Quidel Corporation's CEO Presents at JPMorgan Healthcare Conference (Transcript)

| About: Quidel Corporation (QDEL)

Quidel Corporation (NASDAQ:QDEL)

JPMorgan Healthcare Conference

January 15, 2014 02:30 PM ET

Executives

Doug Bryant - President and CEO

Analysts

Tycho Peterson - JPMorgan

Tycho Peterson - JPMorgan

Great, we are going to go ahead and get started. I am Tycho Peterson from the Life Science Tools & Diagnostics Team. It’s my pleasure to introduce our next company this morning Quidel. For those interested in the breakout, it’s going to be in the Yorkshire room and with that, let me turn it over to Doug.

Doug Bryant

Thanks Tycho. Good morning everyone. Thanks for your interest in Quidel. With me today are Randy Steward, our Chief Financial Officer and Ruben Argueta, our Director of Investor Relations right there in the front. I will be making forward looking statements, this is our Safe Harbor. The first 30 years of our Company’s history, we had a number of notable achievements. We had a rapid chronic care device using what is now called lateral flow technology, the basis for our first commercial product which was for pregnancy, the following year we introduced a strep test. We did a couple of acquisitions in the 80s that resulted in our bone health and complement pathway marker businesses.

In addition we developed our first flu product in conjunction with the folks at GSK. We were the first company to receive CLIA-waiver for strep A, for H. pylori and for flu B and we were actually the first company to get approval for a nasal swab claim which was particularly helpful to us.

And so by the year 2009, we had created a rapid chronic care businesses that was roughly about a $110 million in revenue and a total served market of about $270 million. We recognized at that time that to survive longer term we would need to do something different, we would need to innovate in a couple of different ways. And among multiple shots on goal, the two programs that have emerged and become increasingly important for us are our next generation immunoassay platform, which is called Sofia and our molecular diagnostic program.

From a customer perspective Sofia is a compelling next generation rapid immunoassay system. Currently we are in market with an influenza A+B assay, a group A strep assay, a respiratory syncytial virus assay, a qualitative hCG, which of course is for pregnancy and ex-U.S. product for Legionella. In development at the moment, among others actually but the four likely to appear, first are the quantitative hCG, vitamin D which would obviously also be quantitative, a rupture of membranes assay and a fetal fibronectin assay. Sofia itself delivers improved product performance. In fact for our flu assay one of the compelling attributes of the product is that it is about a hundredfold more sensitive than our previous version the QuickVue assay.

These tests on Sofia are of course objectively read with many fail safe features and I would say that’s probably, those are the key drivers to why so many people have acquired the instrument itself. And finally I will talk a little bit about the wireless capability as well.

So, we know Sofia is compelling because we already have over 5,000 analyzers to-date. In the fourth quarter of 2013, we actually placed more in the hospital segment than we did in the physician segment, which was the opposite of what we did in 2012. We had a placement rate of that in the quarter four 2013 that was approximately the same though of our placements in 2012. And the percentage that are in physicians now is about 65% and the placements that are in the hospitals is now about 35%.

So, of course from a customer perspective Sofia indeed is compelling, but from our perspective Sofia stabilizes our core business, gives us opportunity to gain share and equally important access to larger markets and particularly those quantitative assays.

The wireless connectivity that’s resident in Sofia allows health systems and public health authorities to monitor results in near real-time. We think this could be a significant upside to our model over the next several years. On the right hand side of the screen and I know you can’t read the paper there but this is a poster that was actually presented in South Africa a few months back, it was co-authored by us, the CDC and some folks from the public health in Wisconsin demonstrating the integrity of the data that were collected from Sofia’s in clinics in Wisconsin encrypted.

The identified data were sent to a cloud and then nightly we push those data to the CDC. The CDC then validated that. In fact we had a 100% integrity of those data. So again longer term, this I think will become an important part of public health and surveillance here in the United States as well as a couple of other countries where we are exploring similar opportunities.

In the near term our innovations in the molecular diagnostic space will be equally compelling. On the left hand side you see in a women’s hands AmpliVue, the world’s first handheld disposable molecular device which combines a proprietary isothermal amplification technology with traditional lateral flow.

The first assay we launched was for C. difficile last year. Recently we had approval for our Group B Strep Assay and then the very last day of the year I think around 2 ‘o clock on December 31st we submitted HSV 1 and 2. In the wings and in some form of either end clinical trials are about to be submitted are test for Pertussis, Parapertussis, Group A Strep, Trichomonas and CT/NG.

In the middle you see our reagent kits which are branded now LYRA. We have already developed a number of products, those are approved but recently we submitted an HSV 1+2/VZV combination assay which is a de novo 510(k), meaning it is novel and new.

We also submitted a Strep A CNG assay and we expect both of those also a de novo and we expect those to be approved as early as first quarter of this year. We acquired a company earlier in the year called Andiatec, a small German company, a molecular diagnostic company and as part of that acquisition we picked up 30 additional CE mark assays, many of which we plan to being to bring into the U.S. and take through the clinical trial process.

And then filing Savanna, over the last couple of days we have got numerous questions about where we’re at with this platform. The first integrated boxes are being manufactured now and we expect to have those in April and to be developing further assays on that. We have demonstrated very good product performance for the HIV Viral load assay in our alpha test cartridge. We expected to present Savanna publically for the first time at the AACC in July in Chicago and we expect to be in South Africa with beta sites sometime in Q4, probably the later end of Q4.

Here is the financial history of the company. Over the recent times we said in our pre-announcement that we did $50 million in revenue for the quarter. Clearly we have benefitted from the uptick in flu at the very end of the quarter and that was an important part of that 50 million. That brings the total to approximately 175 million in revenue for the year. At the end of the quarter Q3 we had $10 million in cash on the balance sheet as I think most of you know, Q4 and Q1 is a period of time when we generate most of our cash. So we would expect that to increase pretty significantly here and over the next few months.

We have obviously had questions about what we expect to spend moving forward as well. We suggested last year that we would do in the range of $34 million to $35 million in R&D spend for 2013. We are reducing that slightly in 2014 down to something in the range of 30 to 32. But offsetting that is a slight increase in SG&A, and we’re taking that up from somewhere around $33 million, $34 million in the year to in the range of $35 million to $37 million this year, 2014, as we launch a number of these products that we have in the pipeline.

At out Analyst Day in Boston we had said that 2013 was the year of truth and we said that we would submit at least 10 assays to the FDA in 2013 and I know the audience at that time probably didn’t see how that was going to happen. But in fact we have had 12 assays submitted for 510(k), two of which as I said were de novo and in addition we submitted two clear waiver packages, and in truth, we had a very good year. And so we’re now poised to do what we said we were going to do, and I think our commercial opportunities, we’re going to be able demonstrate throughout this year and will put us in very good position to achieve the things that we said we would do in 2015 and as a reminder we said in 2015 that we would generate an additional $100 million incremental, that the gross margin would be approximately 65% and that we would have an operating margin that started with a three.

Right now it looks pretty good to achieve the gross margin of 65%. A lot of that’s driven by Sofia, the assays that are already approved. In addition we pick up about $8 million on a bottom in February, beginning in 2015 due to the end of our amortization of the buy down of the Royalty from Alere. We also pick up about $2 million in cost reduction that actually begins this year because of our move of our manufacturing facility from Santa Clara, California to Athens, Ohio. So in total they’re on the bottom. We have a little bit of benefit there that totals about $10 million. And so that gets us more than half way to the 65% gross margin there. So the achievability of that looks pretty solid at this stage.

So for 2014, we said that we would have 10,000 analyzers, Sofia analyzers, on the ground by the end of this year each generating revenue. We said that we would have a run rate as we entered 2015 of about $10,000 per unit, per year. We do need to get clear waiver. We’ve submitted RSV for clear waiver that we expect to submit hCG shortly and we expect to submit Strep in February.

As I mentioned before, we have two quantitative assays in development, an hCG and a Vitamin D. hCG we would expect to submit to the FDA this year, and Vitamin D we expect actually to submit early 2015. So both programs appear to be reasonably on track and they would be our first demonstration of our ability on Sofia to do quantitative assays.

For AmpliVue continued commercialization of C. difficile and Group B Strep, of course FDA clearance and commercialization of HSV 1 and 2, which I think is a very interesting opportunity for us even though it’s not a significantly large market and then FDA submission of three additional assays we expect in 2014.

For the PCR based assays, which we’ve now branded LYRA, and we have FDA clearance and commercialization of a unique product that’s a combination of HSV 1 and 2 VZV. We’ve already actually submitted the Group A CNG assay. So we’ve got another that we expect to submit as well. And as I mentioned before with Savanna, we remain on track, our first integrated units are being manufactured now. As I mentioned, we expect to be at the AACC in July in Chicago. And again, we expect to be able to ship beta units to South Africa in Q4 of this year.

So that actually tackles the end of my presentation. I clearly needed more slides because I have got 10 minutes left.

Question-And-Answer Session

Tycho Peterson - JPMorgan

Could I just ask you -- just timing of Savanna into the U.S. because we get that question a lot. Is that 2015 potentially?

Doug Bryant

We’d like to be in clinical trials in 2015 here in the United States. We think we’re going to be in a position to submit for CE mark and then to use our early menu of test receptivity of the instrument system. It’ll be tight but it would, if things go extremely well, we could have approval by the end of 2015 for Savanna and at least an assay or two, worth the idea in mind that we would be heavy in the clinical trials with a large number of menu items. And so that’s sort of where we are for the U.S. launch.

Tycho Peterson - JPMorgan

Okay, and internationally you said over 20 assays that are ultimately [indiscernible] Savanna?

Doug Bryant

Yes, 20 targets. Some of these would be grouped the way I -- maybe this is -- maybe I’m cheating here but I would count for example HSV 1, 2 and VZV is 3 targets, right? So it doesn’t necessarily mean 20 individual assays, but yes at least 20 targets. And as I mentioned we’ve got more than that in terms of assays developed already. It’s the matter of which ones are going to be a compelling assay, enough to drive a placement.

So, in a traditional world we would stack rank our portfolio by, we do a risk adjusted NPV and we would go after the large markets first. But my theory is that lets developed things that customers need and want and even if it’s small, it can drive placement then it’s on the bench then I have an opportunity with that relationship to go back and talk about the other products that are in the larger markets. So that’s our strategy at this stage.

Tycho Peterson - JPMorgan

Anyone from the audience otherwise we’ll just leave it for the breakout?

Doug Bryant

Okay, thank you.

Tycho Peterson - JPMorgan

Thanks.

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