Quidel Corporation F1Q09 Earnings Call Transcript

Apr.22.09 | About: Quidel Corporation (QDEL)

Quidel Corporation (NASDAQ:QDEL)

F1Q09 Earnings Call Transcript

April 22, 2009 at 5:00 pm ET

Executives

Douglas Bryant - President, Chief Executive Officer, Director

John Radak - Chief Financial Officer

Analysts

Scott Gleason - Stephens Inc.

Ashim Anand - Natixis Bleichroeder

Zarak Khurshid - Caris & Company

Keay Nakae - Collins Stewart LLC

Steven Crowley - Craig-Hallum Capital Group

Operator

Welcome to the Quidel Corporation first quarter 2009 conference call. At this time, all participants are in a listen-only mode. Later, instructions will be given for the question and answer session. (Operator Instructions) I would like to now turn the call over to Mr. John Radak. Please go ahead.

John Radak

Hello, everyone. This is John Radak, Chief Financial Officer at Quidel. Thank you for participating in today’s call. Joining me today is our President and Chief Executive Officer, Doug Bryant.

Earlier this afternoon, Quidel released financial results for its three months ended March 31st, 2009, if you have not received this news release or if you would like to be added to the Company’s distribution list, please call Shirley Chow at Porter Novelli Life Sciences at 212-601-8308. Please note that this conference call will include forward-looking statements within the meaning of Federal Securities Laws. It is possible that actual results and performance could differ materially from these stated expectations. For a discussion of Risk Factors, please review Quidel’s annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q as filed with the SEC.

Furthermore, this conference call contains time sensitive information that is accurate only as of the date of the live broadcast, April 22, 2009. Quidel undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call except as required by law. For today’s call, I will report on the financial results and our previously announced restructuring then Doug will provide some observations to put this year’s influenza season and perspective and give an update on a new product development activities.

Clearly, our first quarter results were not what we were expecting at the start of 2009. This year’s influenza season was a very late and mild season as compared with any season in the past 12 years in terms of the number of patients presenting to their physician with influenza-like illness or ILI. Total global revenues for the quarter were $16.9 million, a decline of 59% from the first quarter of 2008. This decline was driven primarily by our influenza product line where revenues were 90% less than the first quarter of the prior year.

Domestic revenues were down by 62% from the same period of the prior year to $13.9 million. International revenues came in at $3 million, a decline of 31% from Q1 of 2008. Global infectious disease revenues were $7.8 million in the first quarter of this year as compared to $32.2 million for the same period of the prior year driven by declines in influenza and strep sales. In spite of a very weak cold and flu season, we did see very strong double digit growth of our RSD test in the quarter. The global revenues of our reproductive and women’s health category declined 11% in the first quarter of 2009 versus a prior year to $4.9 million drive by lower pregnancy sales as domestic distributors continue to reduce inventory levels.

Revenues in our other products family grew 32% to $4.1 million due to the timing of orders for our veterinary products. As you are aware, we have seen domestic distributor inventory levels fluctuate greatly over the last several quarters for our top three products; influenza, strep and pregnancy. At the end of the first quarter, we estimate that domestic distributor inventory levels for our strep and pregnancy products are now at normal levels. As of the last couple of weeks, we believe that domestic distributor inventory levels for influenza test are significantly higher than we would like at the end of the season. While end users are still consuming flu test and drawing down distributor inventories, it is unlikely to be enough for us to avoid soft flu sales in the third and fourth quarters of this year, historically a time for restocking in anticipation of the cold and flu season.

Gross margin in the first quarter of 2009 came in at 50% versus 65% from the prior year primarily due to a less favorable product mix in 2009. Operating expenses of $13.1 million were 1% less than the prior year and include $1 million of costs associated with the restructuring actions taken in March. Sales and marketing expenses were lower than the prior year due to a decline in sales commissions and trade expenses.

Research and development expenses declined in the first quarter of 2009 primarily due to lower incentive compensation cost. General and administrative expenses were higher than the prior year due to our CEO transition cost as well as cost associated with our new credit facility partially offset by lower incentive compensation cost.

During March, we initiated actions aimed at realigning resources to focus the organization on our key strategies, lowering our cost structure through a reduction in force and eliminating or reducing certain discretionary spending programs. Each of these actions has different cause and benefits so let me address each action separately. First, we reduced our headcount by approximately 10%. This action comprises the majority of the $1 million charge recorded in the first quarter. We expect this action to save approximately $3 million in 2009 and $4 million in 2010 versus our Q1 2009 cost structure. While the positions that were eliminated were across the Company, these actions will not affect our ability to achieve our previously discussed key strategies.

Second, we have eliminated for 2009 the annual cash incentive plan. I would like to point out that there was no expense in 2008 for this plan, as the Company’s performance did not meet the minimum performance targets. The annual cost of this plan at the current headcount level is roughly $3 million. Third, in early April, we ceased to use of a portion of the facility we occupy in Santa Clara, California. As a result, we will accrue in the second quarter of this year an additional restructuring charge of approximately $1.1 million for the future lease payments. This will reduce our cost by roughly $200,000 per year. Finally, we have initiated other cost control measures relating to discretionary items that are designed to lower our cost in 2009.

I will now turn the call over to Doug.

Douglas Bryant

Thank you, John. Given the importance and size of flu business as well as its impact on our Q1 results, I thought it would be constructive to put this year’s flu season into perspective. As you know, there are a number of factors that can impact the size of the flu test market from year to year. Those factors include new physicians adopting flu testing, existing users, utilization rates, and severity of the flu season as defined by the percentage of patients visiting healthcare providers with influenza-line illness or ILI, influenza vaccine effectiveness and the number of people who actually get vaccinated.

Clearly, we feel the most important drivers of the flu test usage during a flu season or the number of patients who present with ILI and the number of physicians who use flu tests. It is instructive to note that there are some small incidents of ILI throughout the calendar year. The CDC characterizes the small level of ILI incidents as a benchmark or [saver for two] as the baseline. We know that the majority of flu test usage occurs when ILI does exceed the baseline level. Our internal analysis of CDC data on the rate of physician visits for ILI for the last 12 influenza seasons suggest that there were three mild seasons, three severe seasons and six seasons that were average in severity.

The following seasons were mild, 0102, 0203 and 0809. The 0304, 0405 and the 0708 seasons fall under the severe category therefore as many of you have already concluded that severe 0708 season was followed by a mild 0809 season which is actually the first time this has happened in the last 12 years. Let me describe the difference between a mild and a severe flu season. Generally, a severe season will last twice as long as the mild season, 16 weeks versus 8. The rate of patient visits for ILI in a severe season will be 50% more than in a mild season. On average, in a severe season, ILI visits will begin to exceed the baseline level around the first week of December although that has varied by four weeks on either direction in the past.

However, in a more typical mild season, ILI visits do not rise above the baseline until late January to early February. In all of the last 12 seasons, the patient visits for ILI have fall on below the baseline level by the end of March which suggests that regardless of the start, the season is over by the end of Q1 and based upon all the data we have analyzed, we have concluded the following. One, the severity of the 0809 season declined from the prior season on the neighborhood of 35% to 40% as measured by the length of the season and a rate of patient visits for ILI. Two, our market share appears to have remained steady to the end of 2008 but we will not have external sources to verify Q1 of 2009 until next quarter. Three, our distributor out sales of QuickVue Flu test declined 30% to 35% this season versus last season and four; the data suggest that there was additional physician adoption of flu testing of season since physician purchases a flu test decline less than the severity of the flu season.

As we plan our business for the next flu season, we were assuming the 0910 flu season will return to the mean or be an average flu season. So, let me describe for you the profile of an average flu season. In an average flu season, ILI visits will begin to exceed the baseline level in mid December and will stay above the baseline for a range of 10 to 13 consecutive weeks. Therefore, we would expect the total ILI visits to be anywhere from 25% to 40% higher than the 0809 season translating to a healthy increase in seasonal or season flu test purchases by a physician. However, the effect on our sales will be dampened due to the amount of inventory remaining at the channel as John previously mentioned.

Additionally, we plan on reducing incentives for pre-season flu test stock, the effect of the inventory overhanging and reduced incentives will result in lower flu revenues in both Q3 and Q4 of this year as compared to the same period in 2008. While these actions will make 2009 a very challenging year from a revenue and earnings perspective, we believe they will better position us for 2010 and beyond as we return to top line growth and leverage our cost structure to drive margin expansion.

Let me take a few more minutes to provide an update on our new product development activities. We are making great progress on the next three new products we anticipate launching, Generation II FIT, Mono and the Flu RSV combo SA. The clinical studies that are needed for our FDA submission on our Gen II FIT test are underway at this time. These studies include physician office lab studies at different locations across the United States, controlled studies with laypersons in the targeted age range 50 to 75 years of age and special support of studies by Quidel R&D to establish the robustness of the test itself. Pending outcome of these studies which are proceeding well and on schedule, we intend to submit a 510(k) in this second quarter of 2009. Assuming a favorable review by the FDA, we are on track to launch the product sometime in the second half of 2009.

Development efforts for our Mono test and our Flu RSV combo test are progressing nicely. We are on schedule to relaunch our QuickVue Mono test on the first half of 2010. The Flu RSV combo product will essentially be a three-in-one test detecting Flu A, Flu B and RSV which makes it ideal for children's hospitals and pediatrician offices. The ability of physicians to differentiate flu from RSV mediated illness will be enhanced through use of this simple test that will provide diagnostic information in 15 months or less. Clinical studies for the Flu RSV combo test will begin on the fourth quarter of this year and we expect to submit our 510(k) at the conclusion of the 0910 flu season. This test should be ready for launch well in advance of the 1011 flu and RSV season.

And finally, as you are aware of the CDC published in MMWR regarding the first two cases of a Flu A H1N1 virus that occurred in period on San Diego, counties here in California, we have gotten some questions on the CDC's report so I will give you a brief update on what we know. First, let me quote from MMWR, "The viruses from the two cases that are closely related genetically resistant to amantadine and rimantadine and contain a unique combination of gene segments that previously has not been reported amongst swine or human influenza viruses in the United States or elsewhere. In addition, the MMWR report states although this is not a subtype of influenza A in humans, concern exist that this new strain of swine influenza A H1N1 is substantially different from human influenza A H1N1 viruses that a large proportion of the population might be susceptible to infection and that the seasonal influenza vaccine H1N1 strain might not provide protection. The lack of non-exposure to pigs in the two cases increases the possibility that human-to-human transmission of this new influenza virus has occurred."

Based upon that, let me tell you what Quidel is doing. We have contacted the San Diego County health department as well as the Texas State health department because one of the children traveled to Texas in early April and the CDC and we let each of them know that Quidel has product inventory that we can make available for immediate delivery should they request it. It is important to remember that while our test is appropriate for human, H1N1, its applicability in this case has not been determined and at this point, that is really all we can say about this issue.

That concludes our formal comments for today. Operator, we are now ready to open the call for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Scott Gleason - Stephens Inc.

Scott Gleason - Stephens Inc.

I guess the first question is just when we look at, you guys mentioned that you still have some excess flu before in the channel. Is there any way you can kind of quantify what you believe that excess meant to be on a dollar basis or give us some more granularity on how to think about that when we think about the third and fourth quarter this year?

Douglas Bryant

Well, we have previously disclosed, Scott as you know that we think that the amount is required to stock the QuickVue setting and physician’s offices. That amount is approximately what we have in the channel and we are validating that plus we have recently concluded the study of end users so we have a pretty good understanding of what is out there and beyond that, we really cannot quantify it for you.

Scott Gleason - Stephens Inc.

Great and then Doug, I guess just given some of the events that is going along around the Company and the weak flu season and some of the inventory issues, how do you guys get comfortable around market share data and the claims that your market share stays the same? I guess what additional data points do you guys look at right now to give the assessment that your market share has not changed?

Douglas Bryant

Well, we have a telemarketing department and they are in constant contact, daily contact with our end users. So, based on those data which, that obviously are not absolutely conclusive, we concluded that market share has not changed much if at all and we look forward to getting our report after Q1 and seeing what the results actually are.

Scott Gleason - Stephens Inc.

Great and you guys saw that the RSV test grew double digits? Can you guys maybe give us anymore granularity about around the actual kind of magnitude of that test contribution in the quarter? Are you ready to talk about that yet?

John Radak

No.

Douglas Bryant

No, I mean we are just pleased with the performance of the sales of RSV in the quarter but we are not ready to break that out separately.

Scott Gleason - Stephens Inc.

Great and then John, one housekeeping question, can you give us what the stock-based compensation was in the quarter and then also, can you talk a little bit about what the expense was from the management transition?

John Radak

Yes, the stock-based comp in the quarter was about $800,000 and that was versus roughly about $1 million in the prior year first quarter and the CEO transition costs were roughly around $300,000.

Scott Gleason - Stephens Inc.

Great!

Operator

Your next question comes from the line of Ashim Anand - Natixis Bleichroeder.

Ashim Anand - Natixis Bleichroeder

I was wondering if you have available some balance sheet data, how much was account receivable this quarter?

John Radak

Sure, accounts receivable at the end of the quarter was $6.1 million.

Ashim Anand - Natixis Bleichroeder

Wonderful! And inventories, if you have?

John Radak

Inventory was $12.6 million.

Ashim Anand - Natixis Bleichroeder

Wonderful! Now, in terms of the other revenues, would you be able to tell us what revenue stream contributed the most for you got a nice increase there?

John Radak

Veterinary, the veterinary product kind of creates…

Ashim Anand - Natixis Bleichroeder

Okay, and H. pylori and SPG, they were essentially where they have been.

John Radak

Yes.

Ashim Anand - Natixis Bleichroeder

And finally, I think you already said this but I think I did not get it, in terms of timing of the new products, you said second half for FIT and then probably, what did you say about, did you give the timing about Mono or not?

Douglas Bryant

Yes, we did. Front half of 2010.

Operator

Your next question comes from the line of Zarak Khurshid - Caris & Company.

Zarak Khurshid - Caris & Company

Sorry, John I think spaced it out but could you just go back over the breakout of the three big segments quickly?

John Radak

Sure. So, the infectious disease category in Q1 was $7.8 million, reproductive and women's health was $4.9 million and other was $4.1 million.

Zarak Khurshid - Caris & Company

Great, thanks for that and then my only question really pertains to the molecular diagnostic strategy. So, Doug could you just remind us what your thinking there at how might that strategy, how has that maybe been refined over the last few weeks and how are your meetings going with some of the platform technology companies in San Diego and elsewhere? Thanks.

Douglas Bryant

Sure. We are actually doing diligence around a couple of ideas which will include the technology itself and IP. So, we have got two things that we are working out immediately and those are progressing pretty much as we had described during the investor road show. Does that answer it for you?

Zarak Khurshid - Caris & Company

Yes, I think so. More specifically, I was curious with the cost savings we are expecting to see over the next year, do you envision that being offset by either small acquisitions or investments in new technologies?

Douglas Bryant

Sure. Some of that will occur. Remember also, Zarak, that the P&L is pretty leveraged in such that any of these new products that we launch even though they will not necessarily be more than modest in terms of sales in the immediate future, the fall through on those products will be very healthy driven by mainly the fact that our direct labor expense for our manufacturing is quite well so that the remainder of our manufacturing costs are essentially fixed.

Zarak Khurshid - Caris & Company

Okay and then roughly, what are your thoughts on the timing to get potentially a molecular product to market?

Douglas Bryant

Well, that is really hard to estimate at this stage but I would say that we are aiming at the two to three year mark.

Operator

Your next question comes from the line of Keay Nakae - Collins Stewart LLC.

Keay Nakae - Collins Stewart LLC

John, can you give us an idea, with your cost cutting initiatives, what level of quarterly gross profit you are targeting for breakeven?

John Radak

Well, it is a tough question to deal without providing financial guidance to you, Keay. I mean, I think as you look at the business as we described in the past, you have a high margin products, a flu and RSV and you got the rest of the products which are generally in that 50% gross margin range. So, I mean I think somewhere slight north of that 50% should deliver on above breakeven performance.

Keay Nakae - Collins Stewart LLC

Alright…

John Radak

…first of the year.

Keay Nakae - Collins Stewart LLC

Yes. I do not know if that really answers my question but maybe I will follow up with you on that later. In terms of the FIT test, how long do you think it will take you to get the CLIA waver? Are you going to file for that time of the FDA filing?

Douglas Bryant

What we did say is we are working on the studies that would necessary to the filing and so far, we are actually encouraged by the early results. Obviously what we are looking for is the ability of the average person to be able to perform the test without failure and we are encouraged by the high percentage that for which that is actually true so far. But until we get to the end of the study, I cannot actually answer the question.

Keay Nakae - Collins Stewart LLC

Okay. In terms of some of your product categories in the inventories associated with those for pregnancy, reproductive health, you posted this number for $4.9 million. Is that what we should consider as the baseline number now? Have you got your inventory straighten up for that product category?

Douglas Bryant

Yes, those two categories or those two product lines are down at inventorial levels that we would expect.

Keay Nakae - Collins Stewart LLC

Okay, very good and then what about strep? You have not talked about the inventory there. What is that looking like at this point?

Douglas Bryant

That is the same.

Keay Nakae - Collins Stewart LLC

At levels that you are comfortable with?

Douglas Bryant

Absolutely.

Keay Nakae - Collins Stewart LLC

Okay, and then finally on the flu inventory, you talked about where those levels are now but relative to where you would like them to be versus say where the prior CEO would have liked them to be, is your desire to have those at a much lower level and go from there?

Douglas Bryant

I will answer that by starting in a little bit different way if I can. First, we just concluded a fairly significant study at the end user level because actually that is where the inventory matters most. So, we conducted a survey of the large number of our end users and a very high percentage of them have actually not enough inventories to go into the season. So, I do not know if encouraged is the right word but we are certainly not discouraged by what that survey told us.

So, having said that then the question just is how much will need to go into the system in advance of the next flu season and so we would expect some modest amounts of sales into distributors probably in the fourth quarter. But the uptick that would be required to get more products into the physicians and acute care setting of those labs, that amount would be essentially taken up by what we have in the inventory now.

Keay Nakae - Collins Stewart LLC

Okay understood and then, to make all that work I guess, you as well as your distributors/end user customers have a high degree of confidence in your ability to deliver product in a just in time fashion.

Douglas Bryant

Absolutely, I think it is well described and well known that the effort that the Company is taking over the last four years to improve efficiency and to move to a more automated manufacturing process means that we can take with, that we continue to build throughout the year and we can gear up in very short notice to supply virtually anything that is required whether it be strep, flu, ASG. So, I think it is well known by our distributors that that is the case.

Keay Nakae - Collins Stewart LLC

Okay and then just to complete the loop here, well I guess most of this has been focused on the US market. Where do your inventories stand with respect to distributors in Europe bioMerieux or in Japan?

Douglas Bryant

I think we are comfortable with the inventory levels in both Japan and that bioMerieux.

Keay Nakae - Collins Stewart LLC

So, are they where you want them to be at the start of the season as oppose to the excess that you are seeing in the US when you say comfortable, John?

John Radak

Yes, I believe so because actually the amount that was ordered in Q1 by bioMerieux was not over the top.

Douglas Bryant

Right. Okay, something just happened.

John Radak

Operator? Yvette, are you in the line?

Douglas Bryant

Are we going to need to call back in?

Operator

I am sorry about that, sir. (Operator's instruction) Your next question comes from the line of Steven Crowley - Craig-Hallum Capital Group.

Steven Crowley - Craig-Hallum Capital Group

It was like I was in hyperspace there just for a moment. I do have a few more questions. I am hoping you can give us a bit more information. You have attempted to give us some feel certainly for flu and the difficulties you experienced in Q1. I think you said year-over-year sales in that product were down roughly 90%. Q2 was typically been a period with very little flu product shipments. I think it is probably a safe assumption that there is not much flu product shipped in Q2. There is nothing corked either with international or southern hemisphere or anything that should affect your flu sales in Q2?

Douglas Bryant

No, nothing that we are aware of.

Steven Crowley - Craig-Hallum Capital Group

And Doug, from the sound of things, what you are telegraphing for Q3 and Q4 are some prospects for business in Q4 but some dampened prospects for business in Q3. I am just trying to get a feel for what the range of outcomes might be for flu shipments. I mean you had Q3s historically of the Company where you have shipped $13 million, $15 million, and $18 million of product. We are certainly talking about something considerably less than that but in the range of outcomes, is there a repeat performance of the March quarter potentially with just a couple million dollars or so of flu. Is that in the range of outcomes? I am just trying to understand what the middle part of the curve here looks like.

Douglas Bryant

Again, we are assuming an average flu season because that is the best we can assume at this stage and if that is the case, then we would not see a real start to the flu season until maybe that first or second week of December and so therefore we know that there is enough in the channel to fulfill a big part we believe with the physicians and acute care labs we are going to need. So, yes we are telegraphing that we are not expecting to see the typical Q3. It is difficult to predict from our end as well because we do not, we are actually just assuming average.

Steven Crowley - Craig-Hallum Capital Group

So, if we as a collective would try and be real prudent and real…

John Radak

Yvette, I think we lost you. Operator?

Operator

Yes, sir?

John Radak

I think we lost a questioner, Steve Crowley.

Operator

Okay, sir. I will take care of that for you. I would call him back so he can ask another question in a moment. Okay, Mr. Crowley, your line is now open.

Steven Crowley - Craig-Hallum Capital Group

Okay, guys I am back. So, my follow on to your answer was, if we were to be trying to be conservative and prudent and all those good things, assuming a couple to several million dollars of flu in Q3 would seem consistent with that objective of being prudent and conservative? I just want to make sure I understand what you are trying to telegraph to us.

Douglas Bryant

They should be conservative about Q3.

Steven Crowley - Craig-Hallum Capital Group

Okay, in terms of strep, can you give us some similar color? It was obviously down year-over-year. Was it down double digits, 20%? Can you give us a feel for what kind of challenge you have there and what kind of category is strep as it is normalized here and we can operate in a normalized manner? Help us understand how that category shakes out for you.

Douglas Bryant

Well during Q1, we had distributors reducing inventory levels for both strep and pregnancy and those are, we exited Q1 as we said at more comfortable inventory levels in the channel for those products. So going forward, we should return to a more normalized run rate of revenues for those products and would be more, would be closer to what we experienced say in 2007.

Steven Crowley - Craig-Hallum Capital Group

Okay, so if I take those comments to heart and I appreciate them because again, we are trying to calibrate what the floor is. A quarter without much flu business and more normalized run rates in your other product categories, for example, your Q2 of 2007 was an $18 million quarter. That looks a little aggressive in the context of what you just reported but maybe that not overly aggressive. Is the Q1 run rate in your business representative of a more natural run rate in your non-flu products and little or no contribution from flu? Is that the way we should think about it, so, $17 million to $18 million or $16.5 million to $18 million?

Douglas Bryant

Well, sequentially we would expect pregnancy and strep to be higher in Q2 than Q1 because of the draw down in the inventory levels.

Steven Crowley - Craig-Hallum Capital Group

Okay, but other had a nice top, and were that artificial? Is that not sustainable up at those levels? Is there bit of timing that helped cue on there?

Douglas Bryant

Yes, there was a bit of timing that helped cue on. If you recall when we talked about the fourth quarter of 2008, we said that there were some veterinary orders that moved from Q4 and Q1 so Q1 is a little bit high on the veterinary business.

Steven Crowley - Craig-Hallum Capital Group

And then as you move into the September and December quarter, I guess there are some seasonal elements of your product mix that are not hampered by the inventory situation. Those would be strep, RSV and other in cold and flu-type products, correct? So, there would be some positive seasonality even X influenza for the back half of the year.

Douglas Bryant

Yes, I mean there are clearly strep sales in Q4 tends to be higher than Q3 and higher than Q2.

Steven Crowley - Craig-Hallum Capital Group

Now, your cost savings from your restructuring seemed to be rather significant. I want to make sure that we understand what you are telegraphing. In the quarter you just reported, X the roughly $1 million restructuring charge, your total operating expenses were $12.1 million. You mentioned about a $1 million per quarter savings in operating expenses because of your restructuring. So, is it fair for us to assume on what sounds to be a largely similar revenue number. We would not have big commission differences of just a $1 million less operating expense as your operating run rate. Is there another variable in the equation that we need to know about?

John Radak

No, I think that is, I think you got it.

Steven Crowley - Craig-Hallum Capital Group

And the management, the CEO transition expense, is it just in the first quarter or is there any tail to it to second quarter?

John Radak

There is a small portion that is being recognized over the course of 12 months but it is not material so, for all intents of purposes, just in Q1.

Steven Crowley - Craig-Hallum Capital Group

And then final question, just moving back up to the growth side of the equation and the new products, Doug, can you talk about any response from the market place distribution, potential partners about the new product roadmap that you have disclosed so far. I guess I am talking about the combo panel, about the mono test. What kind of interest do you have there and if you do not really have interest, how have you sized up your opportunities in the mono area for example?

Douglas Bryant

We had one initial meeting with the key distributor and laid out the product roadmap and I have to say the reception was just quite good. I do not have a lot of experience beyond that. I think again we should characterize these opportunities as basis. So the top line is not so important as the margin growth and again, any dollar and new product sales because of the leverage we have on the P&L, it is going to fall pretty much straight through the bottom.

Steven Crowley - Craig-Hallum Capital Group

Well, thanks very much for taking my questions. I look forward to picking up some of the stuff with you after the call.

Douglas Bryant

Sure.

Operator

That is all the time we have today. Mr. Bryant, please proceed with your presentation or any closing remarks.

Douglas Bryant

Well, this concludes the call for today. John, I thank you again for your time this afternoon and for your continued support. Take care, everyone.

John Radak

Bye-bye.

Operator

Ladies and gentlemen, we thank you for your participation and ask that you please disconnect your lines. Good-bye.

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