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Quidel Corporation (NASDAQ:QDEL)

Q4 2010 Earnings Call

February 24, 2011 5:00 PM ET

Executives

John Radak – CFO

Douglas Bryant – President and CEO

Analysts

Ashim Anand – Natixis

Jeff Frelick – Canaccord

Ross Taylor – C.L. King

Steven Crowley – Craig Hallum

Scott Gleason – Stephens

Pete Vitali – William Blair & Company

Daniel Owczarski – Avondale Partners

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation Fourth Quarter and Full Year 2010 Earnings 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 now like to turn the call over to Mr. John Radak. Please go ahead.

John Radak

Thank you. 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.

Today Quidel released financial results for its three months ended December 31, 2010 as well as for the full year. If you have not received this news release or if you would like to be added to the company’s distribution list, please call Ruben Argueta at Quidel Corporation at 858-646-8023.

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, registration statements, and subsequent quarterly reports on Form 10-Q, as filed with the SEC.

Furthermore, this conference call contains time sensitive information that is accurate only as of the date of the live broadcast, February 24, 2011. 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 for the quarter and year-to-date and speak to our financing activities. Doug will talk about our accomplishments in 2010, our near term growth drivers and things to watch for in 2011. We will then open the call to your questions.

Total global revenues for the fourth quarter were $31.7 million compared to $66.6 million in the fourth quarter of 2009. The prior year period was abnormally high due to 2009 flu pandemic. DHI contributed $10.5 million of revenue in the quarter, partially offsetting the revenue decline.

In the following comments on revenues, I will compare our business on a pro forma basis, as if DHI had been acquired at the start of 2009. Global sales of infectious disease products totaled $21.4 million in the fourth quarter of 2010 compared to sales of $69.2 million in the fourth quarter of the prior year. As previously stated, 2009 was a pandemic year and there was a no Influenza in 2010 until week 51. What little flu activity we saw in December was absorbed for the most part by existing distributor inventories which at year-end were the lowest in recent history. Consist with the approach that we implemented in 2009, we did not incent distributable partners to take on-board inventory in advance of flu demand. Consequently global flu sales in the fourth quarter of 2010 remained modest.

Gross margin in the fourth quarter of 2010 decreased 56% as compared to 71% in the fourth quarter of the prior year, primarily due to a less favorable product mix. Operating expenses were $18.5 million in 2010 compared to $15.8 million in the prior year. The expenses in 2010 include $5.1 million of DHI’s operating expenses in the current period, which includes $1.6 million of intangible asset amortization associated with the DHI acquisition.

Research and development costs were $5.8 million, which were slightly lower than the third quarter because of a reduction in spend with the outside contractors on the next generation lateral-flow and (inaudible) programs in the fourth quarter. We expect to see higher research and development costs in Q1 and Q2 of 2011 as a number of new products enter clinical trials which Doug will comment on. Stock based compensation expense was $1.3 million in the fourth quarter versus $2 million for the same period in 2009.

Summarizing the financial results for the full year of 2010. Total revenues declined to $113.3 million from $164.3 million in 2009. Revenues for the year were affected primarily by two factors. First, the absence of a respiratory season in 2010 versus a pandemic situation in 2009 and second the acquisition of DHI in February of 2010. Gross margin for the year declined to 54% in 2010 compared to gross margin of 66% in 2009. Our margins were affected by less favorable product mix due to our higher margin Influenza products making up a lower percentage of total revenues versus the prior year. Operating expenses for the full year 2010 were $76 million compared to $56.5 million in 2009. The increase in operating expenses was driven primarily by operating expenses associated with the DHI business and our initiatives to reinvigorate our new product development pipeline, including our efforts to develop a molecular diagnostic franchise.

Stock based compensation expense was $5.2 million for 2010 versus $4.5 million for the full year in 2009. The tax rate benefit in the fourth quarter of 2010 was favorably affected by the extension of the federal research credit. The full year effective tax rate for 2010 was 35.3% compared to 36.9% for 2009. We anticipate our tax rate for 2011 to be approximately 37%.

As most of you are already aware, the initiated a 4.6 million share equity offering in the beginning of 2011 that culminated in $57 million to the company.

I will now turn the call over to Doug.

Douglas Bryant

Thank you, John. Last year was an important year for us. Faced with a shortfall of revenues tied to the absence of a meaningful respiratory season, we still managed to achieve a great deal with respect to our three strategic imperatives, developing new products so that we can leverage our existing infrastructure, gaining better control of the distribution of our products and creating a molecular diagnostics franchise.

During 2010, we completed the development of six new products QuickVue RSV 10, QuickVue Mononucleosis, RapidVue hCG, the immune complement markers, MicroVue Ba and Sclerostin, and a flu subtyping assay. To be fair, we did have one disappointment and that had expected to launch our second-generation FIT product for colorectal cancer screening mid-year. And as I said before, this project is currently on hold. To be specific, the clinical data did not support at 510(k) clearance. The scientific team that were assigned to the FIT product was moved to our next generation Strep A, which we did not want to delay. As scientists on our current project free up, we will examine restarting our next generation product. On the other hand, during the year we exceeded our expectations in the progress we made in the development of our next-generation rapid plan care platform, the development of the Bobcat, our internal name for an automated DFA slide reading instrument and the molecular diagnostic program. In addition, through the implementation of our inventory management program and the confidence our distribution partners have in our ability to deliver product, inventory levels at distribution partner sites for flu Strep and hCG were the lowest recent history as we exited 2010.

Overall, despite the rough financial comparison with 2009, I am pleased with what our team accomplished in 2010. Of course I look forward to seeing what we can get down in 2011, a year in which the Quidel team’s ability to execute elements of its strategic plan will be particularly important. Our execution in 2011 has two major components, maximizing revenues for flu, Thyretain and the recently launched products and completing the development phase for our next-generation lateral-flow device Bobcat and two molecular diagnostic programs. For Q1, our biggest focus is on our respiratory products and sales of QuickVue Influenza A+B in particular.

So let’s talk a little bit about what we’ve seen so far. Data compiled by the CTC from 1976 to 2009 suggest that nearly 50% of all flu cases in the United States occur in February with December, January and March making up a significant portion of the difference. Assuming this pattern holds true, we would expect very little flu in Q2 and Q3 with some sales in December depending on the start of the season. For 2010, the flu and cold seasons did not start until weeks 51 and 52, correspondingly our sales of QuickVue Influenza A+B as well as our other respiratory disease products were light in both Q3 and Q4. In the final two weeks however because of lower inventories of our products in the channel, our distribution partners began placing significant orders for product and that has continued as the percentage of IOI increased sequentially for several weeks. The percent of IOI this quarter so far is actually higher than in previous seasons and our market share remains stable and consistent with previous years. According to our sales team, we have actually gained some hospital accounts.

So far in 2011, we have absorbed increases in testing in all categories, rapid point of care, DFA and even molecular. In fact for flu – QuickVue A+B out sales from distribution to their customers are actually season-to-date through January versus what we saw in 2008. Overall we continue to expect that about two thirds of our flu revenue will occur in Q1 and that about 20% will occur in Q4. Another product we are focusing on early this year is Thyretain, our test for Graves’ disease. In 2010, we experienced about 17% growth for the product and hope to accelerate that over the next couple of years.

Here is where we are in terms of our commercial efforts. We completed the training of a dedicated sales force in October and has been making demand creation calls on primary care physicians, endocrinologists and Ob-Gyns. We have established a key opinion leader speaker bureau and have completed a number of CMEA accredited educational programs for physicians. We’ve developed a sophisticated economic model that helps medical directors and managers of the health plans understand how testing for thyroid stimulating antibodies early in the process of diagnosing Graves’ disease and dramatically reduce overall treatment expense. And there are now four period viewed reference articles that have been published describing the clinical utility of Thyretain.

While we continue to explore other tools we can use to grow demand, we think that many of the elements for successful demand creation are in place. In 2010, we completed the development and achieved FDA clearance for a number of products that should help us broaden our portfolio. In 2011, we will relay upon our distribution partners to launch these products successfully as they have in the past. The other area of focus for us in 2011 is to complete the development of three platform projects and to prepare for the commercialization of those products.

Here is where we are with these key platforms. First is our next generation lateral flow technology. As a reminder, our goal is to bring to market a system that combines an improved assay chemistry with an objective read on a small bench top analyzer with the objective of delivering improving product performance. We completed our final phase of instrument and initial assay development, completed a beta site trial that demonstrated very good product performance and began U.S. clinical trials for FDA 510(k) clearance and clear waver this month. We are on track to deliver a system and potential two assays to the market before year end.

The second platform project is the Bobcat, an automated instrument that eliminates the need to manually read FAS point, a multiplexed DFA slide used to identify itself that have been inflected by up to eight different viruses. We are in Phase III, the final phase of our assay development process before clinical trials. We’ve built and tested our engineering confidence units and have built our clinical trials units. We’ve identified our clinical trial sites and expects to be in clinical trials as early as the end of Q1. Depending on when we can have clinical trials and how quickly we can find positive samples for each of the viruses in the multiplex panel, we could be ready to go to market before the year end. While the time for Bobcat is quite tight at this stage, the molecular platform projects are actually running slightly ahead of schedule at this point. Recall that as a result of the acquisition of the DHI, we inherited a number of PCR based molecular assays that were being used internally by the DHI R&D team. Since the beginning of 2010, we’ve been working on further developing the assays, simplifying them and productizing them so that they can sell to molecular diagnostic labs that already have a commercially available (inaudible).

We’ve completed the development process for two of those assays and began clinical trials on both this month. We remain on track to launch these assays in the fall outside the U.S. and by the end of the year here in the U.S. depending on the timing of FDA clearance.

And finally, as a result of our collaboration with BioHelix, which began in October 2009, we are now in the final phase of development of two assays that are run on a handheld disposable molecular device that delivers molecular assay results without the need for thermal cycling equipment. We expect to begin clinical trials in the first half of this year. While we realized there is inherent uncertainty with development work and clinical trials outcomes and activities always remain subject to change we believe that we are getting closer to our goal of evolving into a broader base business. We are very pleased with the milestones that we’ve reached in the absence of a flu season in 2010 and we are very pleased with the integration of DHI, which has given us additional commercial strength in the (inaudible) segment as well as additional skills and technologies. Importantly, hospitals now account for the largest proportion of our total revenues.

I am confident that 2011 will represent a major step in the evolution of our company and I look forward to reporting on our progress periodically.

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

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Ashim Anand with Natixis. Please proceed.

Ashim Anand – Natixis

Thanks for taking my question. I was wondering John if you could provide breakdown for the reproductive segment in the other revenue category.

John Radak

Sure. The women’s health segment revenues in the fourth quarter were 7.5 million, gastrointestinal was 1.7 and other was 1.1.

Ashim Anand – Natixis

Wonderful. In terms of international revenues, if you can comment on how they are going? It looks like they are sort of lower than the second quarter of 2010, if I am correct, if you can kind of point to the dynamics over there?

John Radak

I am sorry, repeat your question. They were lower than which quarter?

Ashim Anand – Natixis

Second quarter of this year, of 2010, right.

John Radak

They were about 11%. They made up about 11% of revenues in Q4 this year.

Ashim Anand – Natixis

Okay. And any comments of how the RSV products has been tracking?

John Radak

You are taking about the new RSV 10 or RSV in total?

Ashim Anand – Natixis

Yeah, yeah, no – new RSV 10.

Douglas Bryant

Hi Ashim, this is Doug. We manufactured the (inaudible) at the end of Q4, we began distributing to the channel Q1 2011. One major distributor in the hospital – the physicians’ office segment has this as part of one of its major programs and we have also launched in the hospital segment through our distributors there as well.

Ashim Anand – Natixis

Okay. And finally if you guys would like to give us any updates on the M&A front, with the new equity raised you feel comfortable that you could go that part? If you would, what you might be looking for? Any comments on that?

John Radak

Sure. With respect to the M&A front, we have or we continue to have an ongoing business development effort and we right early look at evaluating opportunities but at this time we don’t have anything further to disclose on that front. With respect to the use of proceeds of the offering as we indicated in the prospectus, we will use those for working capital needs, the acquisition of new technologies, similar to what we did with the North Western deal, the acquisition of diagnostic related companies like DHI and possibly repayment of debt.

Operator

And our next question comes from Jeff Frelick with Canaccord. Please proceed.

Jeff Frelick – Canaccord

Great. Thanks guys. Doug, maybe with respect to just kind of some visibility from your field reports, at the end of 3Q you had mentioned that there might be some broader number of physicians ordering rapid flu test as a carryover from the pandemic. Are you guys noticing any follow through to that, either late 4Q, early 1Q, more physicians kind of stuck with it ordering rapid test from the pandemic base?

Douglas Bryant

Let me tell you what we are seeing, what our sales guys – what we are actually seeing with respect to flu. First of all, clearly they are seeing that for the most part consistent with what you would see and expect as a result of CTC data that has been published. They did contact a number of physicians as you can imagine over the last couple of months. In fact over the last 6400 calls on physicians’ offices, we confirmed the following in terms of our physician in the market. First, 70.5% of those 6400 customers that we called on during that period were rapid point of care testers of flu. So about 70% of the type of customers we call and who are typically primary care physicians, internal medicine docs, Ob-Gyms and pediatricians. 50.5% of those rapid point of care testers for flu were QuickVue or Quidel’s customers. 46.8% of those customers were Bionix customers. Overall we see about a 55/45 split in terms of actually sales, in terms of market share. And I would conclude that we think there is probably about 55 to 70% adoption rate for flu now which is probably higher than we had expected before certainly in 2007 or 2008 and remember that we were speculating that as a result of the pandemic that the adoption rate would go up and some of what we have seen in 2009 would actually stick and that appears to be the case.

Jeff Frelick – Canaccord

Great. It was helpful. And then what is the visibility on respiratory pull through with some flu on the early part of the quarter, are you seeing with respect to RSV?

Douglas Bryant

Yeah, so interestingly the RSV season which typically begins December and goes through January has been somewhat robust and so we are actually showing pretty good results so far with that. I would also add that DHI sales which are very closely tied to when they see the patient much more closely than the way we currently expect with QuickVue product that shift to distribution, that has actually been going up. In addition and finally I would say that Strep A volumes have been significant.

Operator

And our next question comes from Ross Taylor with C.L. King. Please proceed.

Ross Taylor – C.L. King

I had one topic I wanted to cover, just trying to understand the comments you have in the press about so far in 2011 and I think you made some comments also that I missed in your prepared remarks but when you say it is at similar level to what you saw in 2008, does that really just refer to the March 2008 quarter or does that include some of the sales you had in the fall of 2007 ahead of the season as well?

Douglas Bryant

The comment, Ross, was more general in nature and suggested that a normal season in terms of total volume would be about that size. What we can say, and what John has said publicly before is that the flu – in a typical flu season we would do about 50 to $60 million in QuickVue A+B and A/B sales. In that, two thirds of that would be in Q1. And what we can tell you so far is that we are very much on track to achieve that in Q1.

Ross Taylor – C.L. King

Okay. That’s really helpful. Thank you

Douglas Bryant

I can also add a little bit because of what you see in terms of data the CTC data actually still show about 4.5% IOI which is fairly significant relatively to a baseline of 2.5% and when we look at the Google flu map, we still show a significant flu in U.S., Europe and Asia and I would say the two combined directionally indicate that we still are in a flu season for the most part in the Northern Hemisphere. And then I would add that last week the CTC reported that the percentage of cases that were positive for flu was about 35% and that actually is the eighth week in a row since week 51 that it has been above 20%. So what we are showing right now is that the season looks to be about like a 2008 season. And each season differs slightly in terms of when it starts and stops. And probably more detail than you needed but recall that in 2008 that season, it all happened during about a six week period of time, so it all happened in flurry. Whereas this appears to have started in week 51 and we are already in terms of the duration going probably longer than 2008 but right now frankly we are actually lower in terms of IOI percentage at the moment.

Operator

And our next question comes from Steven Crowley with Craig-Hallum. Please proceed.

Steven Crowley – Craig Hallum

Hey guys. I will join with you in waving good bye to 2010 and looking forward to 2011. That was really useful color on the set up for flu and you talking about the whole season and how it seems to be pushed more into first quarter. I mean the clear math there it is not hard to get yourself into the mid-30s for flu test sales in the first quarter and modest in Q4 from what I can discern just working with the numbers here it is certainly less than $5 million than the flu sales in Q4, is that correct implication from the numbers in the discussion?

John Radak

For 2010 Steve?

Steven Crowley – Craig Hallum

Yeah, Q4 ‘10.

John Radak

That’s about right.

Steven Crowley – Craig Hallum

Okay. So there is obviously a pretty sizeable step in flu dictated by the CTC data in the market reality and the market share stuff you are talking about.

John Radak

Plus I would add the way that we distribute products. We made a clear and conscious decision to change the way we manage our inventory and our distribution partners have a great deal of confidence of the product and they have managed their inventories down accordingly. So we didn’t see any flu in Q4 until week 51 and 52. So we didn’t ship a lot of product.

Steven Crowley – Craig Hallum

Great. That bodes well for this quarter. In terms of the Thyretain business, can you give us as little bit of clarification for what’s happening? You threw out growth rate number, does that imply for the whole year that Thyretain was 5.5 million or little below that or closer to 6, I don’t know what we are comparing against.

John Radak

Yeah, it is about right Steve.

Steven Crowley – Craig Hallum

So low 5s or high 5s?

John Radak

You are asking whether it is close – it is probably close – I would describe it closer to 5.

Steven Crowley – Craig Hallum

Okay. Now you instituted a number of marketing initiatives and at last check it seemed like you were seeing some follow up in terms of prescription orders and uptick of the Thyretain test. I am not sure that the numbers – those numbers necessarily would validate that but are you seeing an uptick in scripts for Thyretain and what are the prospects for ‘11 with Thyretain?

John Radak

As I said before we grew Thyretain in 2010 over 2009 about 17% and we continue to expect that we are going to accelerate that. Our sales guys, the 30 guys we have on the ground, calling on primary care physicians et cetera reports significant agreement by doctors to begin testing for TSI when presented with patients who have Graves’ disease. How quickly that translates into actual laboratory testing depends on a number of factors, one of which is how many women actually present to physicians with those symptoms and so we will evaluate that over the next quarter or so and see how well the data that we get from our sales team actually ties to big reference lab orders of our product. And I would also that this is a demand creation exercise that we are hopeful and can create a market that should exit. We will continue to spend on the program at least through 2012. But at the end of the day Steve as you know we have three major programs that are our growth drivers, the molecular programs, the Bobcat, and the fluorescent reader. Those are the main engines and we are treating Thyretain as a nice to have an absolute upside should we be able to make it happen. The difficulty with any demand creation product like this is that we are looking for an inflection point and we can’t predict when that is going to come. Once we hit and it accelerates it could be a very robust business, until that it is difficult and we continue to slug it away one doctor at a time, one CME accredited presentation at a time, one reference article at a time et cetera. So we will keep plying our way but we really don’t have any number specifically in mind, honestly internally until we hit that inflection point, then we will worry about forecasting a bigger number.

Operator

And our next question comes from the line of Scott Gleason with Stephens. Please proceed.

Scott Gleason – Stephens

Hi Doug and John, thanks for taking my questions. Doug, I guess to start off with, can you maybe talk a little a bit about the second generation lateral flow product, and I don’t know if at this time you guys are willing to kind of give out any more information on kind of what the design will look like, time to resolve the cost of the actual capital equipment fees and what the pricing on the test that might differ from kind of the current pricing paradigm.

Douglas Bryant

Sure, I will do my best. That was as multi part question. The design of the product is a cassette based product that looks a little bit like our typical cassette based product. And that product, that cassette is inserted into a (inaudible) that is drawn into the instrument where the instrument reads the result of a fluorescent detection chemistry. The results are available in that 10 to 15 minute timeframe just as they are current with our test today. We expect the cost of capital to be insignificant when compared with major immunoassay chemistry instrumentation.

Scott Gleason – Stephens

And now in terms of the actual pricing of the test and actually this would be a premium pricing product. Can you maybe give us any kind of color on kind of how you guys are thinking about that?

Douglas Bryant

A lot of the ability to price at a premium depends on product performance. We’re encouraged with the beta side data and as I said we just started at the beginning of February the clinical trial data. So until we see the sum of all the data, it is impossible for me to know how much better this product will be. If you assume that it is better than if there is a potential for a price premium...

Scott Gleason – Stephens

And then I guess Doug this is related to your commentary on Bobcat talking about the timing of the actual clinical trials. If there was a delay and you weren’t able to get enough samples for the different model types, would that have to be pushed back till next respiratory season or how are you guys king of thinking about that in terms of – from a turning standpoint?

Douglas Bryant

There is no real delay in terms of the clinical trial endpoint because in this viral panel we have eight viruses that are actually present or prevalent, I should say, at different times of the year. For example, we don’t really expect to see a lot of parainfluenza at this time I don’t think, we don’t also expect to see a lot of Adeno but we would in the summer. So if we were to start at the end of March, let’s say, the clinical trial or we were to start at the end of April, it doesn’t make a whole lot of difference because the Bobcat trial was always going to have to be longer...

Scott Gleason – Stephens

Okay.

Douglas Bryant:...in order to see those samples. The fact that there is flu year around, also means that we could actually do the clinical for flu during the middle year as well, but as you can imagine it just becomes extremely hard to find all the positives that you need to find and that makes it all bit more expensive. So I’d rather start earlier rather than later but I don’t expect that it is going to affect when the complete the trial, if that makes sense?

Scott Gleason – Stephens

Okay. Great. And then just one last question for John. If you think about pricing on flu test year-over-year, has there been any significant change either to the positive or the negative or that pricing remain relatively consistent with what we start in the pandemic period?

John Radak

Well, recall during the pandemic period, we eliminated all of our promotional programs. We did a few this year so there will be a little bit of price pressure there but not significant. So we don’t really see a whole lot right now.

Operator

Our next question comes from Steven Crowley with Craig-Hallum. Please proceed.

Steven Crowley – Craig Hallum

Great guys. Just a couple of quick follow ups. In terms of the whole thyroid testing franchise in autoimmune, in terms of your aspirations to have a bigger platform play there, is – are those aspirations dependent on you seeing that hockey stick or inflection point in Thyretain over the relative short term or do you have longer term things in motion to build out a platform there?

Douglas Bryant

We began in this company in autoimmune business years ago and have been involved in that category for some time, so we continue to look at autoimmune. Of course we would love to see Thyretain be the flagship product and to be successful but we are also – we would remain interested in the autoimmune category just because we have a lot of expertise up in our Santa Clara facility. I should add Steve that we now have entered Phase II with our blocker, the flip side of the thyroid stimulating is the blocking antibodies, that project is now in Phase II as I just said, which means that it is fully funded and underway. So we expect to continue to invest in the area I’d just remark that it is not the only thing that we have that is upside of the company, the main drivers of course are the three major projects that we have ongoing now.

Steven Crowley – Craig Hallum

Great. That’s helpful. And then for either you or John, on the expense side, you guys have telegraphed some higher R&D expenses in the first half of ‘11 and then probably you dropped back in the second half and in total how should we think about the upward propensity in R&D expense in 2011 versus all of 2010.

John Radak

We said previously that we would be flat from year-to-year, 2010 to 2011. Since that description, we had 5.8 million in expense in Q4. It is down because of a couple of factors, one is the amount of expense that we had on Bobcat actually declined. We expect that to tick back up in Q1 however because we are starting off a number of clinical trials.

Douglas Bryant

Yeah, in total, relative to 2010, we would expect R&D spend to be in total for the year up 1 to $2 million and then with significant portion of that being in Q1 and Q2 with as you said trailing down in Q3 and Q4.

Operator

And our next question comes from Brian Weinstein with William Blair & Company. Please proceed.

Pete Vitali – William Blair & Company

Hi guys, it is actually Pete in for Brain.

Douglas Bryant

Hi Pete.

Pete Vitali – William Blair & Company

Most of my questions have been addressed but I was wondering if you guys had any thoughts about but the kind of the breakdown between the physician market and the hospital market on the Rapid side. How much of the risk of going towards the molecular testing?

Douglas Bryant

It remains about the same in terms of testing between physicians and between hospitals as it has in years past, at least that’s what we’re seeing so far. I can tell you that in the hospital segment the molecular testing arena, it really is a completely different segment at least at this stage. Molecular diagnostics is still not mainstream today in terms of the diagnosis of flu, but as it progresses clearly we expect to be there and in fact that is part of our development program to develop molecular assays for respiratory diseases including flu.

Douglas Bryant

Okay. And then just a quick ...

Douglas Bryant

But today in many cases molecular diagnostic testing is in hospitals is used for reflex testing and in some cases for surveillance testing. And I can give you some data also Pete, that might be helpful. Our out sales of QuickVue insulin’s are A plus B thus far actually higher this year than they were in 2008 even though the IOI percentage right now at the moment is actually lower. So if there were a meaningful shift to molecular we would be seeing in our out sales now and we’re not seeing it.

Douglas Bryant

Okay. Interesting. And then, I was wondering if you could give me any commentary on the DHI acquisition and how the accretion, dilution that kind of played out in the end for 2010?

Douglas Bryant

I would say first that the DHI integration overall has gone extremely well, we had cost synergies identified, you may remember the chart of $0.11 and we actually achieved in the year $0.15. In addition to integrating the back-office function, we transitioned the fluorescent reader molecular antibody manufacturing for flu A and B, those duration happens over the DHI. We implemented a project to drive long-term manufacturing efficiencies and we also reorganized the DHI molecular group to actually support and develop the open box assays. So overall we’re thrilled with the integration, how well it’s gone and as I said Pete, on the actual cost synergies we actually delivered a little bit better than we had hoped.

Operator

And our next question comes from Daniel Owczarski with Avondale Partners. Please proceed.

Daniel Owczarski – Avondale Partners

Yes, thanks. Hi, Doug. Hi, John.

Douglas Bryant

Hey, Dan.

John Radak

Hi, Dan.

Daniel Owczarski – Avondale Partners

Just go back to the clinical trial discussion and you’ve got a number of them starting this year. How confident are you of the protocols and timelines behind these trials, given all the changes and giving restrictor FDA that we’re seeing especially when you’re coming up with pretty unique newer technologies?

Douglas Bryant

We have held pre-IDE discussions with the FDA on each of the trials and we got very specific guidance on what they expect to see in order to demonstrate clinical equivalents and to achieve 510(k) clearance. So based on that and what we saw in the beta side so far for both the reader as well as our open box assays, at least for those two programs I can say quite confidently we’re in very good shape.

Daniel Owczarski – Avondale Partners

Okay. And then with the new products that you launched in 2010, expanding the QuickVue line and some of the rapids. What are challenges to get those tests ordered by our customers, I’m assuming it’s straightforward getting the distributors to carry in but how do get those pulled through?

Douglas Bryant

You put the nail on head there in terms of success with those products because they’re not huge products for us or for distribution. It’s important for us to rely up on our brand, equity and strength. It’s also important for us to support the distributor and the programs that they deem necessary in order to launch these products and we have a long history and a terrific relationship with these distribution partners. So we pretty much get what we agreed to in terms of the number of calls and the number of regional meetings, the number of things that are done on behalf of distributors for us. That’s kind of how we have to focus when it’s a smaller products and these very large distributors that we have to rely on.

Daniel Owczarski – Avondale Partners

Thank you.

Operator

That is all the time we have today. Please proceed with your presentation or any closing remarks.

Douglas Bryant

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

Operator

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

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