Quidel Corporation's (QDEL) CEO Doug Bryant on Q2 2016 Results - Earnings Call Transcript

| About: Quidel Corporation (QDEL)

Quidel Corporation (NASDAQ:QDEL)

Q2 2016 Earnings Conference Call

July 27, 2016 05:00 PM ET

Executives

Randy Steward - CFO

Doug Bryant - President and CEO

Ruben Argueta - Director of IR

Analysts

Jack Meehan - Barclays

Alex Nowak - Piper Jaffray

Tejas Savant - JPMorgan

Matt Larew - William Blair

Mary Kate Gorman - Canaccord Genuity

Nicholas Jansen - Raymond James

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation Second Quarter 2016 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Randy Steward, Quidel’s Chief Financial Officer. Please go ahead.

Randy Steward

Thank you, operator. Good afternoon, everyone and thank you for joining today’s call. With me today is our President and Chief Executive Officer, Doug Bryant; and Ruben Argueta, Director of Investor Relations. Our second quarter 2016 earnings release is now available on ir.quidel.com, our Investor Relations website. We will also post our prepared remarks on the Presentations tab of our IR website following the conclusion of this call for a period of 24 hours. 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 significantly 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, today July 27, 2016. 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. Today, Quidel released financial results for the three months and six months ended June 30. If you have not received our news release, or if you would like to be added to the company's distribution list, please call Ruben at 858-646-8023.

For today’s call, Doug will report on the highlights of the second quarter and provide updates on our product development pipeline. I will then briefly discuss our financial results and then we’ll open the call for your questions.

I’ll now hand the call over to Doug for his comments.

Doug Bryant

Thank you Randy, and good afternoon everyone. As Randy just mentioned for today’s call I’ll briefly touch on our results and a few highlights for the quarter, and then actually spend a bit more time outlining our overall strategy and discussing where we are with our key growth catalysts. Total revenues for Q2 were $39.1 million, slightly better than our internal projections and a record for Q2. Revenue growth over the prior year quarter was 11%. Influenza product revenues, which were $11 million, grew 21% over the prior year quarter driven mainly by three factors; first, as our Virena data show quite clearly, the tail-off in Influenza B that often marks the end of an Influenza epidemic, and normally occurs in March, extended into early April in a number of states; second, distributor inventories exiting Q1 were low; and third, we gained share as a result of additional Sofia placements over several prior quarters, 65% of which were competitive take-aways. Sofia placements were appropriate for the time of year, and as we expected. And encouragingly, over 1,000 additional Sofias were connected to our Virena cloud-based database in the quarter, and results transmitted in the aggregate to the database exceeded 1 million. As a result of the success with Virena, and the overall capabilities of the Sofia system, we continue to do well in the professional segment.

For example, we closed a 90 unit Sofia deal during Q2 in a large prominent integrated delivery network, which is becoming more common as networks look to standardize across hospitals and clinics. A key element to our success in many cases is that customers simply want instant access to their testing and quality control data. The Virena and Sofia product offering also positions us well in the alternate site segment, which we define as anything outside the professional segment. A recent highlight of the alternate site initiative is our largest Sofia close to date, which will require Sofia placements at over 650 sites. Non-flu product revenues for Q2 grew 8% over the prior year quarter. Except for cell-based general virology products, all key non-flu franchises grew over the prior year quarter. Bone health and complement product revenues were up 57%. Typically this business has been a 10% annual grower. The increase this quarter was due to the addition of Immutopics product sales. Molecular product revenues were up 63%.

One of the drivers to the increase in molecular product sales is that many Solana Group A Strep customers are now coming on line. During the quarter we closed our largest Solana customer to date, a large integrated delivery network that will be purchasing over $1 million in Solana Group A Strep annually. Thyretain, our Graves’ disease product, increased 8%, and is expected to continue to grow at about that rate until we introduce our blocking antibody product sometime next year. Group A Strep Immunoassay sales were up 13%, due in large part to competitive take-aways from visually read point of care products to Sofia. And finally, hCG was up a modest 4%. Also worth noting, international sales in Q2 were up 10% over the prior year quarter, and for the first half of the year were up 26% over the same period in 2015. There were a number of contributing factors to our international sales growth, one of which is that we launched Sofia Strep Pneumo last year.

In terms of product development, there were no surprises, and there are no changes to any previously communicated timelines. If there is a question on any specific product, I would be happy to address it during the Q&A portion of the call. During the quarter, we did receive the CE Mark for Solana Trichomonas, which is also under active review at the FDA. We submitted a 510(k) for Solana Influenza A+B, which is presently under active review at the FDA as well. And we had a small number of international regulatory approvals for various Sofia products. One final highlight for the quarter is that our newest generation high speed Sofia production line was officially transferred to production, which increases Sofia test cartridge capacity by 20 million tests per year. So, we’re half way through the year, but perhaps more importantly, we’ve reached the point at which many of the things that we hoped to accomplish are now behind us, and others that we had planned to achieve remain in front of us, but many of those are now in the not-too-distant future.

And while our strategic intent, the what we want to accomplish is essentially unchanged, the how, admittedly, has evolved a bit given better information and greater clarity on what our customers need today and what they will need tomorrow, as the healthcare landscape changes and evolves. So at this point, I think that it would be useful to do a quick refresh on what we want to achieve, and how we are going to get it done. As we’ve stated often, our strategic intent is to build a broader-based diagnostic company that delivers revenue and margin more consistently. How are we doing that? First, we have used existing resources to fortify price and volume on our core businesses through the development and commercialization of a next generation immunoassay analyzer called Sofia, which among many customer benefits that Sofia has provided, dramatically closed the performance gap between traditional point of care antigen detection rates and molecular methods. And in the process of fortifying our Influenza business in particular, we grew the point of care market through the introduction of an instrument system, and actually gained share in the rapid point of care market for Influenza testing, as well as in the markets for Group A Strep and RSV.

Moving forward, we will introduce Sofia 2, with two main objectives. First, we intend to further fortify our position in our core businesses in the professional segment by cannibalizing our QuickVue businesses with a lower cost portable instrument that enables positive test results to be reported in as few as five minutes or fewer depending on the test type, and with built in connectivity to our Virena database, makes it even easier for integrated delivery networks to standardize their higher volume infectious disease testing and to more easily manage quality control across the network. Second, we believe that as healthcare evolves, testing and treatment of routine conditions like Influenza and Group A Strep will eventually migrate in large numbers from the professional segment to what we call the alternate site segment. In that environment, time-to-result, cost and connectivity have already proven to be important criteria, which makes Sofia 2 an obvious choice. Overall, with Sofia 2, we think that we can almost double the number of Sofia placements within the next 3 to 5 years.

The second part of our strategy is to use our capabilities in molecular product development to attack the limitations of the numerous competitors in the molecular space. Every system and approach has its capabilities and limitations, and customer needs vary as well. For customers who don’t have molecular instrumentation, or who don’t have people on the second or third shift that are trained to work in the molecular lab, we developed AmpliVue, a handheld disposable molecular device for the detection of antigens like C. difficile, HSV, Pertussis and several others. For customers who would like to move from culture methods to a molecular solution, but would need to run several samples at once and are constrained by their existing lab budget, we developed Solana for the detection of a number of antigens that don’t require extraction, like Group A Strep, Trichomonas, Influenza and several others. For high volume molecular labs we’ve developed easy to use PCR assays called Lyra. And for a part of the world that desperately needs a high performing HIV viral load testing solution that is robust enough to handle the most difficult of environmental conditions, and has a low total cost of ownership, we are developing Savanna.

While I won’t be discussing our assay development and launch strategy today, what we intend to do with Savanna in the developed world to address the limitations of our competitors will be revealed in some detail for the first time next week during a luncheon presentation on Tuesday in Philadelphia. For those of you who would like to attend and have not yet confirmed their attendance, I would encourage you to reach out to Ruben within the next day or so. The third part of our strategy to build a broader-based diagnostics company is to forge ahead and lead in the creation of new markets and new businesses. Culturally, we are a group of people that eschews rules and current thinking. We’ve been questioned on how valuable Virena would be and whether we could actually monetize it. We are evaluating options for further monetizing a data product offering that includes Virena data in the future, but clearly we already have benefited from our investment in Virena in terms of additional Sofia placements and market share gain. We were told by some very smart people that we couldn’t develop a Sofia assay for Vitamin D, but we’ve done it. And we’ve been questioned on whether the Vitamin D market can be decentralized, but it will be. We‘ve been asked why we developed a Sofia assay for Lyme, which today is a very small, niche, market. The answer is that we developed Sofia Lyme for the market that will be.

We’ve also been told that molecular methods for infectious disease detection are inherently more sensitive. And of course, it’s logical that in making lots of copies of something, as we do with a molecular assay, it should be easier to detect. But I will leave you with this question. What if it’s possible that next generation Sofia 2 assays for Group A Strep, Influenza and others would be sensitive enough to have a confirmatory claim, just as some molecular assays like Solana Group A Strep have? I look forward to hearing somebody tell me that it’s not possible and that we can’t do it. And just so you know, I'm saying that with a smile.

In summary, Q2 was good. We expected to do well, both from a product development perspective as well as commercially, and we did. And as I said, our strategy has evolved a bit over the last few years due to changes in the market, but also because of our own product development discoveries. But essentially, the path we're on has remained the same. And we continue to believe it's a path for long-term success

Randy?

Randy Steward

Thank you, Doug. As we reported earlier today, total revenues for the second quarter of 2016 were $39.1 million, compared to $35.2 million last year. Global Infectious Disease revenues, which include QuickVue, Sofia, DFA cell culture, and molecular products, increased 14% to $24.2 million in the second quarter of 2016. Influenza revenues, which include Sofia, QuickVue and $2.4 million of DHI Respiratory products, increased 21% to $11 million in the second quarter, and as Doug mentioned, this is due to a late influenza season demand for both our QuickVue and Sofia assays and our inventory at distribution remained at very low levels, exiting both the first and second quarters.

In the second quarter of 2016, Strep A revenue grew 21% to $8.2 million, driven by revenue growth from both QuickVue and Sofia assay products. Solana Group A Strep contributed 6% of the revenue growth in the quarter. RSV total product sales increased 29% to $900,000, as we realized continued accelerated growth with the Sofia assay, which grew 64% in the quarter. Revenues for the Women’s Health category increased 17% in the second quarter of 2016 to $10.7 million.

Our Bone Health and Complement business grew 57% to $3.3 million. 40% of this growth was organic, with the addition of the Immutopics bone health assays adding an incremental $700,000. As mentioned earlier, we believe the Immutopics assays will contribute in excess of $2 million per year to the Women's Health category. In the quarter, Thyretain grew 8% and pregnancy revenues increased 4%. Our Gastrointestinal product category revenues were $1.6 million in the quarter.

Gross margin in the second quarter was equal to last year at approximately 56%. The gross margin improvement we realized in the quarter from product mix was offset by lower production volume in both our immunoassay and molecular manufacturing facilities. Based on our first six months of results, we are estimating the full year gross margin to be in the range of 63% to 64%, and this assumes a normal flu season starting in the fourth quarter.

For the second quarter, research and development costs were $9.7 million, an increase of $600,000, due to increased development spend for the Savanna platform and clinical trial costs for Solana products. We are estimating to have 4 assays running on the Solana platform as we exit this year. For the full year, we still believe that our R&D spending will be in the range of $39 million to $41 million.

Sales and Marketing expenses in the second quarter were $12.2 million, a 2% increase versus last year. In part, the increase is the result of our continued commitment to Virena, our cloud based instrument management and disease surveillance system. G&A expenses were $6.7 million in the second quarter. This 6% increase versus last year was primarily due to business integration costs associated with the acquisition of Immutopics in late March of this year. Our tax rate for the second quarter was approximately 34%, as compared to 31% for the second quarter of the prior year. The major drivers in reporting an effective tax rate different than our statutory rate of 35% are the R&D tax credit, the manufacturing production deduction and the change to our state valuation allowance.

Net loss for the second quarter of 2016 was $7.8 million, or $0.24 per share, as compared to a net loss of $8.9 million or $0.26 per share for the second quarter of last year. On a non-GAAP basis, net loss for the second quarter of 2016 was $3.4 million or $0.11 per share. This compares to $4.8 million loss or $0.14 per share the last year.

On a six months basis, revenues were $89.5 million, compared to $96.9 million for the six-month period of 2015. Infectious disease revenues were $60.6 million versus $69.7 million last year. This revenue shortfall was mostly the result of decreased demand for respiratory products in the first quarter of this year. Illustrating this point, for the first six months, influenza revenues decreased by $11.2 million to $31.1 million. On the positive side, Strep A revenues increased by 12%, and RSV revenues increased 23% versus the same period last year. Assisting this growth were the assay sales from our Sofia and Solana instruments. We are pleased to see the continued revenue growth from our Strep A and RSV products. And on a trailing 12-month basis, the revenue from each of these assays have achieved their highest revenue numbers; Strep at $31.1 million and RSV at $8.6 million.

The Women’s Health segment increased 8% to $19.8 million for the first half of 2016. Growth in this category was led by 27% growth in our Bone Health and Complement business. A little more than half this growth was a result of the Immutopics acquisition we discussed earlier. An 8% growth in Thyretain was also a major growth contributor and on an annualized basis, it has grown to be an approximate $10 million product line for us. In the period, our Gastrointestinal segment was $3.3 million, and our Other Products category was $5.7 million, of which $2.7 million was from the Gates grant. Gross margin for the first six months was 59% compared to 62% for the first six months of last year. The decrease in gross margin was driven by unfavorable product mix, with lower flu sales. Also contributing to the gross margin decrease was the increased depreciation on the Sofia instruments as well as lower manufacturing efficiencies due to lower production volumes.

Total operating expenses, which would exclude amortization of intangibles, for the first six months were $60.9 million versus $57 million last year. R&D increased by $5.2 million, primarily due to the increase in development spend for the Savanna molecular platform, increased spend for our next generation Sofia instrument and clinical trials spend for Solana products. Sales and marketing expenses increased by $800,000 due to additional investment in promotional activities for our Virena platform. G&A expenses decreased by $2.2 million, due to the 2015 business development expenditures, which did not repeat in the first six months of this year, as well as the suspension of the medical device tax.

For the first six months of 2016, we recorded $5.6 million of interest expense, of which $2.8 million relates to the cash coupon due semi-annually on the senior convertible notes, and the remainder is primarily the amortization of issuance costs and debt discount.

Net loss for the first six months was $11.3 million, or $0.35 per share. This compares to a net loss of $4.9 million or $0.14 per share for the first six months of 2015. On a non-GAAP basis, net loss for the first six months of the year was $2.8 million or $0.09 per share, compared to a net income of $6 million or $0.17 per diluted share for the same period in 2015. From a cash flow perspective, in the first six months of the year, operating activities used $2.5 million of cash and purchases of property and equipment were $5.4 million.

Through six months, the company spent $20.1 million to repurchase shares of its common stock. And as of the end of June, the company had no outstanding borrowings and had $155.6 million in cash on the balance sheet.

And with that, we conclude our formal comments for today. Operator, we are now ready to open the call for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question comes from Jack Meehan from Barclays. Your line is now open.

Jack Meehan

Hi. Thanks, guys and I appreciate all the feedback Doug on the strategy for Quidel overall. I was wondering if you could provide us an update on Sofia 2 and the launch and any chance we'll get a teaser there at AACC next week?

Doug Bryant

We plan to have inventory of instruments for Sofia 2 in about the mid-November period of time, and we expect that we will launch sometime after that. So that’s the latest there. Ruben is actually looking to see if we can bring a lot of units to the AACC at the luncheon there, we’re looking into that, we should have a, I hope a decision, by tomorrow.

Jack Meehan

Okay, great. Looking forward to seeing it. Randy, so you’re on track for the 63% to 64% gross margin this year. In our model, a lot of the growth beyond this year is in new products, which I believe should carry higher gross margins. What would stop you from exceeding the 65% target you’ve laid out for beyond 2016?

Randy Steward

Yes. We have said that certainly going into next year, 65% plus gross margin, probably the only thing that would distract us from achieving that is, I’m seeing some price pressure on the QuickVue side and obviously an acceleration in the molecular environment, but at the current time, we see that as very low probability. So we remain very confident in the gross margin target that we've established for ourselves over the next couple of years.

Doug Bryant

Which assumes the normal obviously, right. Look it’s still 75% gross margin product, Sofia, like Q1 let's say. If that were to occur, obviously that puts a lot of pressure on gross margin.

Randy Steward

Yes. And we have assumed that we will see some flu in Q4, which has historically been the trend.

Jack Meehan

Got it. Then, last one, I think we found some of the missing flu revenue from the first quarter, just curious how much the inventory changes do you think helped in the quarter in terms of the top line coming in a little bit better and do you feel like they are normalized when you look at your distributors today?

Doug Bryant

Roughly one-third of the growth that you saw in Q2 is influenza product revenues, was due to the spillover from Q2, I'm sorry from Q1 and/or market growth. And about two-thirds of what you saw in terms of the growth was due to market share gains and I would say that we’re fairly coming out of the quarter really much at the point we normally would be in terms of inventories at distribution.

Randy Steward

Yeah. We're really exiting Q1 and Q2, pretty much at the same level of distribution.

Jack Meehan

Okay, that's helpful. Thanks. See you guys next week.

Operator

Thank you. And our next question comes from Bill Quirk from Piper Jaffray. Your line is now open.

Alex Nowak

Great. Good afternoon, everyone. This is actually Alex Nowak filling in for Bill today. So just going back to Sofia 2, you mentioned for some time that you really need a rapid result in the point of care and you hinted about this a little bit in the prepared comments, but just curious what is the turnaround time on Sofia 2 that you will be advertising once the system has launched for flu A and B?

Doug Bryant

Well, on influenza, in particular, it is earliest return on a positive is set at five minutes.

Alex Nowak

And that is on Sofia 2, correct?

Doug Bryant

That's right.

Alex Nowak

Okay, all right. And then on the confirmatory claim that you also hinted about for flu A and B, do you think you would file with the FDA initially on the confirmatory side or would that be a follow-on claim after the initial FDA approval?

Doug Bryant

Well, normally, we would do a pre-IDE with the FDA and describe what we would try to demonstrate. What I would say is that if we know that it is likely that we'll be above 98% in terms of sensitivity relative to culture, that we would probably suggest that in our initial claim, yes, just as we did with Solana Group A Strep.

Alex Nowak

Okay, perfect. And then I would assume Sofia version 2, you are going to file with the FDA sometime in Q3, do you think you will be press releasing that or would that be announced in the next quarterly call?

Doug Bryant

No, we don’t normally talk a lot about submissions, but clearly we’re on a path to get that done reasonably soon. And I want to make sure that you didn't misinterpret my comments as well that the initial Sofia 2 product offering would not be with a confirmatory plan. What I'm suggesting is that with future technology that we are incorporating here at Quidel, we think that we can get there, that would be in a next generation Sofia 2 product.

Alex Nowak

Okay, perfect. That's helpful. And then just last question from me, do you think you can give any color on how many Solana placements are out there right now and maybe asking a different way if you can provide the actual placement number, how many Solana placements came online or were online during the quarter?

Randy Steward

Yes. I can't really answer either one, just because I think it would be too much from a competitive intelligence perspective, but I can tell you that the sites that we’re signing up typically take more than one Solana. One of the sites, I think we've had as many as six installed. So there are -- most of the closures are multiple instrument closures so far and they have been in hospital labs, reference labs and a little bit surprisingly a lot have been placed in the large, more complex traditional offices.

Alex Nowak

Okay, great. Thank you, guys.

Operator

Thank you. And the next question comes from Tycho Peterson from JPMorgan. Your line is now open.

Tejas Savant

Hey, guys. It’s Tejas on for Tycho. Just one quick question on Virena, can you help us dimension any increase that you’re seeing in terms of utility or testing rates as a result of the cloud management software that you have in place in the real-time data?

And secondly, maybe I missed this in the prepared remarks, but did you actually give a number in terms of the user base, which is reporting data at this point or perhaps a percentage?

Doug Bryant

No, we’ve said there are 1000s and we’ve also said previously that we aim to have something around 4000 by year end and we’re on a trajectory to get there.

Tejas Savant

Got it, okay. And then are you seeing an increase in testing rates because of that capability among the users who do actually report data in to the service?

Doug Bryant

I think it's hard to know whether the increase in volume is coming because of access to data or just the instrument and system itself. We have seen market growth and we actually expect market growth moving forward and have modeled that in our long-range plan.

Tejas Savant

Got it, okay. And then in terms of the Sofia 2 ramp, I mean, how should we think other than in terms of placements that customers new to Quidel versus replacement cycle for existing Sofia placements and what would the margin profile look like as that transition happens?

Doug Bryant

So in our plan, with the introduction of Sofia 2, we expect to have about a four-point increase in gross margin. And I really can't tell you about cannibalization yet, because we haven't launched, so it would be just a guess on my part. Obviously some of the newer assays are going to require Sofia 2 and so we will be adding instruments into customers who already have a Sofia 1 I would imagine and then we will be placing some in sites that don't have Sofia at all.

And the other part that I really can't help you model is what's going to happen on the non-traditional or what we call the alternate site segment, which had numerous pilots that are ongoing and that's giving us a little bit of a view as to what's happening, but just recently as I mentioned in my comments, we’ve closed a very large alternate site customers that will be installing Sofia in over 600 sites. So, gosh I have no idea what their volumes are going to be, I mean we have a guess but I just need more time to evaluate what's happening in the market following these installations. And plus we've got other assays we’re introduction right, I can’t tell you for example what the demand in the alternate site will be Vitamin D that will complete change the way we look at it, if we found out that when - if you go to a pharmacy and the pharmacy has Vitamin D behind the counter where their moms will dragging their kids for Vitamin D testing I just don't - I don't have a feel for it.

Randy Steward

And just to help you with the economics, the cost of Sofia 1 is around $1,500 and we saw that Sofia 2 is going to be under $400 cost. So that will help you with the economics.

Tejas Savant

Got it, that’s helpful actually and just one final one here from me. Do you see any sort of disruptions in the market or any specific opportunity just around some of the issues with one of your competitors and how should we think about that sort of heading into the back half of the year or is that something that you already factored in, in your sort of commentary earlier?

Doug Bryant

Can you - are you commenting on what I'm thinking about Alere?

Tejas Savant

Yes.

Doug Bryant

I don't think today is the right day to comment on Alere or that post transaction and I really don't have any insight into that.

Operator

Thank you. And our next question comes from Brian Weinstein from William Blair. Your line is now open.

Matt Larew

Hi good afternoon, this is Matt Larew in for Brian. You alluded to progress with Flu A+B on Sofia 2, wondering if you could give us an update on the progress with Group A Strep and RSV and then also where this trial stand with Vitamin D and Lyme?

Doug Bryant

All three of those products will go through - the first three that you mentioned will go through in succession and obviously we are well down the path there, this has been a fairly smooth product development perspective. Our product development program and I’m expecting that we’ll have a straightforward regulatory review as well. As I mentioned before those three assays will be on a migration pathway. And I believe you also asked about Sofia, Lyme and Vitamin D and both of those are coming to the end of the development cycle and we will be doing serum clinical trials and wrapping that up in the next couple of months.

Matt Larew

And then, just one on Solana, you mentioned closing the large customer in the quarter, do that indicate you still feel good about hitting that 6 to $8 million range for 2016 for Solana?

Doug Bryant

I really can't answer that at this stage, it depends on how many the next customers are large. I will say that like any launch, we have a forecast that’s difficult to put together and certainly we’ve guessed pretty well but I don't know if that number is still good or not, if it isn't it’s not a great deal either way either side.

Matt Larew

With one acquisition done for the year, can you just maybe address, you appetite is continue to add either smaller deals like Immutopics or anything larger throughout the remainder of the year given that you still have the capacity to do so?

Doug Bryant

We certainly have capacity to do so, we continue to look and evaluate potential targets and there are few things out there that we’re interested in. A couple of them are of the larger side, but most things that we see are reasonably smaller. Fairly we’ve heard the message on the need for less volatile revenue streams and so things that would give us that are what we’re looking at.

Operator

Thank you. And our next question comes from Mary Kate Gorman from Canaccord Genuity. Your line is now open.

Mary Kate Gorman

I was hoping you could provide a little bit more color on the hCG assay, I know you had mentioned last quarter that you are considering shelving the assay given certain complication with the FDA, are you able to provide any update as to how that’s progressing and how you’re still thinking about that?

Doug Bryant

We are thinking it is a better product for Sofia 2 and that’s the path where I’m right now.

Mary Kate Gorman

And then just in terms of the - maybe Immutopics integration, are you still planning on seeing [indiscernible] accretive by October?

Doug Bryant

Yes, it will happen in the fourth quarter for sure.

Operator

Thank you. [Operator Instructions] And our next question comes from Nicholas Jansen from Raymond James. Your line is now open.

Nicholas Jansen

Just wanted to get your thoughts on where you are today on total molecular sales, I know you said in the second quarter it was up 63% but I'm sure it’s of a small number, so any metric on kind of trailing 12 month kind of molecular activity so we can find a size that is a percent of the total?

Randy Steward

We’re pretty much at the about the $10 million franchise level.

Nicholas Jansen

And then if we think about Virena, I know you are still exploring ways to better monetize this. When do you think that there can be some developments on that front where we can think about the CDC or some other government agency or even a retail clinic wanting to better understand, do they need to stock up on flu items? How do we think about monetizing that, when we get actual dollars in your mind?

Doug Bryant

We’ve engaged the consultants that helped us think through this and we have a number of ideas that we are flushing out. I can tell you that one thing that’s occurred to us is that just filling data is not an effective way to monetize those data, what you have to do is you have to put those data and package those data with some other pieces of information and potentially other data analytics to provide something that’s unique that the customer can’t do on their own. So it's not just a matter of collecting the data and putting in a box and selling it to somebody. It’s going to be more about creating something that’s useful. And when we find that then we'll figure out how to sell.

Randy Steward

We're working on that.

Nicholas Jansen

And then lastly Randy I recall last third quarter you had probably a little earlier flu revenue than I think most were expected. I’m just trying to get a sense so we frame expectations appropriately, how do we think about 3Q, any broad strokes would be helpful on the P&L. Thanks.

Randy Steward

I think as we look at Q3, we’re looking at kind of 5%, 6% growth consistent with over what we did in Q3 of 2015. And then as we said going into Q4, we’re estimating more normalized flu season and since Q4 last year was less than normalized, we’ll see obviously we believe a double-digit growth in flu in Q4 if we have a normalized proceed.

Operator

Thank you. [Operator Instructions]

Doug Bryant

I believe that I’ve addressed everybody that wanted to ask a question at this stage, so I will just conclude by saying thanks everyone, thanks for your support and for your interest in Quidel. Again, we think we had a fairly productive quarter and we think we’re well positioned moving into the Q3 and Q4 time period as well as next year, take care everybody.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!