Doug Bryant - President & CEO
Tycho Peterson - J.P. Morgan
Quidel Corporation (QDEL) 31st Annual J.P. Morgan Healthcare Conference Call January 9, 2013 10:30 AM ET
Tycho Peterson - J.P. Morgan
Alright, good morning. We are going to go ahead and get started. I am Tycho Peterson from the life science tools diagnostics team. It’s my pleasure to introduce our next company this morning Quidel. For those interested in the breakout it’s going to be in the Yorkshire Room just down the hall.
So let me turn it over to Doug to tell you a little bit more.
Thank you, Tycho. Good morning everyone. Thanks for joining us at 7:30 in the morning. With me this morning are, Randy Steward, our Chief Financial Officer; Ruben Argueta, our Investor Relations Manager and Rob Bujarski, who is our Senior Vice President of Business Development and General Counsel.
For this morning’s presentation the deck itself will be on the website and I would encourage you to look at it to see overall what our strategy is, but for this morning what I hope to do is just focus in on a couple of key slides that will direct us so that we can update on what's happening most recently and what our milestones are going forward in 2013 that help us ultimately get to where we hope to be.
This is our Safe Harbor statement. We will be making forward-looking statements; I would especially like to thank Rob for crafting this. It’s well done Rob.
Let me fast forward to the company history. The company had been around for sometime before the current management team came onboard with a mandate to broaden our business. There were two issues with the company that we are trying to solve one of which is that our primary product flu test is the greatest contributor to our margin. The volatility of that is it makes it difficult combined with the fact that we have two of our larger volume products which are not at the gross margin that we like. So we came onboard in 2009 most of us with a mandate to broaden our base of business and to do some things that created a broader diagnostic company.
We like the flu business; we think it’s interesting but the remainder of the business needs to be equally as attractive. So we've gotten a couple of things done. Beginning in 2009, we initiated a collaborative agreement; we completed that agreement with a company called BioHelix; the company that we've been working with to develop what is now called the AmpliVue product line and I'll talk a little bit more about our first US introduction of an AmpliVue product here shortly.
And then early 2010 we announced the acquisition of Diagnostic Hybrids. This is a company that not only gave us a broader base of revenue but also R&D and manufacturing talent, something that we needed for our molecular strategy.
And then equally important, we entered into an agreement with North Western University to develop, what has been called the Wildcat, a fully integrated molecular diagnostic instrument that would be inexpensive enough to be placed in Africa to do HIV viral load testing and we've been working with them on that project. That collaborative agreement also gave us access to intellectual property around the novel extraction technology that is inherent in the Wildcat system and I would be happy to talk more about that later if you like.
Equally important again, in 2011, we were clear here in the United States for Sofia and I will talk about that in some detail. And then in April 2012, we received a waiver and have been launching this CLIA waiver and have been launching that product in the physician office segment since about June.
This is a brief financial snapshot. I think a couple of things worth noting is that 2012 now with the announcement last week of our revenues for Q4, the revenues for 2012 are known. We had a $101 million in revenues through the end of September and then in the announcement on Friday, we said that we expect revenues between [Technical Difficulty], so you can see sales in 2012 actually look somewhat similar to what we saw in 2011.
At the end of the third quarter, we had about $17 million in cash and clearly would have generated more cash in the fourth quarter. We had $19 million of debt at the time and I will just let you know that we obviously made a payment on that debt in the quarter, so that at the end of the day we are in excellent shape as we go into 2013.
This is the management team; I think a couple of things are worth noting. Since 2009 more than half of the folks here came onboard with me. We arrived again with a mandate to build a broader base diagnostic company; a company not dependent on flu margin or for flu in terms of cash generation.
I like this slide in particular because on one slide I am able to capture generally what we are working on. We have three platforms, if you will, the rapid point-of-care diagnostic platform which is our legacy set of products those are visually red and most under the brand name QuickVue. Since mid-2012 with the launch of Sofia, we now have an instrumented system that provides objectivity and connectivity and as I’ll describe in a little bit has been doing actually quite well.
We also have our Cellular business in the United States are approximately 1,000 clinical virology labs that do a number of things to analyze viruses and the Diagnostic Hybrids is a big participant in that space. We are in about 70% of the customers here in the US. We have program that’s ongoing called Stella; formally called Bobcat that would automate the reading of those DFA slides, the visually red DFA slides. We expect to be in clinical trials eminently. We are hopeful that we will see a lot more Flu B this season, although I have to admit that so far we are seeing a lot of [Technical Difficulty] so I'm not exactly sure how successful we will be at finding Bs at the stage, but we are going to give it a shot. And then finally there's the molecular program which has really three elements to it, one the visually read AmpliVue products. This is as I described before the world’s first disposable molecular device.
We are launching our first product now; in fact we got FDA clearance on December 21. We sold our first product on December 21, and in advance of training our people, but we are training our people next week in Dallas, Texas and we expect to have the full launch moving forward and I would suggest that we will either do extremely well in the next 120 days or we won't.
But I think as we head into the March timeframe during which we hope to hold an investor conference, in fact that's scheduled for March 7, we should have a pretty good feeling for how its going and we should be able to update our audience on how well we are doing with AmpliVue C. difficile. So the AmpliVue has a number of products in development obviously C. difficile being one, MRSA for blood culture confirmation is currently in development and expected to be in clinical trials eminently. We have a Group B Strept Assay that will be heading into clinical trials this year as well and then we have a [protestis] assay that we could get cleared before the end of the year.
In addition we have a number of PCR based assays that are developed for two purposes. One is to provide customers with the ability to do those assays on their own amplification platforms, but the longer term strategy is to have a number of assays that are ready to go when we launch Wildcat, the instrument that we are co-developing with Northwestern University.
I've said publicly before that we expect 20 targets at launch, and I'm absolutely confident that we are on track to do that. Among the 10 products that we expect to launch in 2013, many of those actually are open-box PCR assays. This slide has a number of things on it, but the thing I like to point out is the fact that the intent moving forward is to have the orange piece of the pie down below to be smaller and smaller. The orange piece of the pie is the influenza.
It wouldn't bother me if every year we had a very large flu season that's not a problem for us. The problem is when we don't, and as a percentage it would be great if we continue to grow the flu business [Technical Difficulty] and that's actually the intent moving forward. I think it’s safe to say that by 2015 the percentage will be quite. We do expect as we've said before in 2015 to have revenues north of $250 million and I'll breakout how we get there in a minute. But with the new products being significantly accretive from a gross margin perspective our operating margin for the business overall to be north of 30% and if that's true then we should be able to generate EBITDA of somewhere around a $100 million at that time.
Now how we get there from where we are today? We've said before that the sum of the value of the programs we had in place should generate 100 million in incremental revenue that breaks out in to two major chunks, the first of which is Sofia. We’ve said publicly before that we expect in 2015 to have 10,000 analyzers on the ground by then, each generating $10,000 to $12,000 per year in revenue. We said that the cannibalization rate would be about 35%, because the new products that [Technical Difficulty]
The quantitative assays that we're introducing, we obviously don’t manufacture it today. I think we're very much on track with that. In our announcement on Friday, we said that we now have over 3000 [Technical Difficulty] on the ground. So clearly the objective of 10,000 by 2015 is achievable, particularly when you consider that we placed the 3000 analyzers from June of 2012 until now, during a period of time where we only had one assay and it was for flu.
So most of the analyzers obviously on the ground, well before the start of this flu season, I don't know what the impact of this sudden onset of flu will be in terms of replacement rate, but so far we obviously don’t see that it’s harmful. This is just briefly a slide that shows we do have significant insider ownership of the company, and have a pretty good consolidation of institutional owners. In fact the top 10 shareholders represent about 70% of the company.
At our Analyst Day in March 2011, we said that we had a [Technical Difficulty] from an R&D perspective. They were these four on this slide. Sofia, Bobcat now we've named Stella, our Thyretain product and our molecular program. Fast forward today we actually spend about half of our R&D resources on Sofia, and that makes sense and about half of it on Molecular. Molecular is the second biggest category in terms of expectation for our revenues in 2015. We expect incremental revenue in 2015 of about $26.5 million. I don’t think we can get more accurate in terms of forecasting can we Randy? Pretty good, but you can see the 65 and incremental from Sofia and the 25 or so from the Molecular programs constitute most of the 100 million in incremental delivery expecting in 2015.
So it stands to reason that about half the resource and half the headcount work on Sofia and half the headcount that we have in our organization are working on Molecular. In 2012 we were expected to spend somewhere around $30 million, moving forward into 2013, we will see a slight uptake in R&D spend and that’s due to the acceleration of the Wildcat program offsetting some other areas, but in total we expect to grow up a couple million in 2013. And moving forward than that number I expect it perhaps to fall on an absolute basis but for sure on a percentage basis the percentage of spend of revenues will fall.
I would say today that Stella still stands a chance of product introduction in 2013, but again as I stated before it’s difficult to predict because we don’t know how many flu B cases and that’s the missing element from the panel of viruses that Stella actually detects. Thyretain we have high hopes. I think it’s still a nice grower for us, it’s actually our highest margin product, that throws off a lot of margin and cash growing in the low-double digits with virtually no marketing effort and so although it’s an important part of our margin we [Technical Difficulty] would like to spend a lot going forward in that category.
So things to watch for in 2013; one, as I stated we expect to continue working on additional assays for Sofia. It is a platform that is proving to be a place-able if you will. There are many customers today out there who obviously have just ordered the flu product, but they have ordered that flu product with the expectation of other products coming down the pipeline. The products they do know about that we plan to introduce are RSV, Group A strep and qualitative hCG.
One of those assays is at the FDA right now and the other two are expected to be submitted in the quarter. How quickly those are proved will depend largely on the quality of the data, but we've demonstrated before that we know how to put together a package and I would expect that we have a reasonable review time with each of those products. Beyond that moving throughout the remainder of 2013, we would expect to introduce our first quantitative assays that's likely to be hCG. In addition we have a Vitamin D program that we've talked about prior to this meeting, and we also have a number of assays that I would characterize as in the women’s health category.
And then as I mentioned before, we just got approval for AmpliVue C Difficile December 21, we expect to launch shortly and we will see how well that format is accepted. I think its critical for us to understand whether the market will appreciate the value of our disposable molecular device. If that turns out to be true then I'm pretty excited about the opportunity and launch of the other assays as well in 2013.
I think publicly we have said with at least the next set of PCR based assays are. We have an RSV assay, RSV human [metapneumo] combination assay that's currently at the FDA. We also expect an HSV VZV assay to be introduced potentially in the first quarter of 2013, and we expect also a PCR based [Technical Difficulty]. There are a handful of others, but I don't think we've disclosed those quite yet.
So with that I'll stop and we can move to the Yorkshire room and take whatever questions you might have. Thanks.
[No Q&A Session for this event]
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