Doug Bryant - President and CEO
Randy Steward - Chief Financial Officer
Ruben Argueta - Investor Relations
Jeff Frelick - Canaccord Genuity
Quidel Corp. (QDEL) Canaccord Genuity 32nd Annual Growth Conference Transcript August 14, 2012 10:00 AM ET
Jeff Frelick - Canaccord Genuity
Joining us today from Quidel we have Doug Bryant, we have Randy Steward, CFO; and Ruben Argueta, IR. So please join us across the room for breakout, immediately following the presentation.
As you know, Quidel is a leading point-of-care company. I think those again to a robust new product cycle that the company is embarking on. I’ll point you to book -- conference manuals for disclose statements.
And with that, I’d like to turn it over to Doug.
Thanks, Jeff, and good morning. We will be making forward-looking statements. This particular slide gets [denser] of how I think we present. Quidel is a company that’s very well-positioned and where it has become a fairly attractive diagnostic market space, in particular the area we focus in point-of-care and recently in molecular, those two areas are actually the fasted growing in that segment.
We have a fairly significant product pipeline that addresses a number of different market opportunities. We are known as an infectious disease company. So, clearly, we have products in development in that space, but we are also interested in the women’s health category and we have a number of products in development there.
Increasing commercial footprint, recently in U.S. we doubled our sales organization and those guys, at the moment are engaged in launching our newest product Sofia. I’ll talk more about that in a second. And finally, it is a company that has a healthy balance sheet, good revenues and very little debt.
We’ve been around for awhile actually since 1979. Most recently, in the last three years anyway we’ve done a number of things to change our overall position in the diagnostic space. We’ve done a number of things to try to broaden our company’s revenues beyond just mainly infectious disease and flu in particular.
We did complete an acquisition in early 2010, acquiring Diagnostic Hybrids. We also entered into an agreement with Northwestern University to develop an integrated platform to do HIV viral load testing in Africa. And we also entered into an agreement with a firm here in the area called BioHelix to develop what has will surely become the world’s first hand-held disposable molecular device.
Here is the financial overview, there is nothing significant. I don’t think here other than to say, you’ll note that, our R&D spends has ramped quite a bit -- a big chunk of that about $10 million or $11 million of the increase that was due to the acquisition of DHI. But generally speaking, we’ve increased R&D in order to develop the products that I’ll talk about here in a second.
We expect our R&D to stay somewhere around $30 million going forward and it get leverage as something of the things that we need to resolve from a technical perspective that are now behind us.
We are in good shape from a cash position. As I mentioned before, we have little debt, I guess, on Friday we announced, we re-negotiated our credit facility. We have a credit facility that enables us to access $140 million, in general percent, should we need that.
It’s a company made up of a team, many of us approaching 30 years actually in the diagnostic industry, why is that significant. Surly with so many guys with that much experience, we know how to get things in fact we are one of the few company’s, if any other company in our size that had four FDA clearances last year. So clearly, we can develop product, clearly we can get things to the FDA. And then I would say, with the experience we can also pick the things that are going to matter to customers.
In term of competencies we are a market leader in developing manufacturing point-of-care rapid diagnostic tests, the brand is QuickVue, physicians that don’t know, who Quidel are, who we are will know what QuickVue is and many of the packaging for this products, you will have seen, when you visit your own physicians offices from time to time. We are an absolute leader in flu testing, strep testing, pregnancy testing and handful of other products as well.
We also through the acquisition of DHI became the most significant player in the cell-based phorology segment and about 75% of clinical virologists throughout the United States use our products. So fairly high market share there.
We have significant molecular assay devolvement experience. Many of the people on our R&D organization came from either Abbott or from Gen-Probe where they developed molecular-based assays before we have been developing assays that are fairly quick space. In addition, you may have read that we are going to get some funding help from Life Technologies who is interested in helping us fund the development of those assays moving forward.
We have great brand strength and three categories, one is respiratory disease, infectious diseases, and women’s health, we also demonstrated expertise in regulatory affairs as I mentioned and we have pretty significant distribution networking, including the most recent increase in our direct sales organization in early 2012.
The whole portfolio can be described in three main buckets. The first two, the rapid test and the cellular, of course, we have a significant presence and now and we expect moving forward to developing even greater presence in the molecular space.
We have visually read products. Those are our legacy products, which do extremely well. We still maintain high shares, but recently we’ve introduced the next-generation platform. It’s a completely different chemistry. It gives the physician and laboratorian an objective read. It’s interfaceable and is doing extremely well so far in the market.
In addition, we have visually read direct fluorescent antibody tests that run in the highly complexed clinical virology space. We intend to introduce when we complete the clinical trial of product called Stella, which we formally called Project Bobcat, that instrument will automate with the clinical virology tests today.
And then finally, I’ll talk in some detail about the two major programs, AmpliVue, the world’s first hand-held disposable molecular device and Project Wildcat, the instrument we are co-developing with the folks at Northwestern.
We are continuing to invest as I mentioned, we expect R&D this year to approach $30 million. We expect to be slightly more than that in 2013, but not significantly so. And we think that we can leverage the hundred or so FTEs that are involved in R&D today and to get even more productive as we solve some of the foundational things that go into the both of these R&D programs.
We’ve got great program management and project management that effectively make sure that we are developing these things on time and within budget. And then, I really, I’m growing more confident in our ability to make an impact on the market with our commercial team.
We have made an investment in proprietary technology. You can imagine that as a result of the agreement we have with Northwestern that that IP around our novel extraction technology called PhaseGate. That portfolio is increasing rapidly.
We’ve had two patents issues so far. We just advised folks that we have a massive allowance on the third and then there are a number of other patents following that. So this technology which I’ll describe in just a second is the core to the Wildcat platform.
And then we have an M&A team that basically looks at things that we might add to our portfolio that would be useful to us. I can say that based on the fact that we’ve got a strong pipeline that the number of things we would look at that would be dilutive, would be very few. In fact, I would just state that there is nothing that we would on a shorter-term that would not be accretive.
As we look at where we are in terms of the portfolio, you can see in orange there that flu as a percentage of our total has historically been too high. That puts us in a position where both our revenues and earnings can be volatile, which is not useful and going forward it’s our aim to have flu as a percentage of our revenues less than 25% and our strategic plan basically is targeted that way.
We do have a significant number of institutional shareholders as you see on the right-hand side, just looking at the top four, five you can see pretty good concentration and then I would say that mainly because of Jack Schuler who’s on our Board and also the management team, the other directors and I also have a pretty significant position on the company.
We found a number of things said about us, some good. Jeff here was quoted. Actually most times, Jeff, you are not in the presentation. I just added this morning. I’m getting, getting it.
Now, Jeff does a nice job covering us and has made a comment here about the fact that we are transforming the company from a company that’s solely focused on rapid point-of-care diagnostic to one that has a broader base and he also mentions $100 million in incremental revenue that we are targeted at.
As we move forward, we get greater visibility around our products and how well they will do in the market space. We of course are refining that. We still feel comfortable that it’s in the $95 million to $100 million, an incremental revenue tied to just the projects that we currently have funded in R&D and some other comments here as well.
Not sure this is the most awesome slide, when we needed to look at this I think, but basically it says, that we want to build a broader based company and we are going to do that in a number of different ways. We’ll have product offering across multiple segments.
We’ll of course become a bigger player in the molecular space, greater line of sight to end users just simply means that in the agreements that we have and the future with the distribution partners, we are going to become more of the driver to the contract and to the price that we quote customers. Although, we have products that serve the entire diagnostic continuing the whole idea is to move products closer to the patient and also to expand our geographic reach.
Here are the four main drivers of our growth, Sofia, we’ve said publically that we expect in 2015 to be in the $60 million to $65 million in terms of revenues at that time. Stella, we’ve said recently is running behind schedule simply because we didn’t complete the clinical trial in the first quarter of this year, mainly due to the prevalence of flu B, which was very low and we were not able to have the prevalence that we needed across all sample types and all assays, and so we will continue that clinical trial, actually shortly in Asia but then we will conclude, we hope first quarter 2013.
The thyroid program continues to grow in the double-digit, actually mid-teens range and actually the less money we spent on it, the more it seems to grow. It’s kind of counter intuitive but this is just a great product that slowly over time physicians are getting educated.
And then finally, the molecular franchise has two main things. We’ve got AmpliVue that’s handheld cartridge. You can see a picture of it there and the upper right hand side, the first assay that we will launch is C. difficile. We completed the clinical trials here in the U.S. last month. Actually I think Ruben on the 20th, we since mailed those data to the FDA.
And we would expect to be in market here in the U.S. in Q4. We’re also planning a really significant launch in Europe in the fall just prior to that. Other assays, we said behind that will be MRSA Group B Strep pertussis and we’ve got handful of others that we are looking at as well, but those are ones that you would see as we move through 2013.
On the real-time PCR front, we’ve had number of assays developed and some of those already approved. We also have handful of assays and clinical trials here in the United States now.
And as I mentioned just a few minutes ago, we entered into an agreement with Life Technologies that the same assays that we are developing will be portable over to their new instrument system, which is called QuantStudio Dx. And we expect that they may launch that in the fall in Europe and that we will be doing a clinical trial on that instrument and some number of assays here in the U.S. next year.
And then finally, Project Wildcat is the instrument that we intend to develop that would address the need in Africa and that’s to have a low-cost method to do HIV viral load testing and also TB testing. The heart of the technology is the cartridge. The cartridge using novel extraction technology simplifies what’s necessary to be done in that cartridge. And we believe that we can deliver cartridge that it will be in the $4 to $5 range at launch and longer term would be in the $2 to $3 range, that’s the goal.
Sure, some of the market sizes, the main point of the slide is to say that when you look at just what we’re going after today in terms of served available market. Those markets are interesting but each of these technologies has something that enables us to address something significantly larger.
We don’t need each one of them to be successful but it’s nice to have multiple shots on goal. And it looks like for the moment that our focus on Sofia and on the AmpliVue launch is really nice timing and appropriate for us.
Sofia, the things that we will be doing as we go into 2013 are continuing new development. I think we can do safely five to six new assays per year. As I mentioned before, we’ll do flu strep RSV and hCG and hope to have each of those for end market in Q1, 2013 in addition in Europe will be launching Strep pneumo and regional probably prior to that.
Following that, we have a number of assays. I haven’t actually disclose that yet but we have another four to five assays that we could complete in 2013. We will - we believe we’re on track to launch the first commercially available quantitative Sofia assay. The beautiful thing about this instrument is it not only improve the performance of the qualitative assays that we have today but it enables us to do things that are quantitative. What would they be things like hCG, TSH, PSA, vitamin D, those are all targets that would require quantitative answer.
And then finally on C. diff assay, we will have both real-time PCR assay and the hand-held disposable device, which actually uses an isothermal amplification. I said before that we will launch in the following Europe and we’re still on track to launch Q4 2012 here in the U.S.
This is a [carton] that describe a lot of components of Sofia effectively. It is an instrument system versus our visually read device. It incorporates some of the same technology. But this is the technology that uses European label beads on the conjugate pad and that basically allows us that to have an excitation and a paid detection wavelength that’s ultraviolet and is not read visually but can only be read by the instruments itself. These instruments therefore the Sofia instruments provide the physician with an ability to get a qualitative answer that is objective and that’s a pretty big selling point.
Ease of use is another big factor. I would say ineffaceability to laboratory information system is also a factor but effectively better performance. It’s a next generation platform is leading to a number of placements and actually right now, we’re seeing in the United States and acceleration and placement rake.
The big thing I think that physicians really like is the ability to just take the cartridge and insert it in the instruments and walk away. And there is no timing element. They just come back and either prints it out if they want to print it out or it’s interfaced. Also there is an SD card and they can pull it off later and they can take those data and manipulate them however they want but effectively the ability not to have to stand there and watch the thing is pretty important. And it’s the only system that basically allows us for testing that we’re talking about.
So, here the two things described generally the real-time PCR assay program as a program that has an objective of having 20 assays developed such that when we launch the Wildcat System in 2014 that we have readymade menu.
In our industry it’s very common for companies like us to develop an instrument and then developed an assay and then another assay and another assay and that significantly slows down the launch. We believe that the number of target that we have at 20 is about the right number to have on board as we launch.
Those assays in the near-term will run on the ABI 7500 platform. They’ll also run on virtually anybody else’s platform that’s out there including the Cepheid SmartCycler, the Roche LightCycler 2.0, ABIs new QuantStudio Dx, just about anything you can think of. These assays will be portable onto those platforms. We don’t expect huge sales between now in the Wildcat launch.
We will make these assays available. There are customers already purchasing them but frankly the strategy is to have a readymade menu when we launch Wildcat in 2014. And then finally, I’ve talked a little bit about the actual thermal amplication and the mirage of that technology with our traditional lateral flow system put that yields of product that is inexpensive, disposable and anybody can run it.
I think I have a [carton] that describes it. Here is C. difficile and you can see that anybody that can heat the two, that contains the sample, in this case, it’s - there is no extraction required from a sample swab right into the lysis tube by heat for 10 minutes, I do a dilution. If I can pipe hit 50 lambda, 50 microliters, I can run this test, right.
So there is not anybody in the laboratory who can’t do this. And it requires no significant instrumentation other than a simple ear block to basically heat the PCR tube that contains the patient sample that has been diluted, mixed with a lyophilized palate that contains the probe to primers and the enzyme effectively, the master mix. That’s PCR tube once incubated at 64 degree C4 an hour ago into the handheld cartridge and once I snap the sample down under the knife and I break that open and that works across nitrocellulose film. We’re reading this thing for C. difficile just as you would, pregnancy test or any other lateral solid device.
You record the answer in this case. This cartridge is a real cartridge and you can see the control line was positive. You had a pink line there. The T1 line which is for toxin A is negative and this patient was positive for toxin B for C difficile. It was that easy, write down the answer disposal of device into the stereo cycle bag and you’re done.
So it requires no effort whatsoever. It is not significantly more complicated than running a traditional EIA. The market today is about 5 million test in the U.S., 1.3 million of those or so are already done by molecular methods. The preferred method is to do by it molecular testing.
So there is 3.7 that are still done by traditional EIA methods and it’s that segment that we’re trying to go after with this particular product. So our forecast for this, I can just tell you and our model for 2013 is just wrong. Because traditionally what marketing people do is they know what’s really going to be zero or some huge number and I just put difference and put some number in the middle. That’s what I got right now.
This product is really going to be not very successful. It’s going to be wildly successful. I won’t know until fourth quarter. But we are going to find out surely.
In summary, oh my gosh, I got 39 seconds to do this slide. In summary, we are market leader in development and sale of in the point-of-care space. We expect to continue to do that.
We do have proprietary next generation technology around point of care and body diagnoses called Sofia. We have four solid programs that represent areas of potential growth. I would point to Sofia and to AmpliVue as the next two to watch. And I think we’re doing a pretty good job of allocating appropriate resources and are doing a pretty good job as developing a pipeline at this time. Thanks very much. Just for another time.
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