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Quidel Corp. (NASDAQ:QDEL)

Q2 2011 Earnings Call

August 2, 2011, 5:00 p.m. ET

Executives

John Radak – CFO

Doug Bryant – President and CEO

Analysts

Matt Hewitt – Craig-Hallum Capital Group

Scott Gleason – Stephens, Inc.

Ashim Anand – Natixis Bleichroeder

Tycho Peterson – JP Morgan

Brian Weinstein – William Blair & Co.

Nicholas Jansen – Raymond James

Brad Hoover – Sidoti & Co.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation second quarter 2011 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 is our President and Chief Executive Officer, Doug Bryant.

Today Quidel released financial results for its three months ended June 30th, 2011. If you’ve not received this news release or if you would like to be added to the company’s distribution list, please call Hooven Argetta 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 form on, annual report on Form 10-K, and registration statements and subsequent quarterly reports on form 10-Q as filed with the FCC.

Furthermore, this conference call contains time-sensitive information that is accurate only as the date of the live broadcast of August 2nd, 2011. Quidel undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call expect as required by law.

For today’s call, I will report the financial results for the quarter. And Doug will provide an update on our new product pipeline. We will then open the call to your questions.

In the second quarter of 2011, total revenues were $27.5 million compared to $25 million in the second quarter of 2010, an increase of 10%.

Infectious disease product lines comprised $1.3 million of the revenue increase driven mainly by growing in Strep and RSV.

Global sales of infectious disease products totaled $15.2 million in the second quarter of 2011 compared to sales of $13.9 million in the second quarter of the prior year.

While the primary contributor to this increase was very strong growth in our Strep A product line, we also saw growth in our RSV and flu product lines relative to 2010.

Revenues in the women’s health category grew 1% to $8.4 million as a 17% growth in Thyretain was offset by continued weakness in our bone health product line.

Our gastro intestinal product revenues increased 16% to $1.8 million due to increased sales of IFOB, H Pylori, and Enterovirus.

Gross margin in the second quarter of 2011 increased to 54.4% as compared to 49.5% in the second quarter of the prior year primarily due to lower manufacturing costs as a result of acquisition cost synergies and lower scrap costs at DHI. In addition, the 2010 period included amortization of an inventory fair value purchasing accounting adjustment related to the DHI acquisition.

Operating expenses were $20.1 million in the second quarter of 2011 compared to $19.9 million for the second quarter in the prior year, which included $0.7 million of business acquisition and integration costs.

Research and development costs in the second quarter of 2011 were $6.5 million as clinical trial costs came in lower than expected.

General administrative expenses increased primarily as a result of increased stock compensation due to two and three year clip vests and an accrual from incentive compensation in 2011 as compared to not doing so in 2010.

Stock-based compensation expense was $1.9 million in the second quarter versus $1.4 million for the same period in 2010. We expect stock compensation to be lower in the second half of the year totaling approximately $6.4 million for the full year.

Our effective tax rate for the second quarter of 2011 was consistent with the first quarter at 34% versus the year-to-date rate of 59% for the first six months of 2010.

You may recall that last year, the tax rate in the second quarter was abnormally high, particularly when compared to the effective tax rate at the end of the calendar year. This drove an unusually high tax benefit on the pre-tax loss in the second quarter of 2010, thereby significantly reducing the net loss in that quarter. Had the final year-end rate of 35.3% been applied to the second quarter loss in 2010, the resulting net loss in loss per share would have been $5.3 million and $0.19 respectively.

Net loss for the second quarter of 2011 was $3.7 million or $0.11 per share compared to a net loss of $2.5 million or $0.09 per share for the second quarter of 2010.

On an non-GAAP basis excluding non-recurring items, amortization of acquired intangibles and stock compensation expense, net loss for the second quarter of 2011 was $1.5 million or $0.04 per share compared to a new loss of $0.1 million or $0.00 per share in the same period of 2010.

I will now turn the call over to Doug.

Doug Bryant

Thank you John.

Except for flu sales, second quarter revenues were as anticipated. We have light flu sales as the season ended abruptly in March. And distributor inventories continued to remain at very low levels. This shortfall versus a more typical end of flu season was offset in part by sales of our Strep A products due to a prolonged Strep season, by sales of RSV and veterinary products and by continued growth of Thyretain, our TSI products were diagnosing Graves’ Disease.

Shifting now to our products and development, I’ll update you on our recent accomplishments with our three major programs; amino fluorescent analyzer and First Assay, the Bobcat DFA analyzer, and our multi-faceted molecular program.

I’ll begin first with Sofia, the brand name for our recently developed amino fluorescent assay analyzer system.

In the second quarter, we completed the clinical trials for the Sofia analyzer and one assay, the Sofia Influenza +B FIA. And have now submitted the 510-K package to the FDA for the agency’s review.

In addition, we submitted the package to European authorities for CE marketing. This is a significant mile stem for our R&D organization and represents the first of many products we expect to develop on the new amino fluorescent assay or FIA platform.

In fact, clinical trials of for the second assay, the Sofia Strep A FIA are already underway here in the U.S. And we expect clinical trials to start later this year for a third assay.

Bobcat is the internal project name for our automated direct fluorescence analyzer that eliminates the need for fluorescence microscope and for highly trained technologist to interpret multiplex liquid DFA slides. This summer, we initiated beta-site trials in Hong Kong and New Zealand. And pending outcome of these studies, anticipate starting U.S. clinical trials before the end of the year.

Our molecular program is very much on track. And we’re very excited about the progress we’ve made to date. Here’s a brief update on the three programs.

First, since October, 2009, we’ve been working with BioHelix on a non-instrumented disposable assay platform that combines lateral flow detection technology with unique isothermal amplification chemistry to produce a molecular assay that is simple and inexpensive enough to run in any lab anywhere in the world.

Instead of making a large upfront capital investment, any lab can run these assays using only a low-cost heating block. These tests are ideal for use in smaller labs or on work shifts where molecular diagnostics are not particularly performed.

We’re preparing for beta trials for the first two assays and have two other development projects that are also fairly far advanced. We plan to being clinical trials on the first two assays, MRSA and C. difficile sometime in the fall. And are working toward a U.S. launch in the first half of 2012 depending on the timing of regulatory clearance from the FDA.

And with our second molecular program called open box, we develop assays that are designed to be run on commercially available thermocyclers and that provide value by offering laboratory technicians significant improvements over existing assays with respect to process time, ease of use, storage, and cost.

We recently submitted a 510K package to the FDA seeking clearance to market our first molecular assay, Influenza A+B real-time PCR for use on a live technology 7500 fast DX. And will submit a similar package for use of the assay on [inaudible] smart cycler very shortly.

In addition, we submitted a package to European regulatory authorities for CE marketing. And expect to launch there in the fall.

Further, we anticipate significant menu expansion and product launches in the very near term.

Finally, project Wildcat is the third arm of our multi-faceted molecular program. Wildcat is our integrated molecular platform that performs extraction, amplification and detection all in one lower-cost instrument.

The integrated system will also have the capacity to run the open box at the same menu currently in development. We are making excellent progress for this program, expect to complete our first development phase by year end, and are still on track for a late 2013 product launch outside the United States.

We are excited about this potentially game changing technology and will provide more details about this project in the future.

I do want to mention that products and development always remains subject to change in terms of content and timing because there is always an uncertainty around development activities, clinical trials, and clearances by regulatory agencies.

Despite these uncertainties, over the last 18 months, we’ve accomplished a great deal. And with Sofia, Bobcat, and Wildcat, we have and are taking great strides to provide valuable products across the diagnostic continuum.

And I’m especially pleased with the progress we made during the second quarter with our ability to stay focused on our strategic objectives and with the position we now find ourselves in.

Our intent is to build a broader based diagnostic company that is uniquely positioned to meet the needs of laboratory customers regardless of location from rapid point of care, amino assays to cellular based assays, to molecular diagnostics, each of which serves an important function in the diagnostic continuum. And as a result of our progress in the second quarter, we’re well on our way.

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). Gentlemen, your first question today comes from the line of Matt Hewitt with Craig-Hallum Capital Group.

Matt Hewitt – Craig-Hallum Capital Group

Good afternoon, gentlemen.

John Radak

Hi, Matt.

Matt Hewitt – Craig-Hallum Capital Group

Maybe one financial question and then one of the new product developments. Given that you had typical seasonal weakness in the quarter, and despite the fact that you had pretty strong strep sales, I’m surprised to see your gross margin up as strong as it was. What were the factors behind that?

John Radak

It was primarily improvement in the cost structure of manufacturing and leverage of the existing infrastructure in San Diego. Keep in mind that strep tests drive a lot of volumes, so we experienced some favorability there.

Matt Hewitt – Craig-Hallum Capital Group

Okay. And then maybe follow up on – congratulations on the – it sounds like significant progress on the new product pipeline. I’m wondering, you’ve talked about opportunities for revenue or financial – topline performance this year. Could you provide a little bit maybe more color as far as when we might see that? Is that something we see here in Q3 or Q4? Is it going to be, you know, smaller then ramping throughout the normal flu season given it’s going to be flu assays and tests to begin with?

Doug Bryant

We’ll launch first in Europe with both the molecular assay and the first Sofia product. But we don’t really expect sales until Q4. We had previously said that the sum total of all the molecular offerings launched XUF this year, would be somewhere north of 1 million. And we believe that’s still true, all of which we expect to see in the fourth quarter.

On top of that, we really haven’t forecasted much in the way of Sofia influenza sales, or strep sales because as we’ve also previously stated, we intended to do a rather limited launch in on specific country to make sure we understand the recipe for success.

So all and all, fourth quarter upside is just slightly north of 1 million.

Matt Hewitt – Craig-Hallum Capital Group

All right. Maybe one more quick question and then I’ll jump back in the queue. Thyretain, 17% increase, if I heard you correctly. That sounds like a nice pop. Given that we’re seeing some softness in office visits, what is driving that, or that move and are you seeing the results that you had hoped to at this point?

Doug Bryant

The short answer, what we had hoped to achieve is no, we’re not there yet. I do want to be respectful of our commercial organization. I think high-teens growth is still growth, but our expectation is to be north of that into the 20s, and we’re not quite there yet.

Having said all that, we’re making some progress. We’ve seen a little bit of improvement, I think, because the American Tyroid Association issued new guidelines for the management of hyperthyroidism in May, and those guidelines actually recommended the use of a TSI test for the diagnosis of Graves’ disease. And in particular, for pregnant women. So that may be in part responsible for some of the uptick. In addition, there were a number of new publications in the quarter that detailed the benefits of testing for TSI. There were two posters and a plenary discussion regarding TSI that were accepted at this year’s European Thyroid Association for the meeting that’s coming up actually next month, that is September. And five abstracts were accepted by the American Thyroid Association for their meeting, which will occur in October.

So I think we’re doing things from a marketing perspective that would put us in a position to take advantage of the situation. But I will say this, the physician education process is slow and somewhat deliberate. What we are doing is taking the contract sales organization and reducing that number slightly and having those folks, people focus mainly on generating city by city symposia during which we educate physicians.

Matt Hewitt – Craig-Hallum Capital Group

All right. Thank you very much for the update. I’ll jump back in the queue.

Dough Bryant

Thanks, Matt.

Operator

Your next question comes from the line of Scott Gleason with Stephens.

Scott Gleason – Stephens, Inc.

Yeah, this is Trey for Scott. Thanks for taking my question.

Dough Bryant

Hi, Trey.

Scott Gleason – Stephens, Inc.

First, if we could start with flu, you know, now that we’re out of the flu season, do you have any assessment for what your market share is, you know, post season, and then maybe if you have any insight as to whether you’re ordering physician count was up year over year?

Doug Bryant

The physician count, generally is slightly up. We actually discussed that in some detail on the last call. And we also said during that time, as we came out of both the fourth quarter and the first quarter, which are primarily the season, that when you took our sales and the sales or our next nearest competitor, the sales appeared to be somewhat similar in total, which leads me to believe that our assertion that we have somewhere around 50% share in total across both segments, that’s physicians and hospitals, that that 50% is probably fairly close and somewhat unchanged.

Scott Gleason – Stephens, Inc.

Okay, thanks for that. And then on the open box molecular assays, you filed for one approval, but maybe if you could give a little color or commentary around kid of what the progression of tests will look like there and maybe what your highest priority targets are?

Doug Bryant

Sure. Well, immediately, we will launch, upon receiving CE marking, Flu A+B in Europe, followed very shortly after that by human metonumo virus product and RSV product. We’re also contemplating the combination of those two as an individual product. We’re also preparing to launch, before year end, HSV VZV. And finally, interestingly enough, our first C. diff molecular assay.

So those we would expect before year end and obviously, we have a number of targets that are either in phase zero or phase one that we’re looking at.

I would say very excited about what we’ve done so far in building a menu and I expect us to be very competitive.

Scott Gleason – Stephens, Inc.

Okay. Thanks for taking my questions.

Dough Bryant

You’re welcome.

Operator

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

Ashim Anand – Natixis Bleichroeder

Thanks for taking my questions, guys. I was wondering if you guys would like to break out the total DHI revenues you had this quarter, and XUS revenues?

John Radak

The XUS revenues were about $4 million, or 14% of the total. And DHI revenues were roughly right around 10 million.

Ashim Anand – Natixis Bleichroeder

Okay. How is the mono test progressing? Has there been any change in the physician behavior in terms of their interest, or any updates you can give?

Doug Bryant

Are you talking about the mononucleosis product?

Ashim Anand – Natixis Bleichroeder

Yes.

Doug Bryant

I think that we’ve made reasonable progress at launch. We’re not exactly right where we would like to be. We’ve got a number of marketing things that we’re working on at the moment to see if we can get better traction. So I would say mildly pleased, but not exceptionally pleased.

Ashim Anand – Natixis Bleichroeder

Okay. And obviously, you know, you guys are doing exceptional work in your pipeline, a number of very exciting projects, and obviously, if funding is not a problem, obviously you would like to have all of them going in the full speed. But so that we understand, if you can kind of put priority to what is most important, you know, and start off what is least important in the near term and like start off for getting instruments through FDA and then start off taking that in terms of the assays, just so we can talk about priorities in terms of pipeline.

Dough Bryant

It would be very difficult to prioritize the pipeline because this is probably not the answer you’re looking for, Ashim. But for each of the segments in which these products serve, these products are quite important for us.

Take for example, the Sofia analyzer. Getting that clinical trial completed and the instrument submitted with the initial assay was absolutely critical for is and as I mentioned, we got that done and actually submitted last week.

That was a huge document that we had prepared for the FDA and that’s now behind us and we would expect approval sometime this year.

That’s very important for a number of reasons. One is that it solidifies our current business with both flu, enables us perhaps to gain traction with strep and then as I said before, puts us in a position with this analyzer to look at markets that we haven’t served before, specifically the quantitative assay market segment.

So that’s pretty darn important for us. When you look at the molecular assays, we’ve not been in molecular before, and molecular is the other rapidly growing segment in the diagnostic world. Our participation in that segment, I view to be very important. Plus, it enables us to provide products at the very end of the continuum that began in the physician’s office and ultimately ended up in the larger hospital lab.

So it would be very hard for me to prioritize which of those two is more important to us.

And then finally, I’d say with respect to Bobcat, although it’s a much smaller set of customers, we’re talking about 700 or so customers in North America today that do our DFA products, for that set of customers in the highly-complex virology lab, having something that dramatically improves their ability to interpret slides, I think is pretty important from that customer’s perspective. And then the real opportunity there, of course, being can we drive that down into the smaller hospital laboratory segment.

So if I were forced to prioritize, I’d say the first two buckets are probably just in terms of market size, the quantitive assays, quantitative immuno assays in the [inaudible] segment and the molecular probably equal, followed by the market opportunity that the Bobcat represents.

Ashim Anand – Natixis Bleichroeder

Okay, wonderful. Thanks a lot.

Doug Bryant

I would add, Ashim, that I’m not worried about prioritization because we intend to actually launch them all.

Ashim Anand – Natixis Bleichroeder

No, the reason I asked, obviously, you know, and obviously you have explained it already, is that one would have thought that in terms of influenza and the step, and infectious disease, everybody knows you. But in terms of molecular tests, maybe the challenge is more that it’s molecular, C. diff and MRSA are relatively new markets and sort of people don’t know you there so maybe getting there and being in the mix right now would be more beneficial than everybody who sees you with influenza and strep.

So that was my thought process. But maybe it’s not like, one does not have to give for the other to benefit maybe. Maybe that’s how it is.

Doug Byrant

Well, I don’t, yeah, I don’t – if you’re asking will there be a tradeoff between the two, no I don’t think there’s any cannibalization that will occur base business by launching molecular. And then I would add, Ashim, that any company, whether it’s Quidel or another company that can produce a molecular menu that is faster, better and less expensive will get known quite rapidly I think.

Ashim Anand – Natixis Bleichroeder

Okay. Yeah, no, I didn’t mean cannibalization in terms of sales. I just – cannibalization in terms of R&D dollars. But you answered my question though.

Doug Bryant

Okay, thanks.

Operator

Your next question comes from the line of Tycho Peterson with JP Morgan.

Tycho Peterson – JP Morgan

Hey, good afternoon. You made the comment about, you know, I think lower spending in the quarter because you spent a little bit less in the clinical trials. Can you just tell us about, you’ve obviously got the Bobcat trials, just talk about how we should think about spending on the trials in the back half of the year and maybe into next year.

John Radak

Yeah, I think in previously we had said that R&D spend in the back half of 2011 would be slightly less than what we’ve spent in the first half. We were going to have some of these trials costs, like the Bobcat that Doug mentioned and probably starting up in Q4. And so we would expect R&D spend probably to be a little bit higher than what we had originally expected in the back half, but not a whole lot. And quite similar to what we saw in Q2 actually.

Tycho Peterson – JP Morgan

Okay. As we think about capital deployment, can you just talk at all about whether you’re still looking at tuck-in deals or what your appetite is for further acquisitions?

Doug Bryant

We have a small number of deals that we’re looking at right now, not one of which would require us to raise money. We have now about 65 million, is it John?

John Radak

That’s right.

Doug Bryant

On the balance sheet and so none of the things that we are looking at at the moment would cause us to need to raise money.

Tycho Peterson – JP Morgan

And the maybe just on the manufacturing side, a couple questions. I mean, I think at one point you talked about longer term, you know, margin, operating margin targets of around 30% and can you talk about maybe what it takes to get there, and then, you know, where you are today around capacity utilization? I think you talked about 50% or so in San Diego previously, if you could give an update there, that would be helpful.

John Radak

Sure. We remain at about 50% capacity, and so we’re in good shape there. When we model out over our strategic plan, where we’d like to be in the next few years, what we’ve said was that by 2014, it would be our objective to generate another 100 million in revenue. And that with the leverage that we had across the P&L, that we ought to be able to get our operating margin north of 30%, and that’s just, Tycho, just doing the math, holding certain [inaudible] across the P&L and so that’s how we modeled it.

If we did that, then we would be north of 300 million or so.

Tycho Peterson – JP Morgan

Right.

Doug Bryant

And that’s what we’re aimed at.

We have demonstrated, by the way, that even in the absence of significant volume, that we are generating productivity gains in the factory. So we had a target for ourselves this year, that target has already been achieved as John pointed out with the improvement in the gross margin that you saw in Q2.

Tycho Peterson – JP Morgan

Okay. And then maybe just as we think about some of the items you have in the pipeline, can you comment specifically on the go-to-market strategy for BioHelix, you know, particular, C. diff and MRSA given those markets are a little bit more crowded today?

Doug Bryant

We actually intend to look at what we can do from a direct sales model and at the moment, our new commercial head is actually organizing territories around key opinion leader sites and so we think that we can address the – immediately, the higher end of the market with some number around 25 to 30 sales people. As you know, our total commercial organization at the moment in the United States is about 60. So we certainly think we can handle that within our existing resources without adds, but rather redeployment.

Tycho Peterson – JP Morgan

Okay. And then, for international, did you guys resign the [inaudible] agreement that expired in June?

Doug Bryant

We extended the agreement through the end of the year in order to have an effective transition in the areas where we thought that we needed to move to our own local distribution. And then other areas of the world will remain non-exclusive with [inaudible].

Tycho Peterson – JP Morgan

Okay. Last one, just you know, giving kind of the, what we’re seeing around utilization and physician offices, any just commentary around inventory levels, around pregnancy and strep and some of your other tests as you’ve gone out and talked to physicians?

Doug Bryant

Inventory at distribution is actually quite low. And inventory at physician’s offices is as normal.

Tycho Peterson – JP Morgan

Okay. So you haven’t seen any kind of destocking or anything?

Doug Bryant

At the physician level, no.

Tycho Peterson – JP Morgan

Okay. Great, thank you.

Doug Bryant

You’re welcome.

Operator

Your next question comes from the line of Brian Weinstein with William Blair.

Brian Weinstein – William Blair & Co.

Hi, good afternoon. Let’s see what we can come up with after all the questions here. Just to confirm, Doug, you guys are going to launch the Sofia without strep here in the United States, correct?

Doug Bryant

We’d like to launch both simultaneously, obviously flu’s running ahead because we just submitted the package. Good news though is we did have a prolonged season for strep in the United States and we were actually able to start here. Plan B would have been to start in Australia, New Zealand or somewhere else in the Southern hemisphere but we didn’t actually have to do that and we’ve already started.

So I don’t know what the timing will be of approval, necessarily, but I can tell you that we do expect a fairly quick clinical trial.

Brian Weinstein – William Blair & Co.

And then – I’m sorry.

Doug Byrant

It’s possible that we launch both.

Brian Weinstein – William Blair & Co.

Okay. And then you’d talked previously about the quantitive assays that you guys were going to potentially be looking at, any update on the clinical trials for those or what your updated thoughts are around some of the quantitative stuff?

Doug Bryant

Sure. We did develop a prototype assay in order to gain a lot of confidence that we can do this. We have another major assay that is of significant volume that we’re working on right now, and I’d rather leave it there at the moment until we get close to launch.

Brian Weinstein – William Blair & Co.

Okay, but no timing as far as when that could be?

Doug Bryant

Well, internally we have timing, but I really don’t want to alert our competitors at this stage where we’re at.

Brian Weinstein – William Blair & Co.

Okay. That will be it for me for now. Thanks.

Doug Bryant

Thanks, Brian.

Operator

Your next question comes from the line of Nicholas Jansen with Raymond James.

Nicholas Jansen – Raymond James

Hey guys, just a quick question on Sofia. Obviously you expect a U.S. approval by the end of the year, I’m just wondering how quickly do you think you can start recognizing revenue from that in the U.S. if there is a delay at the FDA. I’m just trying to make sure that you guys are going to be on point still for this year’s flu season versus next. Thanks.

Doug Bryant

We’re not counting on a great deal of revenue in the United States for Sofia. We will do a limited launch. We have a number of instruments that we’re building right now for that launch based on that forecast. So I can tell you that we don’t have a lot planned, so there’s not a number to be missed.

We do plan, however, to have a pretty significant and robust first quarter 2012 launch.

Nicholas Jansen – Raymond James

Okay, and then just any comments on the IOM recommendations last week, just your thoughts on kind of the FDA in general and how the feedback’s been so far? I know you just submitted your data this past week, but any color there would be helpful. Thank you.

Doug Bryant

Sure. Well, last Friday the Institute of Medicine published a report that was actually requested, the work for which was requested by the FDA. But it recommended eliminating the 510-K approval process and I was reading one of the statements was that they found the process generally to be flawed from a legislative foundation in that rather than modifying the 510-K, they thought that a completely new program that had pre and post market regulatory things in place would be better in terms of insurance, safety and efficacy.

The FDA has sense responded that you know, they’ll take all those comments under advisement. If I’m guessing correctly, I would suggest that the FDA will use those comments to support it’s existing agenda, which is to make modifications to the 510-K process.

And then previously on Wednesday, the FDA had released a draft guidance to medical device manufacturers about premarket notification submission, that is 510-K for changes or modifications made to a previously approved device, which I read as meaning that if you’re product were being used in the market differently, or even an off label basis, that you would be required to go back and submit data.

Either way, my read would be that although the process may not get more difficult, it may get more expensive over time and that our organization will need to make sure that we’re as efficient as possible in our R&D processes in order to accommodate that.

I don’t really see any sort of significant impact either in the shorter term for us or in the longer terms.

At the end of the day, our view has been, and I think will continue to be that the quality of the data submission drives a lot of what happens at the FDA, and so provides you run a clean clinical trial and have the data to support your product. We have found them actually to be pretty straightforward and fair.

Nicholas Jansen – Raymond James

That’s all I had. Thanks, guys.

Operator

(Operator instructions). Your next question comes from the line of Brad Hoover with Sidoti and Company.

Brad Hoover – Sidoti & Co.

Hi, good afternoon. Just going back to step A, obviously, it sounds like your strongest quarter, and I don’t recall how it performed in Q1, but it sounds quite stronger than that. Is that true, and then secondly, is there anything beyond just the longer season that you guys are benefiting from whether it would be market share, pricing or something else that maybe is driving the strength in strep A?

Doug Bryant

There’s certainly no pricing play. The price is already at a level that we don’t like. So there’s not a lot of downward area to maneuver actually. I would say mainly it’s just a prolonged season and we continue to participate at fairly high market share across all segments. We’ve been holding fairly steady at those shares for quite some time now, and so I think we’re just the beneficiaries of a longer season.

Brad Hoover – Sidoti & Co.

Okay. And then secondly, on RSV 10, I think you began to steam that in your channel in the first quarter. Could you guys maybe comment on how sales are progressing there and kind of what the situation or where you’re having success with RSV 10?

Doug Byrant

Yeah, that’s actually taken off quite nicely and we’re running favorable to what our expectations had been, but not in a huge way. We’re running favorable by some number, a couple hundred thousand dollars or something better than what we had forecasted.

So overall, I think it’s gone nicely, it’s not a huge product. It’s also not a huge market as well.

Brad Hoover – Sidoti & Co.

Okay, great. That’s all I have. Thank you.

Operator

This concludes the question-and-answer portion of today’s event. Please proceed with your presentation or any closing remarks, gentlemen.

Doug Bryant

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, you may now disconnect. Have a great day.

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