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Edited Transcript of QDEL.OQ earnings conference call or presentation 29-Oct-20 9:00pm GMT

·35 min read

Q3 2020 Quidel Corp Earnings Call SAN DIEGO Oct 30, 2020 (Thomson StreetEvents) -- Edited Transcript of Quidel Corp earnings conference call or presentation Thursday, October 29, 2020 at 9:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Douglas C. Bryant Quidel Corporation - President, CEO & Director * Randall J. Steward Quidel Corporation - CFO * Ruben Argueta Quidel Corporation - Director of IR ================================================================================ Conference Call Participants ================================================================================ * Alexander David Nowak Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst * Andrew Frederick Brackmann William Blair & Company L.L.C., Research Division - Associate * Jack Meehan Nephron Research LLC - Research Analyst * Poon Mah Piper Sandler & Co., Research Division - Director & Senior Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by. Welcome to Quidel Corporation Third Quarter 2020 Earnings Conference Call. (Operator Instructions) I'd now like to turn the call over to Mr. Ruben Argueta, Quidel's Director of Investor Relations. Please go ahead. -------------------------------------------------------------------------------- Ruben Argueta, Quidel Corporation - Director of IR [2] -------------------------------------------------------------------------------- Thank you, operator. Good afternoon, everyone, and thanks for joining today's call. With me today is our President and Chief Executive Officer, Doug Bryant; and Randy Steward, our Chief Financial Officer. Our third quarter 2020 earnings release is now available on ir.quidel.com, our Investor Relations website. We will also post our prepared remarks on the Presentations tab of our IR website following the conclusion of this call on October 29 for a period of 24 hours. Please note that this conference call will include forward-looking statements within the meaning of federal securities laws, including our anticipated revenues for Q4 2020. Forward-looking statements, by their nature, involve material risks, assumptions and uncertainties. In particular, our expectations and assumptions around the impact of the COVID-19 pandemic on our business, results of operations and financial condition and that of our suppliers, customers and other business partners are uncertain and subject to change. Many possible events or factors could affect our future financial results and performance such that our actual results and performance may differ materially from those in the forward-looking statements. For a discussion of such factors, please review Quidel's most recent annual report on Form 10-K, including the section titled Risk Factors, registration statements and subsequent quarterly reports on Form 10-Q as filed with the SEC. Furthermore, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, October 29, 2020. Quidel undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call except as required by law. Today, Quidel released financial results for the 3 and 9 months ended September 30, 2020. If you have not received our news release or if you would like to be added to the company's distribution list, please contact me at (858) 646-8023. Following Doug's comments, Randy will briefly discuss our financial results. Then we'll open the call to take your questions. I'll now hand the call over to Doug for his comments. -------------------------------------------------------------------------------- Douglas C. Bryant, Quidel Corporation - President, CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Ruben, and good afternoon, everybody. Welcome to my 47th consecutive quarterly earnings call. I hope that you and your families are well and safe during these challenging and uncertain times. At the moment, America faces the prospect of a third wave of COVID-19 infections, as indicated by a rise in the number of daily cases, now up to 23 infections per 100,000 residents. The spread of the novel coronavirus has migrated from metropolitan centers to suburban areas and even to the countryside. The weather is getting colder, and the flu season is still looming. As we face the potential for a third wave and another rise in infections, our company understands the need for increased testing and continues to rise to the challenge in the fight against COVID-19 by expanding access to affordable, highly accurate diagnostic testing throughout our communities. I couldn't be more proud of our people, those deemed essential as well as those working from home, with the way that they've embodied the Quidel spirit through dedication, determination, perseverance, singular focus, quick problem-solving ability and a team-first mentality, all the qualities that are a bedrock of our company's culture and allow us to tackle a challenge like COVID-19 head on. We had a record quarter in terms of revenue, consistent with our pre-announcement and a record in terms of profit for the quarter. To be efficient, I'll let Randy provide more detail on revenue and margin in a minute. Here are the revenue drivers for Q3 at a high level and what we can expect in Q4. First, the rapid point-of-care operations and supply chain teams in San Diego exceeded expectations. Line 2 was converted to SARS antigen production, and the nasal foam swab issue that slowed the kitting process has been resolved, which together enabled us to reach the level of 2.1 million kitted Sofia SARS Antigen tests per week. We believe we can sustain that level of production throughout the fourth quarter. While shipments in Q3 of Sofia Influenza should have been and were lower than the prior year quarter, we have manufactured and shipped several million dollars of our Sofia Influenza tests already this quarter as well as several million dollars of our Sofia ABC combination tests. We expect at this point to move to 80% ABC combination tests and 20% SARS Antigen tests in December. We placed approximately 5,000 Sofia 2 instruments in Q3 and expect to exit the year with about 75,000 analyzers on the ground. With recent increases in instrument production, we expect to satisfy most of the pent-up demand from the traditional laboratory segment by the middle of Q1 2021 and can then begin providing instruments more routinely to newer market segments and opportunities, which are endless. I will mention QuickVue SARS antigen when I talk about pipeline, but we're expecting a meaningful revenue contribution from this new product in Q4 as well. Second, the molecular operations and supply chain teams in Athens, Ohio were rock-solid in Q3 and poised to both meet increasing demand for Lyra SARS in the fourth quarter and to ramp up production of Solana SARS following EUA clearance from the FDA for that new product. Third quarter revenue for Lyra SARS driven by orders from just over 120 North American customers and a handful of international sites was better than we had suggested. And fourth quarter Lyra SARS revenue looks to be about 1/3 higher sequentially. We're expecting a meaningful revenue contribution from Solana SARS in the fourth quarter as well. In terms of our ongoing COVID pipeline, we will go into some detail at our Investor Day, which is scheduled for November 12. In the meantime, here are a few high-level notes. First, in Q4, we expect to launch our Sofia Serology assay, another first of its kind, into a limited number of sites to do studies with the intent to demonstrate the clinical utility of the point-of-care finger-stick combination assay that tests for IgG antibodies to the nucleocapsid protein and to 2 distinct epitopes, S1 and S2, of the spike protein in just minutes. We also expect to launch QuickVue SARS, which promisingly has shown similar performance in terms of agreement with PCR to Sofia SARS antigen. We are executing on a plan that should get us to a manufacturing capacity of 50 million QuickVue SARS tests at some point per month in 2021. In terms of molecular products, we are expecting to launch the Solana SARS in Lyra ABC in Q4. Initially, we intend to manufacture about 1 million Solana SARS tests per month for about 700 or so of our existing Solana customers. Each Solana instrument can perform 12 Solana SARS assays at once in 25 minutes. The data generated by the Solana SARS isothermal molecular assay show a remarkable agreement with extracted PCR. We expect that demand for a more complex assay with this speed and performance to be quite high. In terms of our core business and pipeline, I'll save that for the Investor Day, which should allow more time for your questions today. During our time together on November 12, a few members of our executive team and I will cover 3 topics. First, we'll take you through what our long-range plan looked like before COVID, a plan that resulted in 12% compounded revenue growth over a 6-year period. I'll provide an overview, then we'll jump into the details. Dr. Tammi Ranalli and Dr. Johannes Kehle will bring you up to speed on the Savanna program. As you'll see, Savanna is destined to become the next flagship product for Quidel and is expected to be a key growth driver for the company. Bill Ferenczy, who heads up our Cardiometabolic business unit, will provide an update on TriageTrue, our high-sensitivity troponin assay. And Dr. Werner Kroll will talk about our non-COVID Sofia product line. And I'll summarize by talking about the longer-term collateral benefits of what we're doing with COVID and how that derisks our longer-term growth plans. Next, we'll provide an update on the entire COVID pipeline, and we'll describe our expectations for those products over the next couple of years. Karen Gibson will give you an update on the Sniffles program, and we'll talk about use cases for the product and the market segments that seem to be the best fit. And finally, we will talk about bigger and more aspirational ideas. Dr. Werner Kroll will discuss project Leapfrog and how this advanced technology could address many diagnostic testing needs at the point of care or even a home. We'll talk about our vision for at-home testing and the democratization of point-of-care testing for many routine conditions. And Randy Steward, our CFO, will talk about our financials over the LRP and our thinking around capital deployment. It should be a great half day, and I look forward to bringing you all under the tent, so to speak. In summary, the 1,300 employees at Quidel had a great quarter, and we're poised for a great year-end and an even better 2021. I realize that some of our larger competitors dismiss us and think that we are punching way above our weight. But this company was built for what we're doing today. We have extraordinary, strategic, technical and commercial competencies and the ability to scale to much greater heights. And most important, we are happy. Randy? -------------------------------------------------------------------------------- Randall J. Steward, Quidel Corporation - CFO [4] -------------------------------------------------------------------------------- Thank you, Doug. Good afternoon, everyone. As Doug stated, we had another very strong quarter that exceeded our own expectations. Our employees have truly risen to the COVID-19 challenge by delivering new products to markets and continuing to expand production for newly launched COVID-19 antigen and PCR products, making a profound difference in people's lives and livelihoods. Through the dedication and hard work of our organization, we've positioned the company for a strong end of the year and beyond. As reported, total revenues for the third quarter of 2020 were $476.1 million. This compares to $126.5 million in the third quarter of 2019. The 276% increase in revenue was driven by significant growth in our Rapid Immunoassay and Molecular categories, driven by considerable demand for our COVID-19 diagnostic products. We did realize minimal declines in demand for the Cardiometabolic and Specialized Diagnostic Solutions product categories. Foreign currency had a positive impact of $500,000 in the quarter. Rapid Immunoassay product revenues increased $294.5 million to $337 million in the third quarter of 2020. Within this category, Sofia products grew $303.2 million to $331.9 million, of which $317.9 million was attributed to Sofia SARS Antigen sales. QuickVue product revenues decreased $8.7 million to $4 million. In September, we did not realize the ramp-up of distributor purchases of influenza, strep and RSV heading into the respiratory season as we have seen in previous years. We intentionally prioritized our production and shipments towards the SARS antigen test. As a result, influenza Rapid Immunoassay revenue was $7.9 million with approximately 90% of that revenue derived from the Sofia platform. For the Cardiometabolic Immunoassay business, revenue was $64.8 million, a 3% decrease versus the third quarter of 2019. More importantly, this category was up $10.6 million sequentially, and we are optimistic that the Cardiometabolic category has stabilized. Of the $64.8 million in revenue in the third quarter, $32.7 million was derived from the Triage business and $32.1 million from the Beckman BNP business. Year-over-year, the revenue decline was realized in 2 of the 3 major geographies. However, sequentially, growth was observed in these 3 major geographies, a very encouraging sign. Revenue in the Specialized Diagnostic Solutions category decreased 10% or $1.2 million in the third quarter to $11.2 million, mostly driven by a decline in our respiratory products from our cell culture business. Our Molecular Diagnostic Solutions category increased $58.3 million in the quarter to $63 million, driven by $57.8 million in sales of our Lyra and Lyra Direct SARS-CoV-2 products. Despite these being gap-filling products in the sense that these reagents have no proprietary instrument and are used as a second or third option, we are seeing good growth from these products and believe that we will continue to see added growth as more small and midsized labs continue to bring PCR testing in-house. In the quarter, total influenza revenue, which includes Rapid Immunoassay, DHI Respiratory and Molecular Diagnostics, was $9 million. Gross profit in the third quarter increased $307.8 million to $383.6 million, and gross profit margin was 81%. This improvement was driven by the demand for the SARS-CoV-2 assays, which drove improved product mix. In addition, higher volumes contributed to increased manufacturing overhead absorption. In the third quarter, as in the second quarter, we realized a significant improvement in our profitability profile because over the short term, we do not incur material variable operating cost increases. In the third quarter, total operating expenses measured as a percent of revenue declined by 28 percentage points versus last year and sequentially declined by 16 percentage points to 16% of revenues, helping improve our operating income in the quarter to 65% of revenues. We see this trend continuing into the fourth quarter as well. We continue to invest in R&D with the goal of launching additional COVID-19 diagnostic assays, advancing on our Savanna initiatives as well as introducing new Sofia assays and next-generation platforms such as our internally named project Sniffles. We will also continue to invest in our sales and marketing organization as we expand training in new markets such as nursing homes and occupational health and significantly broadening our customer base. For the full year, we're currently estimating R&D spend to be in the range of $80 million to $85 million, and our G&A spend for the full year should be in the range of $65 million to $70 million. In the quarter, we recorded a $10.4 million loss on extinguishment of debt. This was a result of retiring in cash $5.9 million in principal of our convertible notes. The current principal outstanding balance on the convertible notes is $6.8 million. As it relates to the provision for income taxes, we recorded $63.5 million in income tax provision in the quarter, and the effective tax rate was 21%. All items adjusting our tax had an insignificant impact, including discrete tax benefits from excess stock compensation. We are currently estimating a full year effective tax rate between 21% and 22%. This rate is approximately 2 percentage points higher than previous estimates due to the increase in pretax income versus prior years. We successfully completed this quarter our contract with the NIH in support of increasing our manufacturing capacity. The total contract value is for up to $65 million. The contract has a performance period of 1 year beginning July 2020 with key deliverables and milestones that would directly support the addition of new immunoassay manufacturing lines as well as outfitting a new distribution center. As part of the agreement, the company will provide to NIH Sofia 2 instruments and COVID-19 assays. As of the end of September, we had $77.5 million in cash and cash equivalents. During the third quarter, the company generated $70.5 million in cash flow from operations. This number would have been larger had it not been for the approximately $244 million investment in accounts receivable and inventory as we accelerate our growth to support increased production of SARS assays. In the quarter, company also invested $22.7 million in capital expenditures. At the end of the current fiscal year, we anticipate having in excess of $500 million in cash on the balance sheet, no convertible debt outstanding and no outstanding balance on our revolving credit facility. In short, we have a very strong capital structure, access to credit, good cash flow, which places us in a great position to support our future initiatives. Those initiatives include increasing our R&D investment, strengthening and expanding our supply chain, aggressively ramping up our manufacturing capacity and pursuing M&A. And with that, we conclude our formal comments for today. Operator, we're now ready to open the call for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And your first question is from the line of Brian Weinstein with William Blair. -------------------------------------------------------------------------------- Andrew Frederick Brackmann, William Blair & Company L.L.C., Research Division - Associate [2] -------------------------------------------------------------------------------- This is Andrew Brackmann on for Brian. Just to start, one for housekeeping. I may have missed this, but did you give guidance for Q4? And if so, could you just break down Sofia antigen as part of that? -------------------------------------------------------------------------------- Douglas C. Bryant, Quidel Corporation - President, CEO & Director [3] -------------------------------------------------------------------------------- We've said previously, actually in the pre-announcement, that revenue for the fourth quarter will be at least $800 million. We've not broken out the contribution of Sofia SARS Antigen or the ABC product, but I can tell you that we do anticipate manufacturing, on average, around 2 million tests per week. And that would be inclusive of all the products. So whether it's the combination assay or SARS antigen only, the total would be 2.1 million tests per week. -------------------------------------------------------------------------------- Andrew Frederick Brackmann, William Blair & Company L.L.C., Research Division - Associate [4] -------------------------------------------------------------------------------- Okay. And then recognizing it's the end of October and a number of crosswinds to consider. But as we sit here right now and thinking about 2021, the outlook there, should we be assuming sort of demand for COVID testing across your portfolio sort of persist at least through 2021? And then along with that, should pricing remain relatively stable? -------------------------------------------------------------------------------- Douglas C. Bryant, Quidel Corporation - President, CEO & Director [5] -------------------------------------------------------------------------------- It seems to be the question of the day and the week, Andrew. I would say there's not enough known yet about this virus, about immunity. In particular, we don't know enough about reinfection. I could say though that we're certainly being asked by a number of folks, including the government, to ramp up production to really high levels. And so I think it's the expectation that this is going to persist well beyond 2021. Whether it's 2022, '23, I couldn't say at this stage. But at this point, it feels to me like this will not abate in terms of the level of tests required, certainly, until sometime in 2022 and beyond. -------------------------------------------------------------------------------- Andrew Frederick Brackmann, William Blair & Company L.L.C., Research Division - Associate [6] -------------------------------------------------------------------------------- Okay. That's helpful. And then I don't want to steal your thunder for a couple of weeks from now. But as we think about the end market dynamics here, how should we be thinking about the use case for antigen testing between symptomatic and asymptomatic testing sort of evolving over time? And I guess along with that, how should we be thinking about any potential asymptomatic claims for your products here moving forward? -------------------------------------------------------------------------------- Douglas C. Bryant, Quidel Corporation - President, CEO & Director [7] -------------------------------------------------------------------------------- Well, 2 questions in 1 there. But I see asymptomatic testing becoming more routine. I think we're seeing in the Pac-12 and the Big Ten, as an example, comfort around daily testing and the desire on the part of both conferences to keep their, excuse me, contact sport athletes safe. And I think we're going to see data coming out of the University of Arizona that may be published sometime soon. We'll see some studies that we're working on with the NIH that will be published as well. So I do think that as a country, we're going to get comfortable with the idea that even though I don't have symptoms, routinely testing is probably a pretty good idea, whether it's folks going to school, whether it's grandma and grandpa who need to know whether they can safely have their kids come visit, whether it's our employees. Currently, we're testing every Wednesday. I got swabbed yesterday. I assume -- I didn't get a call, so I guess I'm negative. But we're testing everybody who comes in here every Wednesday. And right now, the prevalence is low. I guess we have actually had one positive. But we think that that's what we need to do to keep our employees safe. And I see that going on for some period of time. So asymptomatic testing seems like a reasonably good strategy. Obviously, the number of people who are symptomatic could decline over time, and that would be helpful. But I do see that asymptomatic testing is going to become pretty important moving forward. And we don't know what's going to happen on the serology front. We still don't know really what the benefit of all that is at this stage, but we're going to know more moving forward. So thanks for that question, Andrew. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Your next question is from the line of Steven Mah with Piper Sandler. -------------------------------------------------------------------------------- Poon Mah, Piper Sandler & Co., Research Division - Director & Senior Research Analyst [9] -------------------------------------------------------------------------------- So maybe just to continue on this question about asymptomatic testing and how big the market could be. But as I start seeing universities doing a lot more testing, back to work. You see like Major League Baseball, push sports teams doing this more. And it does seem like we are going to asymptomatic testing. What do you think the sort of the run rate is going to be? Because I've heard a lot of numbers thrown out by think tanks at 3 million to 5 million tests per day, but maybe get some color on what you think the run rate will be. -------------------------------------------------------------------------------- Douglas C. Bryant, Quidel Corporation - President, CEO & Director [10] -------------------------------------------------------------------------------- Yes. I can only talk about the conversations we've had. I can't talk about, ultimately, what the total market might be. We certainly have not spent that amount of time, and frankly, I don't know if we're smart enough. But I can tell you that from the calls that we've taken, and I've said this publicly before, just if I add up the number of tests being requested by different organizations, whether it's entertainment, sports, large employers, just that number of calls and the sum of that, that adds up to about 685 million tests per year. So is that real? I don't know. I'm just telling you that that's what we do know. We've taken these calls from these types of people. And some people have sent us T-shirts and hats, some -- all sorts of things, trying to get us to chat with them about how we could do this for them. 685 million is the number I have right now of who is requesting from me to do their testing. I hope that's helpful, Steve. -------------------------------------------------------------------------------- Poon Mah, Piper Sandler & Co., Research Division - Director & Senior Research Analyst [11] -------------------------------------------------------------------------------- Yes. No, no, that's helpful. Yes. And I did notice, yes, there was a 2 million -- a couple 2 million tests per day a couple of weeks ago. Okay. So my next question, it's a 2-part question, more along the high throughput testing reimbursement. It seems that Medicare had lowered the rate to 75 with a $25 kicker if they can meet some performance parameters. So could you maybe address what you think the -- if there's going to be similar pricing pressures on the low throughput side? And then the second part of the question, have you considered pricing of your combo assay? If you can give us some color on your thoughts on pricing. -------------------------------------------------------------------------------- Douglas C. Bryant, Quidel Corporation - President, CEO & Director [12] -------------------------------------------------------------------------------- Sure. So on the first question regarding reimbursement, it is true that the laboratory reimbursement, the folks who are being reimbursed for actually running the test, is going to be reduced in some instances from 100 down to 75. By the way, just on that -- and I don't see how that has any impact whatsoever on pricing. Certainly hasn't had an impact on pricing on PCR tests at this stage. When you think about it, we've said before that we price our product into the end user market for PCR somewhere around $30. Relative to the 75, that's still less than 50% of that reimbursement. And when you look at our space generally over time, you'll see that typically, you can pass the red face test if your product is in that 50% to 60% range relative to what the reimbursement is. So in other words, that leaves a lot of margin for the lab. After paying for labor, buying your product, performing the test, that still leaves a lot of margin for the lab. So I see no impact on the pricing there. Similarly, I wouldn't see any impact on the low end as well. Right now, we certainly, at $23 a test, are significantly below what the reimbursement is. So if the reimbursement were adjusted downward slightly, I wouldn't see that, that would have any impact there as well. At the end of the day, the price in the market today for these products isn't necessarily driven by the reimbursement. It's just driven by demand. And so there's no reason to look at price differently. I think from our perspective, relative to other competitors in the market, we are priced appropriately. We're at the low end. And so I don't see any price pressure, particularly when you consider that we -- I know I'm biased, but I would suggest that Sofia SARS Antigen is the premium brand. And so I think we're priced about right. So I don't see any price pressure for us, certainly, and I don't see it for the PCR folks either. And then the pricing on the combo, which was your second. We've said before that we are going to be at end user somewhere around $35, realized that net sales would be lower as we would obviously pay a rebate to our distributors. So the net-net, we would be just under $30, I suspect. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Your next question is from the line of Alex Nowak with Craig-Hallum Capital. -------------------------------------------------------------------------------- Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [14] -------------------------------------------------------------------------------- Great. We've seen some big partnership announcements -- we've seen some big partnership announcements with Quidel and some others like the Pac-12 and the Big Ten. But I think the 2 places that make the most sense to see a Sofia in every single store is someone like a CVS or Walgreens. So maybe not those 2 directly, but could you speak to any more of the retail-oriented partnerships that you're in discussions with? -------------------------------------------------------------------------------- Douglas C. Bryant, Quidel Corporation - President, CEO & Director [15] -------------------------------------------------------------------------------- Sure, that's a great question, Alex. It's a logical place for Sofia. It's a logical place for Sniffles as well. And we'll talk more about that at Investor Day. But please remember that when we started here, we said that we were going to do what we could do for the greater good to get testing democratized into the communities closer to the patient, primarily at the onset to make sure that health care providers and first responders were being tested. So therefore, we feel obligated to be in the segment that we would call the professional segment. That's hospital labs, large clinics, urgent care and all those who logically could provide that testing to folks who really, at the onset of all this, actually needed the testing. We were constrained, as you'll remember, Alex, by the number of boxes we were producing at the time. We've now expanded our production from the instruments we get from Australia to about 2,500 a month. And you would have seen that not so far from you all, in Wisconsin, we are manufacturing as many as 7,500 instruments per month there, so for a total of 10,000. We're nearly there. We think we'll be at that level sometime in November. And at that time, as I said in my prepared remarks, we should be able to move into those other segments like retail. So you can imagine that we've been contacted by everybody that you can name and probably some that you don't even know about. So we do think there is a robust retail segment. We think we have a product that fits that segment super well. And we will be pleased when we can actually ship them the instruments that they're asking for. -------------------------------------------------------------------------------- Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [16] -------------------------------------------------------------------------------- That's great. Very helpful. And then expanding on the asymptomatic testing, assuming routine asymptomatic testing does take hold, clearly, an at-home test is going to be necessary. So you touched on it a little bit. But can you just expand on Quidel's plans for home testing, how that product would work, if it's going to be over the counter and then when we could see something launched here by Quidel? -------------------------------------------------------------------------------- Douglas C. Bryant, Quidel Corporation - President, CEO & Director [17] -------------------------------------------------------------------------------- Step 1 is the QuickVue SARS antigen approval in the traditional point-of-care segment. Very quickly after that, we will conclude work in the at-home segment. It is our intent to be in that segment. It's one of the reasons why we feel like we need to make the investment to get to 50 million tests per month. And we're highly interested in it. I think it is a watershed moment in the evolution of diagnostic testing. I do think moving forward that you'll see more and more at-home applications for routine conditions. And we want to be at the forefront of that. So I do know that there are others that are interested in it. They should be. We certainly are, and we plan to be there as quickly as we can get there. So QuickVue will be our entry there. And we're debating on Sniffles. Do you really want an instrumented system at home? I suppose we could. We do have one very large retailer that I won't name today that has been chatting with us about our various instrument platforms, including Sniffles, and we'll see what transpires moving forward. We're not at the stage yet where we would announce exactly what our intent is, recognizing that our transcript gets routed around every one of our competitors that we're aware of. So describing the game plan today, I'd love to, but I think it's just a little premature. -------------------------------------------------------------------------------- Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [18] -------------------------------------------------------------------------------- No, understood. But maybe I'll ask, when do you -- would you expect to get to a 50 million run rate on a QuickVue, if you're willing to share? -------------------------------------------------------------------------------- Douglas C. Bryant, Quidel Corporation - President, CEO & Director [19] -------------------------------------------------------------------------------- I think there's some variability there, depending on the rate at which our engineering companies can fabricate the equipment that we need. We've placed orders. We're trying to find other folks that can scale to do the same thing. It's not really our effort or our time line. It's more of the time line of the folks that are building the equipment for us. We certainly have an existing footprint right now that will accommodate some of that. And I think we can get to 100 million tests every year right away. So that's about 20% of what we need. What we need is the remaining 80%. And that's where we're at. So I haven't named a month yet just because we have a plan. I've seen the plan. We're executing the plan. Can we pull it forward? I hope so. But it will be sometime in 2021 where we're at that level. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- (Operator Instructions) Your next question is from the line of Jack Meehan with Nephron Research. -------------------------------------------------------------------------------- Jack Meehan, Nephron Research LLC - Research Analyst [21] -------------------------------------------------------------------------------- Doug and Randy, I was wondering if you could give a little bit more granularity just bridging from the third quarter to your expectations for the fourth quarter for some of the key products. Were you expecting for the ABC test the amount of conversion toward that? And do you have anything built in for QuickVue in the fourth quarter and Solana, the new assays coming in? -------------------------------------------------------------------------------- Douglas C. Bryant, Quidel Corporation - President, CEO & Director [22] -------------------------------------------------------------------------------- Yes. Thanks, Jack. I appreciate that question because we did say at least 800 million. And so the first bucket is Sofia SARS, Sofia ABC and Sofia flu. There, again, we won't be making more than 2.1 million tests per week of any one of those or all of them. So the max is 2.1 million. We'll spread it between those 2. Obviously, we've made some flu product. We've made some combo product. There will be demand, obviously, for some people with legitimate reasons to run just the SARS product. So we're mindful of that. For example, customers that are serving the presurgical market. They don't need to run flu. So let's not make them buy a flu test. But for folks that are symptomatic and the upcoming flu season, we're going to hope to persuade them to buy the combo product exclusively. And then we're planning on even force-converting, if we have to, a portion of the market. Clearly, there are some folks that need to run Sofia flu exclusively or separately, if you will. That would be the Sofia 1 customers that haven't converted to Sofia 2 yet. So obviously, we have an obligation to get those people instruments, and we will. That's our intent. So that's the major bucket of growth. The cardiovascular business, we expect to be nearly back to what it was before all of this. And I think we're going to do something in the mid-60s, right, maybe 65 million or so is what we have scheduled for the fourth quarter. So that should be back in line. Another big increase, as you may have heard on my prepared remarks, is we're getting another third increase in terms of our sales of Lyra SARS. So I won't force you to figure the math out. We should come in somewhere around 80 million for Lyra as well. As you can see, that's a pretty big lift as well. And then we do have some new products, Sofia Serology, which I wouldn't model a lot there. We don't intend to do anything more than the studies that we need to demonstrate the clinical utility of that particular product, recognizing that we are testing for antibodies not only to the nuclear protein but also to the 2 spike proteins. We think that's meaningful, but we're going to need to show it. So we're running those tests, and then we're going to launch these 2 products. Sofia SARS -- I'm sorry, QuickVue SARS. And we do expect meaningful contribution from that product. That product is at the FDA under active review right now. Solana SARS, we're in the final stage of the validation data that we need to submit to the FDA. And we're expecting a reasonably big contribution there to an audience that already has the instrument and essentially knows it's coming. So the timing of that will affect where we're at. Obviously, we've risk-adjusted all of that, and that's how we get to 800. So I don't think it's going to start with a 9. So let's not get carried away, but I think we're comfortably going to start with an 8. -------------------------------------------------------------------------------- Jack Meehan, Nephron Research LLC - Research Analyst [23] -------------------------------------------------------------------------------- That's all helpful. On the new product front, it'd be great to get an update as to where -- maybe the progress you've made since the second quarter on Savanna. -------------------------------------------------------------------------------- Randall J. Steward, Quidel Corporation - CFO [24] -------------------------------------------------------------------------------- We're... -------------------------------------------------------------------------------- Douglas C. Bryant, Quidel Corporation - President, CEO & Director [25] -------------------------------------------------------------------------------- I'm sorry, Randy, what are you saying? -------------------------------------------------------------------------------- Randall J. Steward, Quidel Corporation - CFO [26] -------------------------------------------------------------------------------- He just wanted an update on Savanna, which we'll give a lot more detail on Analyst Day. -------------------------------------------------------------------------------- Douglas C. Bryant, Quidel Corporation - President, CEO & Director [27] -------------------------------------------------------------------------------- We will provide -- what I will tell you is this just briefly. We have engineering confidence build units. We put those -- all the subcomponents through their [paces]. The instrument itself is performing extraordinarily well. We did have a little -- a bit of a challenge with the drawer that receives the cartridge. You can imagine, remember the old CD days where you put a CD and you just touch the drawer and it pulls it in. So you have a motor that's actuated by you pressing. You had to press a little too hard and -- but we've changed that. So we've changed the motor. We've changed all that. Other than that, everything else is going to move forward into the alpha units. And it's those units we're building now that we'll use in the clinical trials will be in customer sites. And actually, in some cases, they'll just keep those instruments. And we expect to build 73, is it, 73 analyzers that will be doing clinical trials and at least 3 or 4 major sites throughout the country, very early in the first quarter. -------------------------------------------------------------------------------- Jack Meehan, Nephron Research LLC - Research Analyst [28] -------------------------------------------------------------------------------- Sounds good. And then last one... -------------------------------------------------------------------------------- Douglas C. Bryant, Quidel Corporation - President, CEO & Director [29] -------------------------------------------------------------------------------- More details will follow, Jack, when we talk to you on November 12. -------------------------------------------------------------------------------- Jack Meehan, Nephron Research LLC - Research Analyst [30] -------------------------------------------------------------------------------- Okay. Looking forward to that. And Randy, the build on the balance sheet for accounts receivable, do you think that -- I heard the commentary around cash flow for the year. But do you think that continues to build as sales expand? Or is there an opportunity, given your positioning in the market, to maybe pull that in a little bit and improve? -------------------------------------------------------------------------------- Douglas C. Bryant, Quidel Corporation - President, CEO & Director [31] -------------------------------------------------------------------------------- I'll talk about the McKesson thing a little bit as well, Randy, because we had expanded the... -------------------------------------------------------------------------------- Randall J. Steward, Quidel Corporation - CFO [32] -------------------------------------------------------------------------------- Yes. Yes, for a short time period, Jack, we had provided some extra terms to our distribution partners as they were ramping up as well. That now has gone back to more normal terms. So we're going to get back to more normalized DSO terms that are in the 45- to 50-day period. So that's where we will see, as a DSO perspective, reduction here between now and December. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- And that is all the time we have today. Please proceed with your presentation or any closing remarks. -------------------------------------------------------------------------------- Douglas C. Bryant, Quidel Corporation - President, CEO & Director [34] -------------------------------------------------------------------------------- Well, that's all we had for you all today. I would just say thanks, everybody, for your support and of course, your interest in Quidel. We had an excellent third quarter, as you saw. We're expecting an even better fourth quarter, and we're in really good shape to achieve our growth objectives over the next few years. You'll see more detail on that on the 12th of November. And I'll just say thanks again for being with me on my 47th earnings call. -------------------------------------------------------------------------------- Randall J. Steward, Quidel Corporation - CFO [35] -------------------------------------------------------------------------------- Congratulations, Doug. -------------------------------------------------------------------------------- Douglas C. Bryant, Quidel Corporation - President, CEO & Director [36] -------------------------------------------------------------------------------- Thanks. All right. We'll talk soon, everybody. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- Thank you. Ladies and gentlemen, we thank you for your participation and ask that you please disconnect your lines. Goodbye.