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Oxford Immunotec Global PLC (OXFD)
Q1 2020 Earnings Call
May 5, 2020, 8:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning, ladies and gentlemen, and welcome to the Oxford Immunotec First Quarter 2020 Conference Call. [Operator Instructions]

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

Matthew McLaughlin -- Chief Financial Officer

Good morning and thank you for joining us to review Oxford Immunotec's financial results for the first quarter of 2020. 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, beliefs, forward-looking and or subject to various risks and uncertainties. Any statements made during this call that are not statements of historical or current facts are intended to be forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. We want to emphasize that such forward-looking statements reflect 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 and in subsequent reports, including our Quarterly Reports on Form 10-Q, including the Form 10-Q being filed today and our current reports on Form 8-K.

In addition, today we will make a number of comments about our expectations for the COVID-19 pandemic on our business. We provide these comments to give investors insights into what we're observing however given the dynamic nature of the pandemic, there is a high degree of uncertainty around any forward-looking statements made. 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-Q.

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 operating performance in the first quarter of 2020 before turning to an update on our business and our strategic priorities. Matt will then take over to discuss our financials before handing the call back to me to discuss the near-term outlook for our business in light of COVID-19. We'll then open up the line to take your questions.

For the first quarter of 2020, we posted revenues of $13.9 million, in line with the guidance we gave in March. US revenue was $5.7 million. As expected, US revenue was up sequentially from Q4. The growth of 4% year-over-year was impacted by revenue mix and planned de-stocking of inventory levels by Quest as previously discussed. Europe & Rest of World revenue was $3.1 million and was up 13% compared to the first quarter of last year or 17% on a constant currency basis. Highlights in the quarter were continued strong growth in the UK, France and Russia.

As expected, Asia revenues were seasonally weak in the quarter, exacerbated by a reduction in consumption due to coronavirus. Revenues of $5.1 million for the first quarter were down 22% from the same period last year or 21% on a constant currency basis. We did ship some kits to China to maintain stock in the market, pending our now successful reregistration. We continue to post strong gross margin numbers despite the temporary volume headwinds from the coronavirus with Q1 gross margin coming in at 74.1%, up about 270 basis points than the prior year period.

I'd like to take a few moments to talk about the impact of the COVID-19 pandemic on the business and what we're seeing in various countries. Firstly, all our staff are safe and well. We've had limited cases of illness and absence from work. Our staff are working in line with government guidance in our various jurisdictions, with those staff who do not need to attend our facilities working from home. We have, in many instances, put in protective -- additional protective measures over and above government measures, and we've implemented social distancing measures for those employees who need to work in our facilities such as split shifts, to allow natural firebreaks should we be unfortunate enough to have a symptomatic case. We've also implemented a number of IT solutions to enable home working and maintain high levels of collaboration and communication. Staff morale is good. People are busy, and productivity of the company is extremely high.

We've had no supply interruptions. We are continuing to manufacture and ship kits and continuing to process samples in our UK ODL laboratory. We have good levels of stock of raw materials, work-in-progress and finished goods. Consequently, we feel we're well covered in the event of any future disruption to our supply chain. We sell to over 60 countries and as such, we're seeing the pandemic play out across the world in terms of its effect on revenues.

Starting first with China, at the height of the lockdown, our in-country end-user volumes were down to 25% of our estimated normal baseline. We saw a recovery in March and a further recovery in April where volumes were up to approximately two-thirds of baseline. Domestic travel restrictions are being lifted to some extent and customer visits are now possible once again by our sales force. However, outpatient visits in China are still significantly below normal, both due to unwillingness to go to hospitals as well as various restrictions placed around eligibility for appointments. We currently believe that it will take until the back half of 2020 before we're back to baseline volumes.

In Japan, testing demand held up in Q1, but Japan has been relatively late in terms of putting in place social distancing measures, and we're starting to see these bite now. Demand in April was down to about half of normal levels. Q2 is typically a seasonally strong peak in Japan as it is the time for a lot of healthcare worker testing. Our expectation is that this will get pushed to later in the year in light of the pandemic. Given the experience of other countries, our current expectation is that given it was one of the later countries into social distancing measures, Japan will consequently be one of the last to recover in terms of demand.

In the US, volumes were strong in January and February before starting to fall off in March as more and more states impose shelter-at-home mandates. Based on public statements by Quest and others, we're expecting demands to be down to approximately 40% to 50% at baseline levels before recovering in the second half of 2020 as restrictions get lifted.

In Europe and Rest of World, there's clearly a lot of diversity based on each country's epidemiologic situation. As with other countries, we've seen demand drop significantly when strict lockdown rules have been imposed. For example, our UK ODL lab is now running at about 20% of normal volumes as public health resources are deployed elsewhere, including suspension of the national tender on LTBI screening. Volumes for our European lab customers were down to between 20% to 50% of normal in April. We therefore expect a significant impact in Q2. And given the diversity of countries we ship to in this region, we could find the rebounds to be slower in this region compared to others due to the fact that some countries will enter and exit at different stages.

The read through between demand in the market and revenues is complicated by the amount of customer stock carried coming into this crisis, and therefore our revenue recovery will also be influenced temporarily by how stocked or destocked countries will be as they come out of this. There is generally a good correlation between underlying demand and our shipments to customers, but there are a couple of areas where we are sensitive to the possibilities of lags in orders even if demand recovers.

In Japan, while we've been generally reducing stocking levels in the country as we recently shipped initial stocking orders to a new wholesaler as part of our strategy to diversify our channel there, we may be coming into this a little overstocked which could delay the recovery there a little. Japan's recovery is likely in any case to be later than other countries simply as it started its lockdown later than others. In the US, as previously discussed, Quest was aiming to take down the inventory in the first half to run leaner. There's a possibility that despite much lower orders in Q2, this planned de-stocking takes a little more time to fully achieve.

In light of the many uncertainties over the end demand outlook and how in-market current stock levels layer on to that in terms of stocking, de-stocking dynamics and also because of the overall uncertainties with respect to the global impact of COVID-19 generally, we're not in a position to give reliable revenue guidance for the full year. However, I will comment later on our near-term expectations for Q2 revenues.

There's widely a lot of attention right now to how diagnostic testing could provide a way to relax social distancing measures and get our economies back to something closer to normality. There's been a lot of discussion about the role that serology could play in that by understanding who has been exposed and carries immunity. It's yet to be confirmed in the presence of antibodies correlates with immunity. If COVID-19 is anything like HIV or CMV viral infections, then antibodies will not be informative in indicating protective immunity. In that case, it will become necessary to test for T-cell responses. We've already been approached by several groups requesting that we join them in investigating the potential role of a T-cell-based COVID-19 test based on our T-SPOT technology and we're just beginning work on that subject. There's much to learn about this virus and immunity, and we'll keep you posted with material developments as we learn from these collaborations.

Notwithstanding the understandable focus on coronavirus right now, this pandemic will be temporary. And when it abates, we believe that the outlook for TB testing will remain as strong, if not stronger than it was before coronavirus. There are several reasons for this. We know from history that whenever TB is neglected as it's being right now, it unfortunately comes back with a vengeance. Cases get undiagnosed, transmission accelerates unchecked, and one can expect there'll be a price to pay in terms of new cases and contact tracing once public health resources are again able to focus on things other than COVID-19.

It's informative that the World Health Organization has expressed its concern over the dangers of neglecting TB screening in the COVID-19 pandemic, and notable that the WHO also reaffirmed its commitment to TB preventative screening and treatment through the issuance of updated guidelines last month. We believe it likely that there will be an increase in public health funding in general as governments painfully relearned the importance of public health staffing, funding and infrastructure in protecting populations. As TB is the leading cause of death from infectious disease, and the increased funding for public health will likely benefit TB and TB testing programs.

On a more specific level, this early evidence of the presence of TB may increase susceptibility to COVID-19 morbidity. If proven, this could provide a rationale for stepping up TB testing of infected patients and those with possible exposure to COVID-19. We're also starting to see some shifts in behavior within TB testing programs. The skin test requires two patient visits, and in a world where we're trying to eliminate unnecessary interpersonal contact, we've seen several instances of and recommendations to use the blood test instead of a skin test. This could provide another tailwind to the long-term trend of replacing the skin test with more modern technology like our T-SPOT.TB test.

The TB vaccine called BCG is under investigation as a possible vaccine to reduce susceptibility to COVID-19 infection. If proven and BCG is rolled out widely as a vaccine strategy against COVID-19, that would provide another strong spurt of adoption of our test as the skin test will become highly problematic, given it produces false positive results in those who've received a BCG vaccine. As a consequence of these factors, we're extremely confident in the long-term demand outlook for our tests. Therefore, while being mindful of opex, and we're conserving capital where appropriate, we are choosing to continue to spend in areas we believe will maximize our growth and success as we come out of this.

As a reminder, our strategy to grow our TB revenues is across three vectors. Firstly, by converting from the skin test, the market is only about 20% converted from the skin test to IGRA technology. We continue to drive this conversion through the expansion of sales, marketing, and medical affairs resources, aided by guidelines that are becoming ever more favorable to IGRA. Secondly, from overall market growth, the 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 newly updated LTBI guidelines show clear evidence for the benefit of systematic testing and treatment of LTBI and support IGRA testing globally for at-risk populations. We're expanding our market reach so as to benefit from this trend.

Lastly, by taking share from IGRA competitors, we currently have about 25% of the IGRA market, although we've shown that we can become a leading brand in several countries on the basis of differentiated performance and simpler preanalytical workflow. We're not able to strengthen our offer through providing automation and improved economics to labs. We continue to make progress on our key initiatives to support the strategy. Firstly, we continue to work on delivering automation, in Q1 we completed installation of a mid to high throughput system and an opinion leading French customer displacing a competing assay. On new T-SPOT automation process is now in routine use and performing well. We've made good progress on our US trials FDA approval. Although the tail end was interrupted by COVID-19 induced site closures. We're in the process of data cleanup and analysis and we'll talk to anticipated launch timings once we submitted and have received feedback from the agency.

We continue to make good progress on a very high throughput system and we're working toward providing automation in other jurisdictions. As we previously communicated, our major focus has been on sales and marketing expansion especially in China, where we've been 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. That transition continues to progress well. We've retained a high proportion of our end user customers through the transition, as well as more recently, adding new customers and channel partners. Pricing is coming in line with our estimates, but it will 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. As we recently announced, we've now obtained reregistration of our product in China. As a Class III medical device, China's medical device regulations require the company apply to the National Medical Products Administration, or NMPA, to renew its license for T-SPOT. TB every five years. The latest reregistration follows a significant review by the NMPA and then overseas site inspection of the Company's Oxford UK manufacturing facility. Despite, the delays in obtaining reregistration, we've been able to continue to supply the market with kits already in the stock in the country.

Obtaining, reregistration of our tests for the first time using our own China and UK based regulatory team versus relying on a partner is a significant achievement, and this closes the final step in completing our transition to this more direct commercial model in China. With the transition behind us and the country opening up somewhat. We're now focused on driving growth in the market through both account wins, as well as deeper penetration of existing accounts. We're driving this through our growing sales and marketing, technical service and medical affairs teams. The opportunity in China is vast and we'll be looking to add more resource to the market as we can demonstrate success with our growth strategies.

Turning to commercial partnerships. We continue to focus on the success of our relationship with Quest, who's a key partner for the company in the United States. As you know, a principal rationale for the transaction with Quest was to significantly increase the reach and competitiveness of T-SPOT. TB in the US market. We're now seeing this strategy bearing fruit. However, the COVID-19 pandemic has interrupted the integration plans and this will unfortunately delay the full benefits of the partnership being realized until that work can resume.

Nonetheless, we continue to believe in the value of the partnership to both parties and look forward to completing the remaining integration steps as soon as practical. We continue to invest in programs to reduce our cost of goods, both to continue our long-term trend of gross margin expansion, as well as to provide us with more pricing flexibility as we seek to penetrate more of the global market. We are now gaining the benefit of projects undertaken to increase batch sizes and in Q1, we also obtained FDA approval for two amendments, which will allow us to rollout COGS improvements to the US. We also continue to build solid foundations to support the company's growth, the planned capacity expansions in the Oxford facilities, as well as the relocation of our two Massachusetts sites into one smaller site continue to progress.

We've also initiated the project to replace our antiquated operating financial system with a new ERP system, which will once implemented, give us new analytics and bring multiple efficiencies to current processes. So despite the significant disruption from the COVID-19 pandemic, the company nonetheless continues to execute on its long-term growth agenda.

Before I hand it over to Matt, I'd just like to comment briefly on our balance sheet and our share buyback plans. As I've already outlined as soon as the scale of the pandemic became clear, we set up a plan to have the company weather the storm and come out of the other side more strongly. Havingno ability to tweak the parameters of our 10b5-1 plan for the repurchase of the company's shares, we took the decision to terminate the specific trading parameters of our existing 10b5-1 plan. I know this news will be disappointing to some of our shareholders and so I'd like to explain the reasoning behind the decision.

When Coronovirus was first hitting, we have to contemplate various scenarios, each of which implied significant risks to cash utilization. There was then and there still remains now considerable uncertainty over the near-term outlook for the company's revenues. The duration and extent of the drop in demand for the company's products or the direct implication for how much cash the company needs to continue to fund its operations.

Outside of revenues, there are many derivative impacts of the COVID-19 pandemic on all companies, including ours. The pandemic has, for example already given rise to a multitude of business continuity risks, which so far we've managed without too much expense. Our primary concern here was the solvency of some of our suppliers who make critical raw materials for our tests, should they be unable to continue the operations, we in turn will be unable to manufacture kits for a prolonged period of time or at all, which would present a business continuity issue. We wanted to preserve the balance sheet flexibility to intervene in this situation to allow us to prevent such a situation from a rising.

On top of this, we have to contemplate the risk of not successfully gaining reregistration in China in a timely manner. Whilst we view this is low risk, it was not zero risk and has it occurred, it would have significant increased our losses. We needed to ensure that we had enough cash for the company to survive any of these scenarios. However, we took this decision, not just the defensive reasons. We view the strong balance sheet of the company as a strategic tool that can be leveraged to maximize the long-term success of the business. For example, we are a knowledge intensive business and we invest significant sums and recruiting and training talent, which is difficult and time-consuming to replace, and we wanted to retain as much of our highly talented workforce as possible.

We wanted to keep investing in the business when competitors are distracted or through liquidity constraints unable to. Our teams are maintaining high productivity and we believe the projects we're prioritizing such as automation and new product development will lead to value creation for shareholders over the longer term. So, while we understand the capital market advantages of repurchasing stock at today's prices, we had to balance that against ensuring the capital adequacy of the company in unprecedented and still very uncertain circumstances, and maximizing the growth profile of the business and value creation over the longer term.

We have the ability to resume the buyback program at any time, subject of course to regulatory restrictions. I'm really proud of how the company is rising to the challenge presented by COVID-19 and how the company is maintaining productivity and positioning itself for long-term growth as the pandemic hopefully abates.

I'll now hand it over to Matt, and 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 Q1 2020 with Q1 2019. Total revenues in the first quarter of $13.9 million were down 6% versus revenues in Q1 of 2019. You'll note for the first time we don't break out service and product revenue, this is because service revenue is and is expected to remain below 10% of our total revenues. We will therefore now just report total revenue incorporating both product and service revenues.

Breaking down our revenue on a regional basis, US revenue was $5.7 million, representing 41% of our revenue. Asia revenue was $5.1 million, representing 36% of our revenue. In Europe and Rest of the World revenue was $3.1 million, representing 23% of our revenue.

Turning to volumes in the first quarter we sold over 300,000 TB tests in the US via kit sales and almost 400,000 tests in our O-US region both via kit sales and test process in our UK ODL service business. Gross profit for the quarter of $10.3 million was down 2% from gross profit in the prior year period. Overall gross margin for the quarter was 74.1%, an increase of about 270 basis points from the prior year period. Given the change in our near-term revenue assumptions, we reserve for some inventory at risk of hitting expiration date if it can't be sold. Absent that reserve, gross margin would have been 76.6%, we continue to see strong gross margin performance, driven by favorable ASP changes in manufacturing cost reduction efforts. We're also benefiting from the roll off of royalties as we move to protecting our products through company generated IP.

Turning to operating expenses, operating expenses increased 21% from the prior year period to $16.9 million. Sales and marketing expenses increased to $7.2 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 to support automation. General and administrative expenses increased to $7 million, partly due to the non-recurrence of Quest TSA income in the prior year period.

Operating expenses for the first quarter included approximately $935,000 of share-based compensation. Net loss for the first quarter of 2020 was $6 million, compared to a net loss of $1.5 million in the first quarter of 2019. EBITDA for the first quarter of 2020 was $5.2 million loss. Adjusted EBITDA, which excludes share-based compensation, unrealized FX gains or losses and unusual items, if any was also a $5.2 million loss for the quarter. 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 over $166 million. During the quarter, we repurchased $7.7 million of our shares at an average price of approximately $14.57 per share; including commissions under our share repurchase program. In the quarter, we also used $5.5 million of cash in operating activities from continuing operations, primarily driven by the net loss in the quarter.

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

Peter Wrighton-Smith -- Chief Executive Officer and Director

Thanks, Matt. There's obviously considerable uncertainty for everybody over the business outlook. For that reason, we'll not be giving full-year revenue guidance. However, I would like to make some comments on the near-term outlook in Q2. We're currently expecting Q2 revenues to fall between $5 million and $6 million. In Asia, we're expecting a sequential decrease from Q1, reflecting the continued impact of COVID-19 in our Asian markets. In the US, we're expecting a sharp sequential drop in revenues, reflecting the significant slowdown in demand in Q2, due to COVID-19, as well as the continuation of Quest destocking. In Europe & Rest of World, we're expecting a sharp sequential drop, reflecting the significant reduction in demand as many countries in Europe and our Rest of World territories either start or simply maintain social distancing measures. Based on my earlier commentary about our expectations, about the recovery of volumes in various countries, we expect Q2 to be our lowest for the year.

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

Questions and Answers:


Thank you. [Operator Instructions] And our first question comes from Doug Schenkel from Cowen. Your line is now live.

Doug Schenkel -- Cowen and Company -- Analyst

Okay, thank you. Good morning and good afternoon, everybody and thanks for all the detailed remarks on how you guys are navigating through such an unprecedented time, and good luck. Peter based on your prepared remarks, is it fair to conclude that only 40% to 50% of healthcare workers that would normally be screened using T-SPOT are being screened in the US today? And is it right to conclude that there's likely no catch up on these revenues?

And then building off of that you acknowledge the clear logistical advantages of IGRA versus skin tests, which have always been there, but are particularly evident in the midst of the pandemic. How meaningful can this tailwind be? And how should we think about the durability of that dynamic?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yes, all great questions, Doug, and thanks for them. So in healthcare workers, you will recall there are, kind of, two types of healthcare worker testing in the United States, right? Firstly, there's new higher testing, which is the majority of our volumes. It is clear, obviously the hospitals have not being hiring significantly to new members of staff. And in fact, in many cases hospitals have been following staff, who have been in parts of the hospital where they can't be productive.

So the new hire volumes have obviously dropped off. Annual screening obviously that is a smaller subset of the business and under the circumstances, I think we've seen that a lot of that's been deferred, if it's happening at all. So I think that there maybe a little bit of catch up in healthcare worked testing is stepping outside of the US, for example, we clearly think that's going to happen in Japan, where typically it all happens in the kind of March, April, May time we got some of that in March, but we're expecting about the remainder of that to be pushed to the later in the year. So that I think addresses the catch-up. I think on new hire testing, the last bit of the piece of the catch-up answer is that new hire testing, I think is going to be driven by how quickly hospitals get back to business as usual in terms of hiring and on-boarding staffs.

The logistical advantages of IGRA, I think it's a bit early for us to figure out how meaningful that is, but it's certainly an attribute that we are starting to bring up in sales calls. And it's not just from a social distancing perspective, it's also the fact that it's an efficiency dynamic, there's going to be a lot of pent-up demand for healthcare in general as social distancing gets relaxed, and anything you as a physician can do to free up an extra appointment. It's good news and so, it's certainly something we're going to gather and here, and I'll give a comment I think on the next call about how significant is turning out to be as a messaging tool.

Doug Schenkel -- Cowen and Company -- Analyst

Okay, thank you for that. Just moving down the P&L, Q1 operating expense -- the investment you made there, is actually in line with what we were forecasting prior to making any adjustments for the impact of COVID. You talked about clearly and obviously wanting to be prudent with spend moving forward. But just keeping in mind what happened in Q1, but also being mindful that things changed pretty quickly late in the quarter?

I'm just wondering are there specific areas that we should be cognizant of that you're planning to pull back R&D investment or specific sales and marketing initiatives? And have you reallocated any planned investments to support development of a T-cell based COVID diagnostic?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yes. So I think, a lot of comments there. So I think Q1 is probably slightly higher than the baseline of the spending just because of some natural seasonal expenses that fall in Q1. The way we've been approaching it is that we have certainly been continuing R&D spend, because of the -- these are projects that are naturally long-term in nature and that the payback from those is as strong as ever were and so it makes no sense to put those projects on hold. So continuing that, the spend on the COVID T-cell test right now is relatively small. Obviously, if that -- if we start to get increasing conviction or over that because it turns out that antibodies don't indicate immunity and that the science pans out on that, then obviously that would become meaningfully higher spend, but obviously with a meaningfully higher revenue expectation attached to it, but it's just too early to comment on that right now.

What we're doing to offset those expense increases in R&D and to some extent in sales and marketing because we're continuing obviously to -- have been continuing to add resources in China from a sales and marketing perspective, is to save on the spending elsewhere where can be productive. And there are many such areas that we've been doing that in the company.

Doug Schenkel -- Cowen and Company -- Analyst

Great and just one -- oh, sorry.

Matthew McLaughlin -- Chief Financial Officer

No. Yes, Doug, I think Peter hit it. I mean, obviously, as you think about advertising, travel kind of other discretionary costs roughly two-thirds of our costs are people related, you still have another third that we can go and look at, so we'll continue to be smart there as we get through 2Q and into the back half.

Doug Schenkel -- Cowen and Company -- Analyst

Okay, that's great and one last quick one and I'll get back in the queue. Just in the context of thinking about inventory management and working for some inventory just given what's going on in the near-term. Could you just remind us what is the shelf life of your products on average, just so we can have that variable to input into the equation moving forward? Thank you.

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yes, it depends on jurisdiction, but it's between 12 months and 18 months.

Doug Schenkel -- Cowen and Company -- Analyst

Okay. Thank you.

Peter Wrighton-Smith -- Chief Executive Officer and Director

Thank you.


And thank you and our next question comes from Tycho Peterson from JPMorgan. Your line is now open.

Casey -- JP Morgan -- Analyst

Hi guys, this is Casey [Phonetic] on for Tycho. My first question is regarding T-Cell Select. Could you give us a sense of how COVID has impacted? Do you expect the timeline for US approval maybe any sort of clinical study pushouts, any sort of...

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yes. At the moment -- thank you for the question, at the moment our view is that it hasn't changed the timeline. I did allude to the fact that the tail end of one of the studies got truncated by COVID at the moment we're not viewing that as material. We think we will still be able to submit with a slightly smaller sample set. If that turns out to be true and we'll know that a little bit more when we've done all the data cleaning and understand how many exclusions we have from the data. But if that turns out to be true then it won't impact the timelines at all.

Casey -- JP Morgan -- Analyst

Okay, and then just maybe one regarding gross margins, can we expect the 1Q level of gross margins that we saw here throughout the rest of the year. I think you're tracking to around 100 bps in gross margin improvement based on 4Q. So maybe any comments around that? Thanks.

Matthew McLaughlin -- Chief Financial Officer

Yes, I think absent, the kind of one-off inventory reserve that I had mentioned in my prepared remarks, we feel that the gross margin profile is still in line with what we talked about at year-end. Obviously there is going to be some minor dynamic around volumes and mix depending on the quarter. But if I step back and look at the balance of the year. Yes, we very much see a 76 plus percent gross margin profile.

Casey -- JP Morgan -- Analyst

Got it. Thank you.


Thank you. [Operator Instructions] And our next question comes from Sung Ji Nam from BTIG.

Sung Ji Nam -- BTIG -- Analyst

Hi, thanks for taking the questions. I was curious about, given your strong performance in Europe and continued strength in France. I guess pre-pandemic, could you talk about the key drivers there? Was it largely driven by the implementation of automation?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Thanks, Sung Ji, it's a good question. So I think in Europe, the growth will be driven by three main areas: UK, France and Russia and the dynamics are all different in each of them. So in the UK, we've continued to be very, very successful in building stronger and stronger links to public health in the UK, leveraging the excellent service we've been delivering in the tender, and that's what's been driving the Q1 strength, but it's also one of the reasons why the UK lab is suffered significantly from COVID-19, because obviously public health resources in the UK are now focused away from TB onto COVID-19, at least temporarily.

In France, yes, it's been driven by automation. I mean, and then the third driver is Russia, where it's really being driven by the fact that we've got a significant market opportunity to penetrate there to complement if not replace the skin test in a variety of patient groups there.

Sung Ji Nam -- BTIG -- Analyst

Okay, great. And then as for the COVID-19 serology testing, could you talk about what the timeline could look like for that? And also, you said -- you mentioned that you're being approached by several groups. Would you be able to comment whether or not these are coming from from all over the world or from the certain regions?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yes, I can definitely see that this is a global interest that's rising in this. And to be clear, we're focused on T-Cell measurement not serology for antibodies and the purpose of T-Cell measurement would be to indicate immunity if it turns out that antibodies are not correlated with immunity. So we're at the early stages right now, so I'd prefer not to comment on timelines, because we need to get a little bit more evidence, before I can comment, I think it's a great clarity on timelines.

Sung Ji Nam -- BTIG -- Analyst

Okay and then just lastly from me, was wondering if you might be able to provide additional updates on some of the other product developments -- development opportunities under way, such as the CMV test than other potential product opportunities for the future?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yes, so CMV, we are in the process of -- if you recall we'll need to go through the regulatory approval process in the US CMV, so we're -- and going through the work of figuring out the right pathway there, as well as figuring out the pathway to reimbursement, so that we can get something like value-based reimbursement in the US. We are expecting a readout on those pieces of work in the not too distant future at which point we'll make a decision about the commercialization pathway and timelines for CMV. Other than CMV, we continue our work on augmenting our TB products, not just through automation, but through some other things we're working on there, which for competitive reasons, we're not going to go into greater detail on, but we continue to focus on augmenting the TB products.

Sung Ji Nam -- BTIG -- Analyst

Okay, great. Thank you.


Thank you. And I'm showing no further questions. I would now like to turn the call back over to Dr. Peter Wrighton-Smith for closing remarks.

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yes, thank you all for joining us to discuss our first quarter 2020 results. We look forward to updating you on our next quarterly call.


[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Matthew McLaughlin -- Chief Financial Officer

Peter Wrighton-Smith -- Chief Executive Officer and Director

Doug Schenkel -- Cowen and Company -- Analyst

Casey -- JP Morgan -- Analyst

Sung Ji Nam -- BTIG -- Analyst

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