A major part of our strategic vision is to become the primary partner for our customers in gastrointestinal testing. The strengthening of our molecular offerings along with the strong rapid immunoassay products portfolio we have will enable us to deliver a comprehensive dual-technology gastrointestinal solutions (inaudible) over the coming years.
The team has plans to further develop the menu on the revogene system as while still focusing on delivering the Curian system and its rapid immunoassay tests as well as the continued development of the PediaStat system to enable workstation consolidation in pediatrician offices. The key elements of our strategy are in place and we move further into the execution phase of these plans.
Let's move on now to Page 11. The fact that GenePOC had 3 FDA-cleared tests available was essential to this deal. Those tests being C. diff, Group A Strep and Group B Strep mean that we can immediately go to our long-term loyal customers and offer a new state-of-the-art molecular platform.
Over 80% of our existing Alethia molecular revenue comes from C. diff, Group A Strep and Group B Strep assays. The ability to immediately go to our customers as well as noncustomers with revogene is a great opportunity for Meridian.
After the close of the GenePOC acquisition, we see our commercial team focusing first on stabilizing and protecting our base of molecular customers. We believe we can establish a strong install base quickly with this strategy, which will enable us to drive increased competitive conversions over time as the system's reputation and menu builds. Longer term, as we drive menu expansion on this platform, we expect to return back to meaningful growth in our molecular franchise. We're excited to say the least to be adding this exciting system and technology to our portfolio, but also believe that the addition of the GenePOC team will help drive further growth -- future growth, excuse me, for Meridian over the years to come.
Hopefully, that gives you a little bit of perspective in regards to the overall strategic direction and the fit for the GenePOC acquisition.
I guess now, Dennis, we'd like to open the floor now for any questions that they may have on the call.
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Questions and Answers
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Operator [1]
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(Operator Instructions) And your first question is from the line of Brian Weinstein with William Blair.
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Andrew Frederick Brackmann, William Blair & Company L.L.C., Research Division - Associate [2]
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This is actually Andrew Brackmann on for Brian. Maybe we could first start on the longer-term growth that you guys just sort of outlined, maybe be a little bit more specific on what this does for your longer-term plan? And what's sort of assumed in your model with respect to the current business, the cannibalization expectations there on the current platform?
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Eric S. Rasmussen, Meridian Bioscience, Inc. - Executive VP & CFO [3]
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Yes. I mean, I think, obviously, we're going to be managing for cannibalization over the near term in sort of converting our existing base and so that's going to be -- as we're going to be ramping up sales of a new platform, while we're -- and managing that conversion and frankly, doing our best to sustain Alethia in certain product areas that are still good product areas for us.
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John P. Kenny, Meridian Bioscience, Inc. - CEO, Executive VP of Diagnostics Business Unit & Director [4]
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Yes. Let me add a couple of comments as well to Eric's comments. First of all, we -- I think, we generally see that the first 12 to 18 months, as we bring GenePOC into the family, really is going to be about first stabilizing the business. So we do anticipate, as Eric alluded to a very higher -- a higher percentage of our placements coming from conversions of existing customers. Clearly, we'll also work to identify competitive opportunities, but we do know that with the state-of-art Alethia business and Group A Strep, C. diff and Group B Strep that it is critical that we go out there.
The product that we are acquiring is a state-of-the-art simple sample-to-result type of instrument and so we believe that we can offer significant advantages to our current customers. And then obviously over time, we will work to expand that menu. So I think you can anticipate, Andrew, that we'll look to more -- we have a declining molecular business this year, there's still some of that, that has to bleed out. We have to stabilize that. We look at fiscal '20 being still some declines and stabilization on that overall molecular side and returning more to growth as you head into fiscal '21. And ultimately, we think that is consistent also with the overall Diagnostic business in that same period of time.
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Andrew Frederick Brackmann, William Blair & Company L.L.C., Research Division - Associate [5]
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Got it. That's helpful. And then maybe on the contingent consideration that I think you said there's some sort of development lines in place for that earn-out. Could you be a little bit more specific on what those are in terms of the menu and then on the gross margin goals?
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Eric S. Rasmussen, Meridian Bioscience, Inc. - Executive VP & CFO [6]
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Yes. I was -- in both cases, I think we're going to be careful about what specifically we say. In terms of the menu, I'd just say they are panel offerings and they're very -- and I think they're very much in line with our strategy for -- that we've laid out and we've sort of reinforced here today. So that would be -- that's sort of the -- they are aligned in those things and then with the -- in terms of the gross margin, it's really a function of making sure that the margins are frankly at a level that are -- that we're not in the market situation where the gross margins were -- are sort of below market profitability.
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Andrew Frederick Brackmann, William Blair & Company L.L.C., Research Division - Associate [7]
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Okay. And then last one for me, the increase in R&D -- or operating expenses, I'm assuming that's all sort of into R&D but maybe you could be a little bit more specific on what exactly those costs are going to? Are you adding more scientists? Is it going all towards sort of menu buildout? Maybe just a little bit more detail there?
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John P. Kenny, Meridian Bioscience, Inc. - CEO, Executive VP of Diagnostics Business Unit & Director [8]
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So I'll start, and Eric, you can wrap it on me. So we did talk to the overall increase in expense that we anticipate with the GenePOC acquisition. This will clearly move us, Andrew, into a much stronger investment period for the overall business. So we do anticipate increased R&D investments from this. We have a strong R&D team up in Québec that will be coming across obviously and joining Meridian. So there will be an increased investment there. At the same time, there are also some other operations, expenses and other expenses. This was a full functioning business that was getting up and getting started and many of those elements will retain as we go forward.
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Eric S. Rasmussen, Meridian Bioscience, Inc. - Executive VP & CFO [9]
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So we're getting that the largest portion of the expenses that will be that GenePOC has is in the R&D and is in the development area, and we'll be taking good chunk of those, most of those on. So that's -- that will be the biggest addition and the biggest factor in adding new operating expenses to the Meridian's results.
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John P. Kenny, Meridian Bioscience, Inc. - CEO, Executive VP of Diagnostics Business Unit & Director [10]
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And the last comment I would make, Andrew, is as we've talked before, the need to invest in the future of this business. We are going to be increasing that R&D percent of sales dramatically. It'll be significantly into the double digits versus the 8%, 9% type of range that Meridian had historically back. So this -- we are buying an exciting capability and technology and a great company, but we're going to continue on with increased investment as well going forward from an R&D perspective.
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Operator [11]
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Your next question is from the line of Bill Quirk with Piper Jaffray.
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William Robert Quirk, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [12]
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I'd also like to add my congratulations with respect to GenePOC transaction, pretty neat and we've had the chance to kick the tires on it on more than one occasion. Question on that is the GenePOC team had a fairly aggressive menu buildout strategy, including some of the panels that you highlighted in presentation. Should we assume that the overall priorities for that menu buildout remain the same? Are you contemplating any shifts in one direction or another? Just some additional color there would be great.
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John P. Kenny, Meridian Bioscience, Inc. - CEO, Executive VP of Diagnostics Business Unit & Director [13]
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So as you know, the GenePOC team was aggressively driving to build the platform as well as the testing capabilities on that platform. We will be adjusting a bit of the focus for those tests as we go forward. There were certain elements of that, that were very aligned with the way GenePOC had planned and the way that our strategy was set up. However, there are some other areas that there'll be adjustment. I would say in the near future, we'll come out with a more detailed plan in regards to the overall R&D go-forward. But the early tests, as we said, really do tie more to the gastrointestinal and the respiratory areas. Those are the first things that both us and GenePOC were aligned on as we go forward.
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William Robert Quirk, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [14]
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Understood. And then just thinking about -- and you alluded to in your comments about the reimbursement environment. Obviously, with the move that Palmetto made to restrict overall payments, many of us had assumed that private payers would follow suit -- that actually doesn't appear to be happening. And in fact, there appears to be even some moves underway at National Medicare to change some of the reimbursement elements. So I'm just curious, guys, philosophically, it sounds like you're kind of building this to assume low reimbursement. Obviously, if that doesn't happen, I suppose, there's some potential upside -- longer-term upside opportunities for the GenePOC franchise.
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John P. Kenny, Meridian Bioscience, Inc. - CEO, Executive VP of Diagnostics Business Unit & Director [15]
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So I would say -- so a couple of thoughts on that, Bill. First for all, agree that the reimbursement environment is still not completely clear yet. There was the Palmetto changes and it starts moving with private payers, whether that occurs or not, I certainly can't speak to that. I would also say that outside of the payer environment, we firmly believe before we were even looking at GenePOC that the smart panels, that running large huge panels for every person that walks through the door really is not the appropriate medical approach. There's certainly certain patients that you should do these broad panels on and we fully support that. However, there was being broad use of those panels for kind of everybody walking through the door, and we fundamentally believe that, in health care part of our responsibility is the appropriate type of testing.
So we do believe GenePOC with the capability on the revogene system with up to 12 analytes will enable us the ability to do the appropriate level of testing, certainly for gastro, for respiratory and other panels. But we will develop a menu of single analyte and multiplexing tests really designed to support the strategy we have to be strong in gastrointestinal, respiratory in a primary fashion. That's a first place that we're going to focus.
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William Robert Quirk, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [16]
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Okay. Got it. And then just last one for me is, how should we think about the, I guess, capital deployment priorities going forward? I mean you obviously are removing the dividend, wanted to refocus both internally as well as M&A. Should we anticipate that Meridian will continue to look at additional deals once you obviously get GenePOC integrated and fully funded and such?
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Eric S. Rasmussen, Meridian Bioscience, Inc. - Executive VP & CFO [17]
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Yes. I mean, I think we stated in our strategy that we want to be -- we want to make acquisitions a regular part of our -- a more regular part of our strategy than they had been in the past. Obviously, this is a big one for us and it's going to take some time and effort and resources to fully integrate and absorb. But yes, I think that is certainly part of the plan, and also making sure that we have a very solid balance sheet and we're in a position and where we -- our capital structure is in a good position as well. So I mean we're going to be looking for growth and being responsible with our balance sheet.
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John P. Kenny, Meridian Bioscience, Inc. - CEO, Executive VP of Diagnostics Business Unit & Director [18]
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So let me just add a couple of comments to that, too. As Eric mentioned, we had talked about changing our capital deployment strategy. I think what Eric and I have discussed and we're committed to is really investing in this business to build a stronger Meridian over time. And clearly, this acquisition was a significant move in that direction, but at the same time, we also know that we're going to need to invest and we're going to increase investment in R&D and things of that nature, too. So I think you're going to see a different Meridian than you had historically with higher percents going into research and development and then obviously working to have an R&D and new product development team that can continually bring out new products. So we're actively working on the organization as well to build an organization that can regularly deliver on those fronts. That's work in progress and so we're actively working to that. But this change to the dividend policy was not something we took lightly, but we do believe that it's in the best interest to help us build a stronger Meridian for many years to come.
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Operator [19]
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Your next question is from the line of Catherine Schulte with Baird.
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Catherine Walden Ramsey Schulte, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [20]
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How should we think about pricing of revogene versus Alethia? If you were to convert your current customer base over, what would the net revenue impact be there?
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John P. Kenny, Meridian Bioscience, Inc. - CEO, Executive VP of Diagnostics Business Unit & Director [21]
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I don't know that we've fully worked our way through that. We've got some work to do to get to that. But I think the best way to look at it would be is that we have a nice offering here, but we will look to have a competitive product in the marketplace from a -- what it offers our customers but also from a pricing standpoint. We're not going to go into -- just try to go become a low-cost provider, we're going to make sure that we are competitive into the marketplace. So I don't know that we're fully there yet, Catherine, we have some work to do on that front.
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Catherine Walden Ramsey Schulte, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [22]
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Okay. And then GenePOC lost $7 million in revenue in 2018. Any color on what they are expecting to do in 2019? And any color on the earn-out numbers around revenue?
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John P. Kenny, Meridian Bioscience, Inc. - CEO, Executive VP of Diagnostics Business Unit & Director [23]
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I'll start a little bit, but -- so GenePOC, as an organization, did have a -- had a commercial team. As you know, when you come into the molecular space, they originally had 1 or 2 assays. They've built this up, now they've added the third and the fourth CE-Marked assay. So they were working to build the menu to enable them to effectively compete. But it's also challenging when you come into a new marketplace. So part of the reason that we felt that this made such good sense for both GenePOC and for Meridian was that they've built a great product and an exciting product that can really go a long way. But it's also hard sometimes to get the momentum and the math that you need to kind of get the ball rolling.
So we don't anticipate significant volume coming from GenePOC as an organization. They had $1 million last year, we don't anticipate it being a dramatic increase, but we do believe as we go out and work to convert some of our install base as well as then trying to sell incremental systems that we can start to build more momentum for the -- from a commercial standpoint. They had built a phenomenal product and a really good set of assays that FDA approval in a short period of time. Meridian is well positioned with our commercial team that we've got as well as our install base to be able to help kind of take what they built and take it even further. And I think that's what led the 2 groups coming together.
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Catherine Walden Ramsey Schulte, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [24]
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Okay. And then any update on Magellan, looks like that growth slowed in the quarter, but any update around the FDA there? And how we should think about that business growing over the next 6 to 12 months?
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John P. Kenny, Meridian Bioscience, Inc. - CEO, Executive VP of Diagnostics Business Unit & Director [25]
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I don't think that there's any additional information from what we announced in early April in regards to -- from an FDA standpoint. There's really nothing that has changed there. From a revenue standpoint, this was lower. Throughout, it was low single-digit growth where we've kind of been in the mid-single-digit growth before. We do anticipate that this business is still -- will continue to grow and are working hard. Our team has one of the initiatives that we have not seen the full lift from yet is our sales team has been focused on not just going to individual pediatrician offices with distributors that go there like the McKessons and the Scheins of the world, but also then to try to work with the large IDNs that own many of these physician offices. And that we're starting to increase funnels in these larger IDNs, where they look at all of the pediatricians in their system and determine should they have lead-testing protocols that are consistent with all of their pediatricians. So we're working through that and that's a work in progress that we believe over time can help us to accelerate growth on the lead care products as we go forward. But we haven't seen the full lift of that yet in the first half of the year.
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Operator [26]
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Your next question is from the line of Mark Massaro with Canaccord.
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Mark Anthony Massaro, Canaccord Genuity Limited, Research Division - Senior Analyst [27]
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Congrats on the deal, nice to see some progress on the M&A front. So I guess obviously just looking at the purchase price, it's probably way too short-term oriented at 50x revenue. Building off of Catherine's question, they did less than $1 million in revenue in '18. I think I heard you say, we shouldn't expect a dramatic increase near term and then you indicated that revenues will build in -- likely in fiscal '21. Can you just provide any more clarity around that as we think about building out our models? We're just looking for some type of directional or any type of quantitative placeholder.
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Eric S. Rasmussen, Meridian Bioscience, Inc. - Executive VP & CFO [28]
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I mean, I think we -- frankly, the way we're looking at it is sort of a combined molecular business between our product and GenePOC. So we're not looking at them as individual. So obviously, we will be managing them, but we're looking at the -- sort of the overall -- the molecular business on a combined basis. And so I mean, I think that's when we look at -- when we looked at sort of how to value and how to think about this, it was really the potential of converting a lot of our existing customers and our existing base of business to a new state-of-the-art platform that is competitive and will be competitive for the foreseeable future. So I mean, I think that's kind of how we're looking at that -- the pressure in our current molecular products and offsetting as much of that as possible with growth under the GenePOC platform. And as -- I think as we indicated, that's going to -- we hope that and we hope that as we get into fiscal 2021, that will start seeing some positive contributions from where we are from a revenue standpoint today.
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John P. Kenny, Meridian Bioscience, Inc. - CEO, Executive VP of Diagnostics Business Unit & Director [29]
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So Mark, let me add just a little bit of color to that, too. So if you look at the first 3 tests that are FDA-cleared, Group A, Group B and C. diff. Again, those are the 3 primary tests that make up a majority of our revenues on Alethia. And so obviously that conversion is important. Having been in the Diagnostic space for many years, a lot of times customers don't want to go with the only one in the state in some of the newer products. So we do believe that it's critical to build an install base, get the first couple of hundred placements kind of out there into the field, show people that it's working well and that the people down the street have the system and that it is easy to operate and works very well for their patients. So that's why we do believe this conversion will occur.