at lab, is at a hospital. And then what province are we selling into. So depending on that mix in terms of how it shapes out, that will then give us a much clearer view on the average pricing in the country. So that's kind of what we're working through, as we get into early 2020.

Peter Wrighton-Smith -- Chief Executive Officer and Director

So taking your question, Julia about reregistration. So as I mentioned in my prepared remarks, we believe we are close to reregistration and the reason to material impact on the business right now, because we have adequate stock in the market to continue to serve demand. I mean, we will do for some time. On the basis both that we have stock to cover us for the time being. And because of our expectation that we will receive the reregistration in a timely way, our guidance is based on the fact that there isn't a material disruption to supplier in the marketplace.

Ruizhi Qin -- JP Morgan -- Analyst

Got it. That's helpful. And then in the US, I was wondering if you have a rough sense of when you'd expect the T-Cell Select approval? And are there any contributions embedded in your guidance? And then in terms of seasonality, how -- what's the magnitude of this sort of the shift in seasonality between first half and second half, that we should be thinking about?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Okay. So as it relates to T-Cell Select, as I said in my prepared remarks, we will give timelines, once you submit enough feedback from the agency. So at this point in time, I'm not going to give that, other than to say that we do not expect it to materially impact revenues this year, which I think was part of your question. As it relates to seasonality in the first half, as I mentioned, Quest is now they've got comfortable with us as a supplier is seeking to take down the inventory levels from the inventory level they inherited when the transaction happened and that's somewhere in the $1 million to $2 million range headwind for us this year, largely in the first half.

Ruizhi Qin -- JP Morgan -- Analyst

Thanks.

Operator

Your next question comes from the line of Bill Quirk with Piper Sandler.

Rachel Vatnsdal -- Piper Sandler -- Analyst

Hi, this is Rachel on for Bill. Thanks for taking the questions. So first off, could you just give us some more color on guidance and the pacing over the year? And then next following up on the registration renewal comments. So, you mentioned you have adequate stock for the time being. Could you just talk about the color on that? And how long do you think that stock will last? And then do you have any more specifics about when you think you'll receive registration? I know you said you think it will come soon, but just given the delays in the process from the coronavirus disruption, if you've had any conversations or any color on that. That would be great as well. Thank you.

Peter Wrighton-Smith -- Chief Executive Officer and Director

Rachel, it is quite difficult to hear you. So I'm going to answer the second question, which I heard. I'm going to ask you to repeat your first question. We didn't catch that. So on the registration renewal, based on current utilization in the market, we've got months rather than weeks of stock left in the market. And as I mentioned, we are seeking to get additional stock into the country, which if it clears customs we'll continue to elongate that pathway. It is -- estimating timelines of regulatory agencies is always difficult. It's not something that's in our control, but as I said in my prepared remarks, we have not -- we don't have any outstanding questions from the agency. We believe we are close and given that we have that much stock in the market, we believe we will obtain it in time before we're out of stock in the market. Would you please repeat your first question?

Rachel Vatnsdal -- Piper Sandler -- Analyst

Yes. So my first question was, could you just give us some more color on guidance and the pacing over the year? Thank you.

Peter Wrighton-Smith -- Chief Executive Officer and Director

Fine. So I mean, obviously, Q1 will be lie as I've said because of general seasonality in the business, specifically Asia is always kind of weak seasonally in Q1, and obviously that's exacerbated by the coronavirus outbreak. The US seasonally is generally weaker in Q1, but obviously in first half of this year as I said the Quest destocking will impact the business to the tune of $1 million to $2 million over the course of the year. But that's falling in the first half primarily. Matt, is there any comments you'd like to make about the rest of the year?

Matthew McLaughlin -- Chief Financial Officer

No, I think the rest of the year as we look out to kind of Q2, Q3, Q4 once you see the uptick from Q1, Q2 will be our biggest quarter of the year, I think is what we expect just given seasonality both in the US and Japan. But it will be relatively consistent with Q3 and Q4. I don't see any big peaks or valleys in those other quarters.

Rachel Vatnsdal -- Piper Sandler -- Analyst

Great. Thank you.

Peter Wrighton-Smith -- Chief Executive Officer and Director

Thank you.

Matthew McLaughlin -- Chief Financial Officer

Thanks, Rachel.

Operator

I'm showing no further questions at this time. I would now like to turn the conference back to Dr. Peter Wrighton-Smith, Chief Executive Officer.

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yeah, thank you all for joining us to discuss our fourth quarter and full year 2019 results. We look forward to updating you on our next quarterly call.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Matthew McLaughlin -- Chief Financial Officer

Peter Wrighton-Smith -- Chief Executive Officer and Director

Sung Ji Nam -- BTIG -- Analyst

Chris Lin -- Cowen and Company -- Analyst

Ruizhi Qin -- JP Morgan -- Analyst

Rachel Vatnsdal -- Piper Sandler -- Analyst

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