David Westenberg: Okay.
Brian McKelligon: to upgrade existing customers.
David Westenberg: I appreciate. I’ll ask the rest offline. Thank you. B Thank you.
Operator: Thank you. One moment, please. Our next question comes from the line of Tim Chiang of Capital One. Your line is open.
Tim Chiang: Well, yea, thanks. Brian and Joe, I think, there have been a lot of questions just about pull-through, the impact of the new Fusion 2.0 launch and also how that will benefit your reagent business. Is this kind of a lag effect in terms of when you expect a ramp with the reagent side of the business as more of the Fusions convert over to the 2.0?
Brian McKelligon: Well, yeah, there’s — I mean, there’s always a lag effect with any NPI new product introduction. And so the standard kind of instrument utilization lag, and I say standard, because doing this for 30 years, it’s pretty much formulaic where customer buys an instrument, initial pilot run in Q2 and in the first quarter, their assessments happened in the second quarter, and then coming out of that into the third quarter, they start to get real productive use, right? That’s a typical cycle for an instrument. So that is a lag. We’re now starting to see realized on the Fusion as it impacts our total pull-through given the PhenoCycler Fusion customers have higher pull-through than the PhenoCyclers alone. So that lag is most certainly real.
And then you have an adoption cycle with any new application or assay on that very system itself. So that is probably generally shorter, because you’re dealing with an instrument that’s ready to grab those new panels right away or that new applications if it was RNA. So, yeah, there is a lag effect amongst all of these. That’s why we’ve talked about this build over time of pull-through.
Tim Chiang: Great. And maybe just one follow-up, Brian. You signed this partnership with Agilent at the beginning of the year, how meaningful do you think this partnership will have — what sort of impact do you think it will have on your PhenoImager HT instrument?
Brian McKelligon: Yeah. The impact is going to be an expansion of projects that our pharma partners implement on the HT. That’s going to be the first impact and that’s not something that we will necessarily quantify externally, because we’re already seeing that happen. And that’s because of the clinical workflow that they support and the expertise that they bring to the table and leverage that workflow along with our expertise on the HP. That is the impact. Now that may result in — it should result in a much more robust pipeline, both for the HT system itself, the new panels that we’re launching, but also for our Lab Services business, because it’s going to galvanize these additional projects in the service CLIA Lab as well.
Tim Chiang: Got it. And Joe, just one last question. Gross profit margins around 57%. I mean, is that a pretty good starting number for 2023 and just sort of wondering how that sort of progresses as the year rolls out?
Joe Driscoll: Yes. We would project that, that number is going to go up in 2023. One of the keys for gross margin is getting more reagent business. So we’ve talked a lot about reagents here today. That’s really the key to driving that gross margin percentage higher. But we are projecting that we’re going to do better than what we did in 2022.
Tim Chiang: Right. And your gross margins on the reagent business are around 80%. That’s right?
Joe Driscoll: Yeah. Mid-70%s. Yeah.
Tim Chiang: Mid-70%s. Okay. Great. Super. Thanks much.
Joe Driscoll: Thanks.
Operator: I’m showing no further questions at this time. I’d like to turn the call back over to Brian McKelligon for any closing remarks.
Brian McKelligon: Well, yeah, just we’re at the top of the hour. So just I wanted to thank everybody for their time, their attention, their support and we look forward to following up with each of you. So thank you everyone.
Operator: Thank you. Ladies and gentlemen, this does conclude today’s conference. Thank you all for participating. You may now disconnect. Have a great day.
