Quidel's CEO Hosts 2013 Analyst and Investor Day (Transcript)

| About: Quidel Corporation (QDEL)

Quidel Corporation (NASDAQ:QDEL)

2013 Analyst and Investor Day Conference

March 07, 2013, 09:30 am ET


Doug Bryant - President & CEO

Tim Stenzel - Chief Scientific Officer

Judi Tilghman - VP, Technology Assessment

Tammi Ranalli - Senior Director, MDx Business Unit

Larry Mimms - VP, R&D

Randy Steward - CFO



Good morning ladies and gentlemen. Welcome to the 2013 Quidel Analyst and Investor Day. Please take your seats, our program is about to begin. Please welcome Quidel President and CEO, Doug Bryant.

Doug Bryant

Good morning. Welcome everybody. Thanks for joining us on a snowy day here in Boston. I am sure there’s people still trying to get in, but we will go ahead and get started. I do want to remind everyone that we will be making in each of our presentations forward-looking statements.

Here is our agenda for the day. Most of you have heard me describe our strategy and talk about our progress in achieving milestones from time-to-time. Therefore my update this morning will be brief, so that you can hear directly from the leaders in our organization who are executing the key elements of our plan.

First, Dr. Tim Stenzel, will talk about our development plans broadly and then I will speak specifically about our PCR assay development program. And the next, Dr. Judi Tilghman will update our analysts and investors on where we are with respect to the development of Savanna and our HIV viral load assay. She will be followed by [Dr. Tammi Ranalli], who will tell you why we are so excited about our newest molecular product, AmpliVue C. difficile which we launched in January.

And finally, no update for our analysts and investors would be complete without a discussion on our financial position and Randy Steward, our Chief Financial Officer has volunteered to do that for us. And then following the last presentation by Randy, we will take Q&A and at that time we will conclude the webcast and then after that for those of you who are interested, Dr. Larry Mimms will do, who is also going to discuss Sofia will do a demonstration of our wireless application.

Many of you have seen this slide before. This describes our history since 2009 and lists a handful of milestones. Specifically, in 2009, we entered into a collaborative agreement with BioHelix to develop AmpliVue. In 2010 we completed the acquisition of DHI which gave us a number of assets as well as the capability to development molecular products. We also entered into an agreement with Northwestern to develop the instrument that we are now calling Savanna.

In 2011, a couple of key milestones, one, we had FDA clearance for both Sofia and our first assay flu A and B and then we also received FDA clearance for our first two molecular assays which were a PCR based flu assay and a PCR based Metapneumovirus assay. In 2012, we then received CLIA Waiver for Sofia and the flu assay and about the middle of June, we started effectively our launch, which resulted in six months placements of somewhere north of 3,000 instruments worldwide. And then finally, in December 20th or 21st, I can’t recall specifically, but we received FDA clearance for our first AmpliVue assay for C Difficile and as I mentioned before, we began to launch here just a couple of months ago.

And then finally I listed 2013, the FDA clearances we’re anticipating some, any moment in time, over the next several weeks, obviously, I am unable to tell you what those are at this stage, but we expect a number of assays which I will detail here in just a second.

Our strategic intent has two elements. The first of which is to build a broader based diagnostic company that delivers revenue and margin more consistently. We will develop technologies and products that give us access to market segments that are significantly larger and I would add less volatile.

The second element is that we will create and commercialize products that are differentiated in at least one of these four attributes. We strongly believe that in order to enter the marketplace and gain share, you have to have at least one of these elements if not all and in the case of both Sofia and the molecular programs, we believe we have at least one attribute and more.

Those attributes are either improved accuracy, lower cost, faster time to result or easier to use and just orient the audience to the chart. The full circle that means that we believe that we have a significant advantage. The half circle means that, I believe we are equivalent, and the empty circle means that we don't necessarily think we have an advantage and I can explain.

For example, with Sofia, on faster time to result our current asset, legacy product there is five minute assay and so is the Sofia, so there is no dramatic improvement expected in terms of time to result. And in terms of lower cost, we certainly are not going to be pricing our products lower with Sofia.

In terms of the equivalent circles, we believe that many molecular assays have pretty good performance and it’s very difficult to distinguish our self based on that category, our sensitivity or specificity alone. And AmpliVue, we know that we’re dramatically less than one of the competitors out there, but for most of the competitors we are not significantly low at the stage.

In 2011, actually in April 2011, here in Boston, we said that we had four vehicles for potential growth. We said we had four shots on going and that we were going to explore each of those equally and we have done that. But actually they haven’t all emerged; the two that have emerged are Sofia, which we now believe is significantly more of an asset to us and our molecular program both of which have taken off pretty significantly.

In 2011, we have said that these opportunities, thus far represented an incremental revenue opportunity of about $100 in 2015. We said that Sofia would have sales net of cannibalization of somewhere around $30 million and at that time you may recall that I said that our cannibalization rate would be about 50%. We said that Bobcat would represent a $30 million opportunity and then molecular would be 25 and the combination of our core business, our legacy business and Thyretain will represent an incremental $15 million.

Today, we are still confident that $100 is achievable, but now driven mainly by the strength of Sofia and our molecular program. So today we now believe that we will place somewhere around 10,000 Sofia Analyzers that each of those will do between $10,000 and $12,000 per year and that the cannibalization rate will be about 35%. Actually, launched to-date the cannibalization rates are better than that and today in the hospital segment 78% of replacements are new business for us and then the physician office segment 69% of replacements are new. We continue to believe that molecular represents about $25 million opportunity and we shall see shortly how well we do with AmpliVue C. Difficile is going well so far, I hope to revise that forecasting here in the next few months and obviously I would like to revise that forecast upward.

We now believe without spending a lot of resource on Thyretain that we had overcalled that however and we think that of the 10 million in core and Thyretain incremental opportunity about half of that is Thyretain. And I think everybody is aware that after the second attempt with the clinical trial of Bobcat we are still not there yet here in the United States. We still plan on launching ex-US, but we have now not forecasted anything in our strategic plan for Bobcat at this time.

In 2013, we are focused really just on two things; we are focused on molecular and we are focused on Sofia. Frankly speaking, these two things are a lot and there's a lot of execution that needs to happen. If you look at a two-by-two table and divide it by higher volume and lower volume customers, you can see precisely what we are working on and these are the things that we are working on today and only these things for the most part.

We have as Tim will describe, we have an agreement with Life Technologies to represent their Quantstudio Dx and we are developing respiratory and stool based antigen assays for that product. For Sofia, we are going to complete the respiratory menu and Larry will talk about the completion of Strep RSV. We are also developing an hCG assay and a number of other women’s health assays as well. And then on the lower volume side for molecular Tammi is going to talk about AmpliVue and how we are doing there and then Judi will talk about Savanna both of which are focused at this time on infectious disease assays.

And then also I would say that with each of these programs we are looking to do things simpler. Tim will talk about our version of multiplexing and why we think that's unique and better. Larry is going to talk about our wireless program. He’s going to talk about what we are doing with Sofia moving forward. Judi actually has the cartridge for Savanna with her today. She will show the audience the cartridge and why we think that that's a winner in the market. I don't know if we are going to talk a lot about next-generation AmpliVue, but we do have a next generation AmpliVue cartridge in development which will be in market we hope in October.

This is my last slide. In 2013, we are going to demonstrate our development in regulatory expertise as we have in years past. With this frankly, is the most important year in the history of this company. We are calling 2013 the year of the truth because we've got so many things that we've got to get done during the year, but they would be dramatic in terms of their importance for our future.

Just as a quick aside, I'll just say that since we are in Boston that the year of the truth is in no reference to either the Celtics or Paul Pierce, but for us in San Diego, it means this is the year that we've got to get stuffed in.

And then finally before turning over to Tim, I just wanted to mention that I read earlier in the week that an analyst had said that competition on the molecular space was fierce. And I just want to say that I've been in this industry for 30 years and it’s always been fierce. It was no more fierce last week than it is this week, and it will continue to be fierce next week. I would add that we've seen all the competition. We've seen what they’ve got and frankly we are unafraid. We've seen all the competition. We know all about the competition and yet we've still made the decision to invest to develop Savanna. Why? Because we think with the low cost instrument, cartridge and the menu that we're developing, we will win and I'll just add that the team and I are not interested in a participation rhythm. We expect to win and as Judi will describe, we are well on our way.

So with that, I will turn it over to Dr. Tim Stenzel.

Tim Stenzel

Thank you, Doug and good morning everyone. I will be first speaking about our strategic overview of our R&D pipeline as well as later on the details or continuing details of our real-time PCR platform and strategy.

This slide represents our key strategic objectives in the near-term. Of course, Sofia is on the far left and it's an absolutely fabulous platform. In all of our platforms, we strive to not only improve but leapfrog some of the competition. The current competition in United States for instrumented platforms and rapids is reflectance meters and the capabilities of Sofia really do leapfrog this reflectance technology.

In Quidel molecular real-time PCR, we now have a distribution agreement with Life Technologies for their Quantstudio platform which is represented in this image. And we are working closely with them to get this platform FDA cleared with one of our infectious disease assays in the very near future.

The next slide over, the image over is actually our second generation AmpliVue cartridge. This cartridge is going to be a little bit smaller, but a little bit more easily used user friendly than even the current cartridge, which we don't really get any complaints with. There will also be less plastic in this cartridge, which will lower our cost of goods and further make this a more competitive product. And then on the right is our Savanna and Judi Tilghman will be going into that in detail.

We have a number of assays that are in development on each of these platforms. For Sofia, there are 10 assays in development. For our real-time platform there are seven assays in development, one in clinical trials, I should say there are two in clinical trials for Sofia. For AmpliVue, there are at least three in development that we’re going to say right now. And for Savanna at launch we want to have a menu of 20 targets.

Next I would like to talk about what are the factors that we consider when we develop our strategic choices and make our decisions on menu, and how we define our assays and our menu in our platforms? So we look to what the trends are currently in this space. And on the molecular side, in particular, labs want to move away from Laboratory Developed Tests or LDTs. We hear that over and over again they don't want to manufacture and QC their own materials. They want to buy reagents that are taken through the FDA, are manufactured under GMP conditions.

For assays they want to have very high performing assays, perceived if they really want molecular their EIA is still a dominant method for C. Difficile for example, but molecular gives you the ability to in one step get very high performance and relatively rapid turnaround times. There is the desire to have rapid results whether it’s in the point of care setting or it’s in the central lab.

So for Sofia, it gives us exceedingly good performance, new molecular performance for infectious disease targets in 15 minutes or less. For molecular, we are aiming for all of our assays at least on the amplification side to be 60 minutes or less and in some of our direct assays I will show you that workflow, timing the result is out from sample two results can be under in hour and that includes the sample print.

Ease of use; we’re looking from our experience with the rapids, we look at how we can make it very user friendly for all of our assays including our molecular assays. Connectivity is an emerging dominant factor in all of our platforms, so it makes the instrumented platforms even more valuable; every lab visit I make, I hear about the importance of this issue. Then multi-text panel, so there are clinicians and labs that really desire to have this syndrome and panels and I will talk about how we are going to do that, we have actually two different ways that we can do that in the molecular side, and cost in it is obvious.

Next I would like to go over in particular Quidel molecular program. So right now on the market we have both real-time RT-PCR, real-time PCR reagents and our AmpliVue C. Difficile. Okay, there is two different platforms, one is PCR based and is real time based and the other is isothermal based, it can work in the moderately complex environment. It’s very easy to use, very cost-efficient.

Both of these platforms ultimately, the assays that we are building for these platforms can be ported on to and will be ported on to Savannah, our integrated molecular instrument. And there are a number of factors that we are learning right now that will make the Savannah program successful.

We know that on the cartridge we are going to have (inaudible) reagents. All of our molecular reagents right now are (inaudible). We've got that key competency already. We are going to; all the assay development that is being done now will be viable for Savanna program.

At that point, it will be an assay transfer on a new platform and we believe the regulatory hurdles would be lower than when you initially launch an assay. And we are learning and building our molecular commercial capacity and we are learning how to perform high throughput molecular manufacturing and we are building state of the art molecular manufacturing facility right now in Athens and that is due to open in the very near future.

Our portfolio we believe is molecular portfolio is exciting to a number of different targets. Our AmpliVue set has now received for C. dif has now received moderately complex designation which means that any trained laboratory professional can perform this assay but you do not need to have a highly trained molecular tech due to it.

So this opens up the opportunities for this technology to move to smaller and smaller hospitals and even into moderately complex physician offices. So I've visited a number of these and they have an interest in this platform which was pleasantly surprising to me.

Those environments plus the small and medium sized hospitals may not want to set up a highly complex and molecular facility and so AmpliVue will be perfect for that setting as well as Savannah when it comes on market.

On the other hand, our Quidel molecular assays are for the highly complex environment and are highly suitable for running very high throughput assays. The relationship with Life Tech is valuable in this area. The QuantStudio Dx has not only the standard 964 well capability but also has 384 well capability and for those labs that are super high throughput this would be extremely valuable.

I think we've now been able to establish that MDx molecular is now a part of Quidel’s core strength. This did not happen overnight and it took a lot of work. We now have 30 scientists working full time on our molecular programs internally.

We have fully equipped molecular development labs both in Athens, Ohio and San Diego. As I mentioned, we have a brand new state of the art manufacturing facility in Athens. We now have a specialty molecular sales force that is doing an excellent job and we see that there's excitement about these products that we are now delivering to the marketplace.

As I mentioned, we have distribution agreements with Life Tech for the QuantStudio. We also have that for the Fast DX and that gives us the opportunity to be a one-stop shop for our molecular customers. They can come in to us not only for the reagents but also the platforms.

And finally, as we move forward in all of our molecular programs, we're going to look for whether or not we can perform the upfront sample prep in an extraction free mode. This means you don’t have the time and the money devoted to offline extraction but three simple steps and I will show you some of those.

We believe we can, albeit the need for an expensive and time consuming instrument to do the extraction. So wherever performance is not harmed by using a direct method, we will introduce the direct method and see to if and our HSV-1 and 2 IgG VZV assay, we have demonstrated this already.

Now I would like to go into more details of our real time molecular program. So as I said, we want to look at things that are going to make it easier, faster for our customers to perform their molecular testing. And these are some key feature benefits that are real time platform and are ready to use molecular reagents offer.

So whereas the competition often requires frozen reagents, some of them at minus 70, we offered a refrigerated storage conditions with a long shelf life, where competitors involve in multiple steps, multiple planning steps, we have made it really convenient with only three components in our molecular kits and minimum steps. No ice bucket needed to set up the reactions. We use high performing assays in a multiplex format Joe describe a little more on subsequent slide that allows each assay to be truly high performing and the ability not to give up any performance when you multiplex, which is sometimes seen in the competition for some analyse.

Again, we are going to direct specimen prep without extraction, all of our assays are design to be really thermocycling conditions at 16 minutes or under. We include an internal process control and of course we pay particular attention to probe design and sensitivity specificity.

I am going to walk through our assay sample extraction and setup for our repertory viruses. So as I said in our upper left hand are the key components, they are the only key components, so they are three components, two types in each kit.

The next line down is the extraction prophases, so which is offline and use a standard equipment and then the bottom-line. Step six; seven, eight, nine and 10 is really the simplicity of this approach. So, once you have attracted the nucleic acids, the addition of master mix and of sample to the plates is all you do. And everything is pretty much automated after you put it in the instrument.

So these features are found to be very attractive to our users and some of this work will be presented by our collaborators at CVS in the upcoming meeting.

Not only are the Assays easily used but they are also faster. So this is just a time comparison study with one of our key competitors in the market that has an assay kit format similar to this, and we will deliver results for our respiratory panel within three hours whereas the competition takes over four hours. And this is all inclusive extraction and setup and PCR.

Next I want to talk about our direct program, so this really avoids the need to do extraction that has two key features, one is it's faster to do maybe three very easy to do and less expensive. So this is the assay format for Quidel molecular C. dif, our HSV 1 and 2 VZV product is very similar to this.

So step number one, you sample the patient’s specimen, you go into the first tube, and following that there is simple transfers from that tube to the next tube and then into the play, there is now heating, there is actually no time, there is no vortexing basically its as fast as you can move this through those first two tubes.

As we can imagine this probably could be automated very easily, and then the plate setup on the bottom half it is very similar to do our respiratory panel. And so for C. dif, you can easily do eight samples from sample receive to results in under an hour and that is possible both through fast thermocycling and the no extraction upfront.

Next I want to talk to you about how we do multiplexing currently and what the benefits of this method of going about things, so imagine that for respiratory viruses client Germans they want it from time-to-time run flu A B RSV, human Metapneumo para 123 and Adeno on one or all of their patients.

So we have a common extraction for all of these viruses with a common internal control. So they need to do just one extraction and they can do one or more of these analytes on the same plate at the same time. And that's because the thermocycling conditions are exactly the same.

However, sites can mix and match depending on season, depending on patient target. So if it’s a pediatric patient they will have a different mix of analytes they want to look at. For flu A B in the adult population, in healthy adult population that maybe the only assay doing refugee season that they want to do it. So they don't have to deal with the cost of additional assays and they don't have to deal with what you do with the result that you didn't get it, wasn’t ordered or wasn’t expected.

The other feature of this method of doing multiplexing is that for each assay you have exquisite performance. When you try to multiply everything in one tube you have authenticity if not the reality of having lower performance when you try to put everything in one tube.

This just demonstrates the high performance that you can achieve through this method. So this is for flu A B, this is compared to the key competitor on the marketplace for this format. As you can see the sensitivity and specificity prior to resolution of discordants is very high. For flu A B it’s a sensitivity or positive percent agreement of 100%, specificity in 98.7%. When you, there are eight discordant samples out of a total of 753 samples.

When you sequence those A samples they are all confirmed to be positives and they were negative with the comparator. This represents a 5% increase in flu A specific results over the competition for this study. When you look at flu B the performance difference is even greater.

There were a total of 32 discordants out of 753 samples for 26 of the 28 Quidel positive comparator negative samples. These were sequence confirmed to be flu B and that represents a 21% increase in flu B speech results over the competition.

This is done also with a lower percent inhibition so not only do we achieve higher sensitivity with equivalent specificity, we also achieve that with lower need to do repeat testing. This is the kind of performance and has somewhat looked to achieve and almost every one of our programs were possible.

And finally, I would like to talk about what we are going to do from here going forward. So our internal research and development programs are working on five at least five product launches this year in this category.

They are pretty much maxed out with that pipeline right now. They are working on compatible level on these assays and things are looking really good. We know that menu matters. We hear that from our clients and so in an effort to expand our menu more rapidly, we have a couple of programs that we're working on and they all pretty much fall under what we call our project LET.

So this program is designed to engage customers, quality institutions that have a large laboratory development menu already and to evaluate those assays and determine if they are compatible with our formats and once that’s determined, we can rapidly see CE mark these assays. They’ve been developed and used over a number of years in key institutions.

As I said, these assay formats will be compatible with our current platforms. Now for key and select assays, we will take those through the FDA. So this achievements two things, one, it helps the lab community by taking their LETs and making them in to IVD products which gives them out of the business of manufacturing the reagents and accessing quality, which they are not really designed to do.

And it also gives us menu expansion. So it's really a win-win situation and we found a great acceptance with our partners here. And finally, I want to talk about Life Tech's (inaudible) rate card. So this is a program that we're excited about. I mentioned that there were two multiplex strategies that we're working on and this is second of those multiplex capabilities. Tech menu card will run on the QuantStudio, it does run on the QuantStudio.

It is a 384 well format in design. However, the card is divided in up to eight different wells where a sample is placed from a single patient into one of those wells and you can interrogate up to 48 targets. So you can imagine that from almost any infectious disease or other target disease state that you want to go after that you can achieve true multiplex at a medium complexity from almost target in our space.

This has the ability to explicitly interrogate each of these targets because each of these 48 wells and individual well with an individual assay. So we are excited about this program and we’ll reveal more as time goes on.

And that concludes my portion of the talk and I would like to welcome up Dr. Judi Tilghman who is our Vice President of Technology Assessment and head of our Savannah program.

Judi Tilghman

Good morning everyone. Thank you, Tim. So you have all heard Doug talk about Project Wildcat from time-to-time, I oversee the Wildcat program for Quidel and today I am going to give you a behind the scenes look at the program. I am also going to provide you with some detail around the cartridge and the instrument as well as talk about the markets where we are going to play in and most importantly how we are going to win.

So what is Project Wildcat? I would like to start with a little bit of background. The program is actually a collaboration between Quidel and the Northwestern Global Health Foundation to develop and deliver a fully integration molecular diagnostics platform. This platform is going to provide low cost, easy to use, HIV viral loud screening and TB Assay and TB testing to the high burden regions in the developing world.

At the same time, we are going to be able to leverage the menu and the feature sets to launch into our markets in the industrialize sector or the develop world. This system has to be rugged; it's going to be placed in your A-typical clinical labs setting. High humidity, high heat, high altitude, I will talk a little bit more about the features and how we deal with ruggedness later on in the talk.

Most importantly, it has to reduce total cost of ownership and that will, it’s not only the cost of the cartridge and the instrument, it’s also installation, its shipping, its service, its training. We have to decrease all these costs as a package in order to enable decent realization in the role settings in the developing world.

And finally, it’s going to allow us to bring the novel technology to the market and this technology is the new nucleic acid extraction technology that (inaudible) referred to as phase gate, and our system will be the first to incorporate it Project Wildcat and actually the platform itself is called Savannah, the project is called Wildcat, so don't here me go back and forward because just recently we have incorporated the name of Savannah to the program to go with our branding strategy.

So Savannah is unique and that the specifications of the system are designed to meet the requirements of both developing world and the developed world and to bridge that gap. So what is it look like, well it’s a fully integrated platform so we meaning that it sample in, result out, its modular, and we have an appearance model over here, so its configured and you can have between one and four base per module depending on your throughput needs, its completely random access, so each bay can run a completely different task at the same time.

The run time or the total assay time will be between 60 to 90 minutes depending on your target. We will have wireless connectivity very similar to Sofia that you are going to hear Doctor Larry Mimms talk about little bit later on. It is going to be very rugged and I will talk more about the rugged and we can also process multiple sample types a few of which are plasma, whole blood, urine stools, stokes, the useable suspects.

The workflow is very simple. You have your cartridge, you put your sample in, you put your sample in the instrument, you push a button, you walk away, you come back, you get a result. So I would like to actually highlight our progress, the investment and the commitment that we made to the program since its inception.

It all started with the development of Phase-Gate. Phase-Gate is the novel extraction technology that was developed in North Western University back in 2006 and actually was funded by a Gates grant challenge grant in 2007. In 2010 Quidel entered into an arrangement with North Western Global Health Foundation that gave us worldwide exclusive rights to the Phase-Gate technology. We also entered into a co-development agreement with North Western to develop the Wildcat or the Savannah platform.

NU brings both their expertise around the Phase-Gate technology as well as the proven validated HIV viral load assay that they have access to from Abbott. So we are not starting from scratch with the viral load assay. We actually have a proven assay that we will be reporting on to our platform. Last year was a big year for us both in terms of technical milestones, IP milestones and funding. We have three patents last year that actually issued from the core technology. We have several continuations in process.

The end of last year we were awarded $8.3 million from the Gates Foundation to fund the HIV viral load assay and finish the development of the platform and then finally in terms of technical milestones we've actually shown feasibility with the HIV viral load assay on automated Phase-Gate or sample prep platform. So what's so important about sample prep? I would like to spend a few minutes talking about sample prep.

The reason that we started with sample prep and the reason that we designed our system around the novel sample prep technology it’s really simple. Sample prep matters; garbage in garbage out. So you have to have good quality starting material, be that DNA or RNA to get a good quality assay. Studies have shown that the key to success and sensitivity is the good quality starting material that you put in at the beginning of the assay.

If we think about sample extraction the commercial systems that are available now whether they be the standalone extraction systems and that market itself is a huge market and that's a story for another day but or the sample extraction that's utilized in the integrated platforms that will be similar to Wildcat. The work flows are all really cumbersome, and the reason for that is you either start with paramagnetic particles or filter and you have your target nucleic assay that's been sliced from you sample and that's either bound to the filter or the PMPs and then you do one or two things, you either move the PMPs or the filter through several steps or you move the fluid. We refer to that as sucking and sweating. Either way you've got several steps. You are moving fluids and you've got a high number of or high degree of, that you can be prone to cross contamination because of the several steps that you have to go through.

Also because of the several steps, obviously it adds to the extraction time. So what's different really about Phase-Gate, well, Phase-Gate is really cool because it’s very simple, it’s very elegant. So what I've shown here is envision you've got two fluids sitting in a well in a cartridge. On the top is oil or a hydrophobic liquid such as oil or wax. On the bottom you've got an aqueous layer, water or buffer. Where the two meet is called the immiscible phase.

So we too have PMPs, paramagnetic particles, and we have our target nucleic acids bound to those. What we do differently is we don’t insert anything in to the actual fluid. We use an external magnet and we take that magnet and we move the PMPs through that immiscible phase. It's that simple swipe of the PMPs through the immiscible phase that removes the inhibitors. It's very elegant, it's very simple. So what are the benefits of this? Well, they are pretty obvious. We have a completely closed cartridge. Everything that you need is inside the cartridge. The fluid and or the liquids and the PMPs.

There are no movement of fluid required by the instruments. So we don’t have our aiming by the cartridge. We don’t have pistons. We don’t have syringes within the cartridge. We’ve moved the control or the movement of the fluids comes from a bursting action that is located inside the system. We don’t have additional disposable. The only disposable is the cartridge. We don’t have filters or membranes. All of this leads to an overall lower cartridge cost.

So I actually have here some examples of the competitors’ cartridges as well as the Savannah cartridge. This is the first time that is shown in public. So the key to this is simplicity. When we launch in Africa, this has to be cheap and the only way to keep it cheap is to keep it simple. So I am going to tell you how we do this by pointing out what we don’t have. We don’t have valves, we don’t have pistons, we don’t have filters, we don’t have and I am going to point to a specific competitor’s cartridge here, but we don’t have multiple assemblies. We don’t have highly machine parts. Most importantly, we don’t have microfluidics. All of this allows us to achieve a target cost of goods below $5.

So I have shown here on the next slide, for those of you on the web some of the competitor’s cartridges, the key takeaway from this slide, complexity equals cost. The more complex it is, the more it’s going to cost to manufacture. Okay. So I talked to you about the cartridge and how we are going to meet the requirements of the developing world and keep it simple. Keep it low cost. I also need to talk to you about the system as a whole and that includes the instrument.

The system has to be durable, this is going to be placed in as I said before an A-typical clinical lab settings. There are significant challenges in the lab that we have to overcome. That you wouldn’t even think about in a developed world. I’ve got a picture here of A-typical lab set-in in Africa, and as you can see what obstacles are that we have to overcome. There is no air-conditioning, there is intermittent power, there is limited refrigeration, a lot of time they don't have access to running water, there is no lab-hoods, a lot of time they don't even have gloves. There is a lot of dust going around.

So you really got to protect the system from dust or provide filters that have to be change. They have limited access to service personnel and limited access to highly trained armed skilled technicians. So the take-away from those, it has to be durable, it has to be easy to use. So how have we overcome these obstacles? Well in our system, first of all we have active cooling unlike the competition. There is no fan, there is no filter, its air tight and dust proof and it’s going to be deployable on locations where the temperature exceeds 40 degree C and again it doesn't have to operate in air conditions rooms.

It will be pressurized, it will accommodate power fluctuations and going back to the cartridge, the cartridge will have lyophilized wax coated reagents included in the manufacture, shipped and be able to shipped and stored 40 degree C for two years will be the stability, so that is key as well.

So I talked to you about the markets that we are going to play and how we are going to win. In the developing world, we are going to be in the TV clinics the microscopy labs and the HIV clinics primarily in the role settings, how do we win there, would going to be low cost, it is going to be very simple and we are going to be rugged. How do we leverage those same features to win in our market well in the developed world we are targeting the less then 250 bed hospitals.

I think Doug has said previously that will give us access to a market of about 760 million and again simplicity, low cost and menu as Tim indicated in his talk our goal is to launch with 20 targets in the developed world. So in conclusion we really feel that Savannah is going to allow Quidel to bring high sensitivity in molecular testing to the world in a much more affordable format then currently exist today. I know that some of you probably have questions about milestones and so I am going to talk to you about the few of the key milestones that are going to be coming up over the next year.

The first of which is going to be in the spring or this spring rather. We will show feasibility of the HIV viral load assay on the fully integrated cartridge, the alpha cartridge on the pre-alpha test beds, so what does that mean. We will be able to run the assay in this cartridge, completely close the pre-alpha test consist of two test buds, the sample prep test bed and the PCR test bed. So they are not all combined yet. They are two. So you put your sample in, do your sample prep and the Phase-Gate test bed, move it over to the thermocycling test bed and get a result.

By the end of this year early next year we will have integrated everything into one completely integrated single base system and then the biggest milestone will be the spring of next year when we will take a fully integrated modular system, put it in Africa for field or for lab evaluation testing. And that concludes my talk. And next up is Dr. Tammi Ranalli who heads up our molecular diagnostics business unit and she’ll be talking about AmpliVue.

Tammi Ranalli

Thank you, Judy. Welcome. I'm very pleased to be invited to speak here today to talk to you about the AmpliVue, our newest molecular product offering which is the AmpliVue platform and our AmpliVue C. difficile assay. AmpliVue is unique in that it enables molecular diagnostic testing with the ease of use and readout of a lateral flow assay. So this is the first molecular product to do so. And in doing so we have performance that actually rivals that of much higher cost systems out there. We did not need to sacrifice any sensitivity and specificity to do so. This also allows Quidel to do what it does well and that is leverage our core competencies that we've developed over time in both plastics and strep manufacturing and because there is no capital expenditure required for this platform we are going into a smaller hospital bed segment and we are doing so in an economical way.

So what is the engine behind the AmpliVue platform. The engine behind the AmpliVue is the technology called Helicase Dependent Amplification and Helicase Dependent Amplification is depicted on the left. It starts with an enzyme called the Helicase and that Helicase is able to separate strands of DNA and RNA and because of that you do not require a thermocycler to mediate amplification.

The next step is that specific planners can then come in and bind to the target, a polymer ace enzyme comes in and copies that target and by doing so you amplify your product. This is a very simple format. It only requires heat box and is very robust. So HDA and other isothermal assays actually are more robust than even PCR because of the enzymes that are used and so we can tolerate some crude samples like cold blood. So there are a variety of other isothermal technologies out there and you maybe familiar with mediated amplification.

We feel that HDA has some unique technology advantages over (LAMP). The first is that HDA uses a probe to bind to its amplicon. So when you have a probe you actually get greater specificity. You are only able to detect on this cartridge the actual intended product. Lamp technology because of the way it works uses multiple primers to convey specificity. However it does not have the capability of utilizing a sequence specific probe. So HDA only detects the amplicons. So if anything else gets accidentally amplified during the reaction, you would not be able to detect this and this will prevent you from having false positives. So Lamp as its commercialized currently detects turbidity and turbidity is basically cloudiness in the solution that is a result of the amplification. And because of that if amplification of something other than the intended target occurs, you would not be able to distinguish that from an actual true positive.

In addition, HDA can actually multiplex in a single reaction and Lamp cannot. So Lamp, as you've seen, you actually have to run their internal control externally in a separate tube. So every time you are on single specimen, you are actually running, you are running it twice. HDA on the other hand, can multiplex and what you won't be able to see if you are sitting in the back is that these cassettes have three lines. The first is for our control, the internal control that gets amplified simultaneously in every reaction and the second are for two targets. So on a single set, you can detect up to three [analights]. For Lamp, they would have to be running there separate assays simultaneously.

So, the workflow for AmpliVue which is very important is very similar to that of a traditional immunoassay. In fact, we actually have fewer steps then some of the on market immunoassays out there and this allows us to go in to labs that aren’t set up to do molecular testing. So starting with a stool specimen for our C-diff assay, you take a swab and you dip that in to the specimen. That swab then gets transferred in to our first buffer, which is a dilution buffer. You then take a small [eloquent] 50 micro liters in to (inaudible) buffer, that gets heated for 10 minutes at 95 degrees in a regular oil heat block. You then take 15 micro liters out and in to our amplification tube which is pre-filled with Lyophilized reagent. That goes in to another heat block, 64 degrees for an hour. You come back and you place it in to the cartridge and then in to cassette, closing the cassette and then it takes about 10 minutes for the liquid to flow up under the strip and the strip is red out visually. And what makes us different than in immunoassay is that because your amplifying the target, you get very, very robust lines and I am not sure if everyone can see this from the back, but read out is very easy to read, and so you are not seeing a line, you are holding it up in the light, because you can't tell it, if it's positive or negative. The positives are amplified up to a level in which they are very easy to read.

And so that’s the workflow, but how does it actually perform in a lab. So I have two different data sets here. One against the true gold standard for C-difficile testing, which is called enhanced toxigenic culture, there are actually a variety of different tests that are performed in the labs for C. diff, enhanced toxigenic culture was the first testing method developed. It takes three to five days for testing and is considered the gold standard. However, it's not done diagnostically anymore because of the fact that in three to five days the patient may have died. So it's not that useful, but it is used as a gold standard for comparison.

So in comparison to enhanced toxigenic culture, we have done a small study and it shown that we have a sensitivity of 92% and a specificity of 99% and that is in-line with such tests like the gene expert, which consider some of the gold standards in molecular. What's interesting to know is that there are other assays on the market, such as the focus assay that actually has the performance in the low to mid 80s. And so we have top of the line performance in comparison with the two gold standard.

The data set below is again tissue culture cytotoxin, which takes about 48 hours to perform, so it is used to little bit more frequently, however two days a still quite a bit of time for C. diff testing. And what you see here is that unresolved we have a sensitivity of 92% and a specificity of 94%. However when you then don’t the decrapense and you can see here we had 43 additional positives that were missed by tissue culture cytotoxcin. 37 out of 43 of those positives were positive by another molecular test and so our corrected sensitivity and specificity is 99% and 98% which is amazing.

So what is the market that we are trying to address and as many of you are probably aware the C. diff market currently is still less then 40% converted to molecular and why that is why there is a lot of a small hospital out there, and those hospitals are really setup to do molecular testing. So 60% of the potential targets still offer in EIA test only which is a very insensitive test or in EIA test initially as a screen followed by reflex test in molecular and generally that is send out and the problem with that is that you end up having to wait a day or two to get your results back, and time matters particularly for C. diff.

Hospitals are either choosing to proactively place patients in isolation if they are suspect of C.diff which cost money or they are actually not doing the isolation and they are allowing the spread of C. diff patient to patient. So serious problems can happen, the longer the time delay between C. diff the more expense the hospital will end up having. So in the situations where EIA only is offer AmpliVue obviously provides a favorable option because we have incredible sensitivity and a very fast around time, so it allow us to take action more quickly. In those cases where we are going and they are doing the two step algorithm so some of the common two step algorithms out there are test known as GDH, GDH is an enzyme that is produced by Clostridium but not specific to Clostridium.

So what happens is if you get a positive GDH as your screen you then need to reflex with something to tell you that its’ C. diff and not other Clostridium. You can also restore some hospitals reflex at to EIA, the problem with that is that the EIA test is not very sensitive. So you are taking a more sensitive test and then you are reflexing it with a less sensitive test and that allows you to have a lot of potential false negatives. In the case where they are reflexing it to molecular, like I mentioned before they end up having to send these out and so it takes an increased amount of time.

So we win because we will be faster, enabling a single step algorithm so allowing them to get their result more quickly as economically as the more burdensome two-step algorithm. We are more sensitive; so it is traditionally thought that the GDH screen had very high sensitivity. In fact some of the early data reports where the sensitivities were in the mid 90s. However, overtime it’s been found that GDH screen actually is missing some positives. So between 8% and 10% of the time, you will get a negative on GDH as your screen and that will actually be a true C. dif positive and the problem with that is that it ends up those negatives are not reflex of anything, only the positives are. So that ends up as being a person who isn't appropriately diagnosed which cost the hospital money.

And then this is also following the key opinion leaders’ opinions now. They are making a statement and making a stand that molecular testing if it can be done in an affordable way should be the first line testing and not using a two step algorithm.

So to conclude, we feel that with AmpliVue 2013 really is a tremendous year of opportunity for us. In the first place, we have the technology that's going to allow for rapid decentralization. It is not a high cost solution, so labs that currently couldn’t afford the GeneXpert can bring this type of testing in, the work flow is not burdensome. They are actually capable of understanding. They like the readout, the simple readout, it’s very easy to use and we have a hospital sales force now that's going into these hospital labs, these smaller hospital labs and selling Sofia and so we are taking advantage of the fact that we've got a wonderful hospital sales force capable of going out and selling the solution to small hospital labs.

As Doug has previously mentioned, he took the gauntlet down and we are looking for a 1000 placements and on average they are doing about 150 to 125 tests per month. So that makes it look like we are addressing about a $30 million market at this point for C. dif.

So thank you very much and next up is Dr. Larry Mimms, who is our Vice President of R&D and he’ll be talking to you about the Sofia platform.

Larry Mimms

Thanks Tammi; I appreciate it. For those of you on the web we have a beautiful bank of windows here overlooking Boston Harbor and its snowing outside, its absolutely quite gorgeous and quite a difference from what we have in San Diego, so a pleasure to be here.

This is an outline of what I would like to talk about today. I would like to first recognize our R&D team who are dedicated to new product development and then review the capabilities of our Sofia, Rapid, Florescence, immunoassay system, show some data on the performance of two of our four marketed tests, namely the influenza A+B and the strep A test, describe our women’s health initiative and then introduce you to the Sofia cellular wireless capability.

First of all, we have a very talented scientific and engineering staff, both old and new who are located in San Diego and Athens, Ohio with literally hundreds of years of experience in IVD assay development; I've got about 27 years myself. There are more than 60 scientists among our R&D staff including 20 PhD’s with expertise in all of these key disciplines which are required for assay development. We also have system integration testing engineers, biomedical and mechanical engineers as well as software developers. So this R&D team is engaged in rapidly building our menu on Sofia and the molecular diagnostic platform and expanding our patent portfolio.

Sofia gives us significant opportunities in qualitative semi quant and quantitative immunoassay testing. The addressable market we believe is roughly $1 billion worldwide. Shown here are the five key areas for Sofia menu expansion, respiratory infectious diseases, other infectious diseases, endocrine where we already have a foothold with the Thyretain product; women’s health and other markers including autoimmune disorder and cancer markers.

So in the next slide, I would like to show you a two-minute video that demonstrates the features of the Sofia platform and then I will expand upon some of the information on that video. So here we go. Let’s watch it.

[Commercial Video]

Okay. So I am going to emphasize a few points that were made in the video. And that is that Sofia offers unique florescent and fail safe features that gives us an advantage over the current reflectance devices. The Sofia uses a novel detection chemistry that is [European microparticles] that have a very high florescence yield, they are very bright and this leads to improved sensitivity.

Another feature of European is that there is a large stoke shift that guards against naturally occurring interfering florescence that may be present in test specimens. And European is resistant to photo bleaching; it leads to improve product stability. Because the flora for required UV excitation of 365 nanometers, the strips must be read by the instrument and they cannot be viewed by the unaided eye. The instrument will automatically scan the test strip; it will collect and analyze the fluorescence data and then calculate and report the results of eliminating subjectivity.

We also have fair safe features that are afforded by the 2D cassette barcode. There is only one way to insert the barcode, you can't put it in upside down or turn it around, only one way. There is lot expiration date, you can't use expired reagents. There is a test type files, so you can't mix up strap A with flue A or some other test, and there is a unique identifier, so that the cassette can only be red once in the instrument.

We also have the use of internal control lines on the strips; it serves several purposes. The negative control line adjusts for non specific binding that’s unique to each sample on each strip. The reference line is used to orient the scanner and it allows a precise location of the control and test lines on the strip. There is also a signal strength measure for the reference line and it must be within that specification to assure that the strip was run properly. And then finally we have a proprietary timer line that I will talk about little bit later that’s used in HCG test to allow greater user flexibility.

The four key differentiators for us are listed here, accuracy, ease of use, fast time to result and low cost. The increased accuracy and objective results will be evidence and supported and some data that I am going to show you in the next four slides. The ease of use we have talked about before, but the operator can run this with very little or no training, its CLIA waived. There are two work modes, a read now mode where you can feed the instrument every 45 seconds to a minute incubating offline or you can do the walkaway mode which is auto timed in the instrument.

There's use of the barcode reader that I referred to earlier on the internal side and also an external barcode reader for entering patient and operator information. And the Sofia automatically stores and prints results directly. It has the wireless and OIS features as well.

Fast time to result depending on the assay anywhere from two to 15 minutes. In terms of low cost to operate with good value proposition, we actually heard from one of our thought leaders that a problem they have with dipstick assays is that the nurse or tech often throws away the strep after running it and there's no permanent record of the result and this leads to an inability to obtain appropriate reimbursement.

So here we have printouts and we have LIS interface. So there is an objective recorded result. So let's go to some data on the next four slides. In this study, we compared the analytical sensitivity of the Sofia flu A B to the QuickVue test and we tested four different strains of influenza A including two strains of H3N2 and a couple of strains of H1N1 including the 2009 strain.

We determined that the dilution just at the limit of detection for the visual flu A test QuickVue and then we made further dilutions, 25 fold, a 100 fold, even 400 fold more dilute than the limit of the attachment of the current visual test and you can see that for all four strains subtypes of virus we have at least a 100 fold improvement in analytical sensitivity versus the visual test.

The next slide shows some clinical data that was generated in a head-to-head study of Sofia versus the FDA cleared PCR test our own (inaudible) flu A B test. The nasal swab specimens were collected from 511 patients presenting to the clinic with flu like symptoms and the results are shown in these 2/2 or box plots.

The Sofia gave sensitivity of 84% and specificity of 99% when testing A versus PCR with a positive predictive value of set 97% and a negative predictive value of 94%. That's really unprecedented in these rapid tests. In flu B for its comparable results with 91% sensitivity and 97% specificity versus PCR. In another study, this was performed at the Robert Koch Institute in Berlin and Sofia was tested along with their semi-quantitative PCR.

And I want you to note that the higher the CT or the cycle threshold, the lower the concentration of viral nucleic acid in the specimen. And you can see that in general not surprisingly the Sofia positivity rate correlates with the CT and the viral nucleic acid concentration.

Overall, the Sofia test yielded 81% sensitivity and 99% specificity for flu A versus their PCR and 86% and 98% for influenza B. What's important to note here is that for PCR positive specimens with CT values less than 30, Sofia gave sensitivity of 96% for flu A and 98% for B. And I wanted you to realize that for PCR specimens with CT counts greater than 30 shown here. They are vanishingly small numbers of virals present and these values are seen primarily in the post-acute phase of infection.

So the investigators concluded from this work that the clinically relevant sensitivity of the 15 minute Sofia test approaches that of their complex PCR assay. Those were very existing results for us and independently confirmed at [Robert Koch Institute].

I am going to switch gears on one slide from Flu A B, to Strep A. In this case, we're comparing the sensitivity of the Sofia Strep A test with four visual tests shown here. We made twofold dilutions of Strep A culture and quantified by plate streaking and salt counting and shown here are the plate scoring and the colony forming units per mil values in these two columns here.

And the Sofia was able to detect 10 of 10 replicates of the street samples diluted as low as two to five colonies in a single plate quadrant which was equivalent to seven times tenth of the fourth CFU S per mil which is interpreted in the vernacular of the clinical microbiologies community as rare samples.

Anyway, the Sofia Strep A was about two to eight fold more sensitive than the visual assays, including the QuickVue and the (inaudible) dipsticks. Okay, we talk about our movement into women’s health here. What's the rationale for the Sofia in women’s health?

First of all, these markers are non-seasonal and we are driving in the next three years to bring 50% of Sofia sales into the new non-seasonal business, and remember we are talking about a $1 billion potential addressable market here.

We’ll also build on the existing leadership position that we hold with hCG QuickVue, and women’s health does represents a very large market, which I wanted to highlight in the slide. If you look at the addressable market that we believe for Sofia chlamydia we are talking about a $120 million the addressable market for Quant hCG, we believe is more than $45 million, and for premature rupture of membrane test about a $65 million opportunity.

So very large markets, and there is some additional markets and menu items that we are looking at now to expand our portfolio. I want to show one slide, that I think is very telling, we do believe Sofia chlamydia will give payers and providers a compelling economic and clinical argument this was a paper, it was published by [Wang and Gatos], it compares the cost effectiveness of rapid, highly sensitive point of care chlamydia test in STD clinics compared to send out nucleic acid testing.

And the cost savings was over $5,000 per case reverted using the rapid test and treat approach. And I think we are going to see a lot more test and treat not only for chlamydia but also in other cases.

An example is in New Jersey I heard a recent talk public health where they used rapid test and treat for HIV and it was by far the most effective way to get patients onto therapy. One of the unique aspects of this particular setting is that patients do not, if they don't receive their test results in the treatment while they are in the clinic in many cases they are lost to follow-up in treatment.

We have as I pointed out implemented for hCG a new technology that we call the kinetic line, there are variations in testing due to time temperature and other factors that influence the kinetic development of test and those can be normalized by this proprietary technology.

Practically what it gives the customers is the opportunity to have flexible incubation time, so you can get the same result whether you do a two minute test or six minute test. We have now completed our clinical trail and at multiple sites and we have obtained 99% and greater than 99% agreement and most sites are 100% agreement with test of record.

And our sensitivity was precisely set against the fourth international standard at 15 milieu per mil and we are finding CVs in these studies in the range of 10% to 15% at this cut off, so again very good reproducibility in this trail. We are also developing a quantitative whole blood hCG assay and this test will allow quantitative HCG testing and any location including physician office and emergency room other settings included. We anticipate a 50 to 100 full dynamic range over physiologically relevant HCG concentrations and here I've shown typical dose response curve.

And finally I want to describe some of these Sofia wireless features. We’ve attached to cellular router to the Sofia instrument to enable real time communication with a cloud based server. That server saves the complete record of the results to the health database including the patient result, the location time, date and demographic information that server system offers redundancy, expandability, security and it’s compatible with most of the wireless systems worldwide. So the cellular linked encrypted Sofia based surveillance system that we are setting up will allow real time tracking of infectious disease incidence rates by locale and we have a collaboration going on right now with some public health laboratories.

In addition we have as I mentioned earlier an alternative communication through LIS. We also have the capability of real time tracking of assay and instrument performance for rapid troubleshooting so we don't have to visit every site and we've got thousands of these around the world place, we've already placed as Doug said greater than 3000 already, this makes a difference for us. In addition the capability is to buy directional interface so that we can have rapid software upgrades, software version control and inventory tracking in the field. So these are features that will be unique to this system.

So in conclusion we believe Sofia offers a significant improvement in sensitivity for infectious disease testing. It offers objective, accurate results for women’s health markers and allows quantitation for analytes like HCG and whole blood specimens. The Sofia connectivity to the LIS and cellular transmission of data allows a rapid storage and a simulation of data not only for the immediate laboratory but also for remote sites. So you can imagine the capabilities in surveillance of infectious disease that this offers.

So at this point I would like to turn it over the podium to our Chief Financial Officer, Randy Steward.

Randy Steward

Thanks Larry. Good morning everybody. Pleasure to be here in Boston and as Larry said we always enjoy the weather no matter what it is. So beautiful day outside for us. Hopefully from the presentations this morning that you see the passion that the management group has here at Quidel as well as the focus and the excitement we have as we go forward in executing on our product development plan. So very exciting future.

What I'd first like to do is kind of reevaluate or reemphasize the financial objectives that Doug has mentioned previously to the group as we met most of our investors over last year. The first objective that we have is to achieve incremental growth of at least $100 million. As Doug had pointed out we currently believe that the Sofia instrument with its assays multiple assays that we are going to launch over the next several years will generate 65 million of incremental revenue as well as hopefully you realize the opportunities that we have within our molecular platforms as well which we are currently estimating to increase revenues by approximately $25 million; with the incremental 10 being from our core products.

Number two, investment and development in commercialization of new products which is going to drive gross margins to exceed 65%. For 2012, we finished gross margins at approximately 61%. Our objective here as we launched new products not only to make sure that from a selling price that we have the ability to incrementally increase gross margins above that 61% but also continue to watch from a manufacturing and operational perspective. Our cost efficiencies that will also help us to grow that gross margin line.

Number three, leverage operational efficiencies, which allow us operating margins of greater than 30%. I’ve a slide here in a few minutes that we're really focused on from an R&D and sales marketing perspective, investments that we've made over the last three years, that we believe will help drive our revenue growth in to 2015.

Maximize cash flow from the core business is our fourth objective here. That’s certainly even with incremental growth of 100 million. Our base business, we still have a $150 million business that we want to continue to maintain and make sure that it's generating excellent cash flow for us as we support the growth of the business. And then we will talk a little bit, pursue outside opportunities to complement organic growth. So we've been in the past, we will continue to be inquisitive of opportunities but as we said, we certainly want them to be accretive and support the growth of our business, whether it be from a distribution or market perspective.

Let’s review real quickly, the historical financials of Quidel. The top left shows annual revenue over the last six years. So from 2007 you have a 118 million, 2012 we have finished the year at a 155 million. Seasonality certainly with the influenza of business is certainly had an impact on this numbers as you know in 2009, a very robust flu season from the pandemic we saw flu influenza sales in excess of 100 million.

In 2011 and 2012, 2011 the influenza sales were approximately 44 million and in 2012 the influenza sales were approximately 45 million and operating income perspective with that pandemic you will see that we exceed 50 million in operating income approximately 32% of operating income one of the drivers of that was a fact that we had approximately 21% of revenue invested in research and development and sales and marketing.

As you know over a last couple of years, my next slide will show you the investment that we have made over the last several years to help really extend a significant growth for us over the next three years. Cash as of the end of December was little under 15 million, because of the robust flu season we have today. Cash currently has an access of $14 million so we have seen significant, first quarter is always our strongest cash flow quarter and certainly this quarter is no different.

From a long term debt perspective, we have 10.5 million as of the end of December 5 million of that was on our senior credit facility, 5.5 million of that is on our real estate loan on the facility in San Diego. I can say that in January, we paid off the remaining balance on our line of credit excuse me, and we have no outstanding debt as we preset here today.

The other interesting thing is a market capitalization as of the end of December is $624 million as we are market closed yesterday our market cap was $824 million so a 32% increased since the first of January, so certainly Doug and management kind to targets and expectations is gaining traction within the marketplace, but you can be rest assured that the management team is still very focused on executing on our plan that we laid out today.

Let's talk a little bit about the investment spending we have done over the last couple of years both in research and development and sales and marketing. Think as we laid out this morning, you can see from Larry’s presentation and Tammy’s and Judy’s investment that we have made over the last couple of years within research and development that is going to drive our growth going into 2015.

As you can see certainly as Doug came on board in 2009, he recommitted the organization into driving new product development so you can see from 2009 to 2010 that we over the last three years is approximately 20% of our revenue is invested in research and development.

I should mention that this research and development numbers exclude the life technologies collaboration that we entered into in 2012, so that has an impact of approximately $3 million in 2012 and we said that will have an incremental benefit to us in 2013 approximately $1 million to $2 million.

So as we enter into 2013 we kind of mentioned that we believe currently we are estimating in R&D investment of $31 million to $33 million a significant portion of that as you saw today is in our molecular platforms and specifically the Wildcat or Savannah.

Going to sales and marketing, you can see we did have a significant investment as a percentage of sales in 2012. As Doug has mentioned previously, we have made a significant investment in our sales organization in 2012 that we now have geographic coverage across the United States with the drug sales force as well as a sales force that was mentioned previously relating to specifically addressing the molecular market and we also have what we call an (inaudible) or a buying group, sales group as well that focuses on the independent distributor network.

So we believe that we have very good coverage to support the growth that we are looking at over the next three years. So in 2013, we call that the year of truth or year of execution, what are we really focused on successful launch of three additional Sofia assays.

So as we mentioned, we have two assays with the FDA currently, we believe the third we will submit in March so that in the back half of 2013, we will have four assays that will be on the Sofia platform. We think that's a pretty strong opportunity as we continue to place Sofia instruments as we go forward towards that 10,000 installation by 2015.

510-K submissions, Larry represented a lot of opportunities we have for us. So conservatively, we think that we can have 10 additional new products with 510-K submissions this year.

From a commercial side, we did talk about the build out of the infrastructure to support our new product launches. We are very confident in the sales group that we have in place today and how we have allocated those resources to help drive the new product development into the different markets that we are pursuing.

From an operations perspective, we always continue to look at manufacturing inefficiencies and more efficient way of driving down costs. Certainly, Judi I think did an excellent job specifically on Savannah and Project Wildcat.

We certainly are focused on making sure we get the right cost objective with that product. And as we mentioned, we are always looking at when we launch new products we want it to be incremental to our current today's 60% gross profit margin.

So as we look at positioning ourselves for the future, we are very excited about the markets that we are playing in. Certainly we are in growth markets within the point of care and molecular diagnostics. From a business perspective, hopefully you saw today that we have great opportunities with new product pipeline, impressive revenue growth expectations as we achieve our $250 million in 2015, that's an average growth rate of 18% and we feel very confident that as we go forward and achieve our $100 million in incremental revenue, we will be able to expand gross margins in excess of 65% and achieve operating margins in excess of 30%.

From a resource perspective, I think we are very well placed from human resource capital as well as from a balance sheet leverage capability. Hopefully, today you saw a very strong management team, that's very excited about our future, strong cash flow generation.

In 2011, we generated cash from operating results was $47 million, in 2012 it was approximately $20 million and that included the use of cash of approximately $17 million in receivables due to a robust flu season in December of 2012. So if receivables have been flat with 2011, we would have seen almost a 40 million cash flow generator in 2012 as well and in 2012 we did pay down credit facility by $37 million. We do have a senior credit facility in place of $140 million. Currently as I mentioned, no outstanding balance on that facility. So it certainly gives us some flexibility as we move forward.

Accessing larger markets, I think Larry did an excellent job of identifying the opportunities we have within the women’s health category. As you can see here, women’s health category of 21%. We're looking to growth that to approximately 27%. As you see then, we're also emphasizing as we said, one of our priorities is to kind of minimize the volatility that the flu season has on our financial results and with the implementation of our program, we're looking at influenza being a little more than 20% of our revenue base in 2015.

We're looking currently to grow internationally approximately the same as domestic although we would like to believe we think that’s conservative. We believe there is some bigger opportunities internationally as we move forward. Financial projections and assumptions. We’ve talked about this previously. There certainly, the 100 million we said will be driven from Sophia and Quidel molecular, expand gross margins to exceed 65%, talked about Sofia menu, opportunity to increase prices on those assays as we launched them. QuickVue royalty, I should point out within our GAAP financial statements. We still are including the [Alire] amortization of $8 million. That is paid in full in February of 2015. And so that has an impact say in 2012 that would have had a impact of approximately five percentage points on our gross profit margin and approximately 3% if you look out our sales in 2015.

From an R&D spending perspective, we will not continue to invest R&D at a same pace as our revenue growth. We are seeing a slight increase in 2013, because of the investment that we are going to make with project Wildcat.

Operating expenses as we also indicated sales and marketing will not grow as fast as revenue, because we now have a fully functional sales organization that will certainly support the growth over the next couple of years. And then working capital, we have a very efficient working capital environment. We see inventory turns of four times and we continue to manage our receivables very tightly around a 33 days outstanding.

So what is the impact of new development products in 2015, the picture on the left, since we do reside in California may have the couple of different environmental connotations, but we kind of like to believe it represents nurturing and growing our business and we are certainly and we are certainly excited about the future.

Our new development allows us access to larger PLC in molecular markets as we have communicated. We are moving diagnostics closer to the patient. We believe the decision making is being pushed closer to the patient and to the physician more cost efficient model and we believe that we are well-positioned with our diagnostic products to support that more diverse customer base. I think as Doug mentioned in his presentation, we are looking at really four attributes; one is ease of use, reduced cost, increased accuracy and reduced time to result, and we think the product we have laid out do an excellent job of achieving one if not more of those attributes.

Expanded geographic reach, we talked about now the potential of international growth as we move forward, greater line of site and users, and then last product offerings across multiple segments. So we certainly believe we can leverage our customer infrastructure certainly within lateral flow as we launch Sofia and then certainly we are looking to develop a molecular diagnostic franchise as well.

So with that, that concludes our formal remarks. Again I appreciate your interest in Quidel. And I will turn it now back over to Doug Bryant for questions and answer.

Question-and-Answer Session

[No Q&A Session for this event]

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