Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation Third Quarter 2013 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 turn the call over to Mr. Randy Steward, Quidel's Chief Financial Officer. Please go ahead.

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. 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, October 23, 2013. 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 nine months ended September 30, 2013. 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 third quarter and provide an update on our product development pipeline, as well as our near-term drivers for growth. I will then briefly discuss our financial results and we will open the call for your questions. I’ll now hand the call over to Doug for his comments.

Thank you, Randy. Good afternoon everyone and thanks for joining us today. For today’s call I will focus my comments on three subjects; first, our revenue performance last quarter; second, the momentum we’re seeing with Sofia and AmpliVue and the implications for the current quarter and beyond; and third on where we’re from a development perspective with Sofia and AmpliVue assays and with Savanna. Revenues in the third quarter were $33.5 million, slightly favorable to last year’s third quarter. In Q3, they were both the accomplishments that we can point to that would suggest that we are gaining momentum and that did translate into sales in the quarter as well as a couple of factors that dampened our growth. For example it appears based on third party market research data that we’ve gained a couple of share points of the rapid influenza testing market and in fact for the quarter, our sales have of rapid influenza tests were 23% higher than Q3 2012, but lower than what we had expected due almost entirely to the timing of orders from our U.S. distributors. I’ll talk more about that when I discuss the momentum that we are seeing in Q4 in just a few minutes. Equal in magnitude to the shortfall in influenza sales versus our expectations was the shortfall in QuickVue Group A Strep and QuickVue hCG sales for the quarter. Versus the same quarter last year Strep sales were $2 million unfavorable and hCG sales were nearly $1 million unfavorable. Since for each of the QuickVue products, the number of customers who ordered products was almost preciously the same as it was last year, we have concluded that the shortfall was related to disease incidents and the timing of orders from our U.S. distributors in the case of Strep and…

Thank you Doug. As Doug mentioned in his opening remarks, total revenues for the third quarter of 2013 were $33.5 million, compared to $33 million in the third quarter of 2012. Global infectious disease revenues were $22.5 million as compared to revenues of $21.6 million in the prior year. Influenza product revenue was $10.5 million as compared to $8.5 million in the third quarter of last year, a 23% increase. Helping to drive this growth was an increase in Sofia Influenza revenues, which more than doubled as compared to the third quarter of last year. This increase was offset by $2 million decrease in our Strep A visual lateral flow revenue. Revenues for the women’s health category were $8.2 million in the quarter, as compared to $8.7 million for the same period last year. This decrease was a result of lower pregnancy product revenue of approximately $1 million, partially offset by 9% growth in our Thyretain product revenues. Our gastrointestinal product category revenues were $1.5 million, compared to $1.6 million in the third quarter of 2012. Growth from AmpliVue revenues were offset by declines in two other products that were in a backorder status at quarter end and that issue has since been resolved. Gross margin in the third quarter of 2013 was relatively constant at 54.4%, as compared to 54.9% in the third quarter of 2012. Higher Influenza revenue created favorable product mix and margin expansion, but was somewhat offset by onetime costs associated with product and process improvements implemented for the Sofia assays, as well as additional depreciation incurred this year on the Sofia instruments. We continue to manage our costs closely and believe we have a disciplined organization that manages its cost within expectations. As we have outlined over the last several quarters, we continue to invest…

(Operator Instructions). Our first question comes from Jeff Frelick with Canaccord.

Did you guys see any acceleration of Sofia placements in the quarter following the recent approvals for hCG and RSV this quarter? And obviously struck late last quarter.

We did see an increase in Sofia placement rates driven primarily by the hospital sector. And I wouldn't say that each one of those included Strep but several did.

Doug was there not enough, I guess maybe demand for some -- for hospital orders with some of those assays, maybe to offset some of the orders that come through here in hCG and Strep?

The orders that came through are -- were accumulating at the end of the quarter end up here, first week in Q4. And those orders net of what we would normally would have shipped to first week were approximately equivalent to the shortfall for the quarter and hCG instruct. So in other words there were probably $3 million of orders that could have shipped the previous week and probably should have but did not.

And then can you give us a sense and I'll hop back in queue, a last question here is just expectations for Sofia hCG into the hospital market, does it really satisfy some workflow and print out forms and kind of what they’ve done traditionally with respect to hCG testing just what are your expectations there for Sofia hCG.

We have seen a pretty significant interest in hCG and Sofia. We haven’t begun shipping product; we were building inventory caught really by surprise with the timing of FDA clearance. And are we now shipping, Randy or we’re about to ship?

We’ll ship end of Q4.

Before the end of this quarter we will be then shipping. So, we’ve obviously entered into agreements over three year period with a number of customers for hCG with both new customers as well as existing Sofia customers but we won’t begin shipping any of those orders until the end of this quarter.

Our next question comes from Brian Weinstein with William Blair.

Question on the small acquisition you guy are making. Can you talk a little bit about why you made that? What is actually giving to you guys in terms of either products or distribution capabilities, I’ll start with that.

This is a German based molecular diagnostic company that already has developed a number of assays 18 of which are CE marked and some of those fill pretty significant gaps that we’ve been told by our scientific advisory board and others that exist here in the United States. So, if you think about assays that if you go to any typical customer they will tell you they’d like to see several of those around the list of these 18 CE marked assays that already exist. So what it does is gives up the opportunity to accelerate our product development of PCR assays many of which would be available immediately after FDA clearance here but also would be very useful as we develop product for the Savannah test cartridges.

And then on AmpliVue product, we've talked about kind of next gen AmpliVue up been now in the fall can you just talk about kind of where that product sits at this point and comment relative to your target I think 1,000 customers is where you thought you guys were hoping to get over a certain time frame with that. Can you just qualitatively kind of give us a direction as to how you are trending towards that 10,000? Thanks.

I'll get Randy to tell you about the next gen cartridge which we had targeted for around this time. But before that I’ll say that we’re still well short of 1,000 customers that we think we’ll ultimately get to. Having said that we have numerous customers that are winding up evaluations and we should be launching two to four assays over the next couple of quarters which will be helpful as well in terms of getting more customers on the platform. One of the questions we’ve been routinely been asked is, the customers that have closed so far are they doing reflex testing or are they exclusively just doing molecular testing I would say, we do have some customers doing reflex testing but the overwhelming number for customer so far runs molecular only. So, I would say it’s still early days Brian, we’re pretty comfortable that we’re working our way through getting on hospitals accounts payable systems who are wrapping up evaluations successfully and for the most part we’ve got customers that not only place their first order but also reorders. So we’re comfortable but still well short of a 1,000.

The cost reduction initiatives are going through validation now, we should have it ready for production in by 1st of November so we'll work through the existing inventory and then certainly by, we’re thinking Q1 time period we'll have the new cartridge.

Then my last question is on the additional filings, you talked a little bit about the quantitative product and we talked about PSA, Vitamin D in the past, can you kind of just give us some sort of an idea about when you think those products -- what the process is for those products you’ve made some nice technical improvements and along the way that you mentioned on the call but should we look for those type of things to be kind of filed early '14 in the market end of ’14, just any kind of timeframe that you can give us on that quantitative stuff would be very helpful. Thanks.

Sure. Well, intermodal for 2015 we of course include those products I am looking at our Strep plan now and for a couple of them we are assuming 2014 product introductions and a couple of them we plan for 2015 product introductions. And I think we’re still pretty much on track for those things. And then we also have a couple of things that haven't actually -- haven’t started as well. But for the most part I would say there are technical risk at this stage I would view as being somewhat low, the question if any that we might is just to the timing. But for the most part right now I think we stand a pretty good chance of having a couple new assays in 2014 and then a couple more in 2015. We effectively have five more that we would like to have introduced by year end 2015.

Our next question comes from Nicholas Jansen with Raymond James & Associates.

Just last year the flu season was quite strong and quite early just maybe trying to help frame expectation I appreciate all the color with regards to kind of the OpEx expense line. But how should we think about revenue at least maybe over the next couple of quarters as you have the build of Sofia but certainly the flu is really going to play a large role in that. So if you’re thinking about last year, should we expect down year-over-year, up, any kind of direction would be helpful.

Sure. Despite best efforts to build a broader based diagnostic company it is October and this is the time of year our -- as to predict both the onset and the severity of the next influenza epidemic. And this is the time that I would normally say that although that we’re seeing some indication that there’ll be a flu season, it’s very difficult to say more than that at this stage. And coincidently this is also the time that I would remind those of you who would attempt to model the season based on the Southern Hemisphere data that the published evidence shows little correlation between the influenza season in Australia and the immediate subsequent season here or in the Northern Hemisphere generally. That doesn’t mean that there is never a correlation because occasionally there is, it’s just not consistent. Well, let me give you some examples. Recent evidence of emergent viruses coming from North America would suggest the cause and effect is actually the other way around. The 2009 pandemic H1N1 was originated in the Northern Hemisphere of course. And in reality Australia is still catching up with that. The H3 and 2 variants emerged in the U.S., that’s the variant that jumped from humans, from pigs, actually three summers in a row now and that hasn’t gone human to human as far as I know if it does that will then have an impact on Australia not the other way around. And of course who knows what will happen with H7N9 which originated in the Northern Hemisphere as well. Having said all that, we still try to predict start and stop and severity of each influenza season and in doing so arrive at a low, middle, and high estimate for each quarter. For the fourth quarter our low…

And can you remind us what it was last year in 4Q?

Yes, it was $26.2 million global.

Very helpful and then maybe just kind of switching gears, appreciate all the commentary on kind of the cost dynamics in which you're pointing to say from some of these things that you’re working on, how should we think about that in context of I think some of your Analyst Day commentary surrounding kind of the ultimate margin profile of the company, in 2015 as you realize all of your top line initiatives, are these in conjunction with that commentary, are these additive or maybe just framing that for us? Thanks.

I would suggest that some of these things were certainly not contemplated because we suggested that simply by increasing our volumes at better gross margins that the fall through based on previous years would north of 30% from an operating margin perspective. So certainly we at that time when we had forecasted all this did not know we would be relocating our manufacturing from California to Ohio as an example. So that would be one example. There are other cost of things that we had forecasted. However, I mean, we certainly assumed when we acquired DHI that we would get better productivity than we have. We've had permanent cost reductions there which have been very helpful and I would say we assume some of those. So I would say it’s a bit of both, but it certainly is helpful, certainly it’s helpful, it's certainly an upside that should offset something that we had not forecasted the other way, if that makes sense.

Our next comes from Bill Quirk with Piper Jaffray.

Great, thanks. Good afternoon everybody. Doug I want to go back to one of your earlier questions and that is regarding the 70% win rate for Sofia, can you just elaborate, is that 70% when you’re going head-to-head against another reader or is that 70% relative to just say plan of rapid for example?

I would say that we have evidence recently that we’re winning going head-to-head with reader three out of four times, but that would be just recent experience. I would say greater than 70% overall means all competitors. So anytime our guys in their 30, 60, 90 days forecast assume a close, if it were head-to-head with obviously it’s going to be head-to-head with somebody else because all those 30, 60, 90 days are new business, then we’re tracking north of that, but that would mean not just head-to-head with reader but head-to-head with other significant players in the rapid space.

Secondly going back to Brian’s question on molecular. I think if I take a step back, my assessment here as they’re obviously very pleased with the product and I hope [indiscernible] customers although clearly it sounds like it's taking a little longer than expected to get that into the customers' hands, and so can you talk a little bit Doug about some of the changes if any that you guys are making to try to accelerate the process, try it through the different layers in the hospitals and obviously get the spend to your customers? Thanks.

Well, the number one thing we did as we put the right sales people on the right places, we conducted a lot of training around this. We think we have clear product advantages, which our people are increasingly able to articulate; and I think the relationships that needed to be in place are evolving and are helpful. It’s also helpful to us when customers chat between themselves, which we’re seeing increasingly happen and the part that I was alluding to before is because we happen going direct in this space other than the 700 or so customers that we had to -- that were buying our DHI products. Some of the small customers don’t have any experience with ordering product directly from us and some of those things had to take place in order to actually just receive an order. So those things have been working out and I would say as we move through the quarter, we’re going to see many of those people that are evaluating product, make decisions which would favor us and then that will happen about the same time we’re going to be introducing two more new products and I think that would be extremely useful.

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

Maybe a couple of quick questions, in terms of the GI the non-AmpliVue products that were backordered in Q3 that have subsequently come off backorder, can you give us some sense from order of magnitude of what that hurts you in Q3?

Yes, it’s not huge number; we’re talking about hundreds of thousands but at this cross both two products, iFOB and H.pylori

Just that I am asking some of the progress you’re obviously making with the AmpliVue C Diff product.

Sure, but at the same time I don’t want to exaggerate the progress we’re making. As I said, our guys have been really effective of getting in there and generating customer interest and generating an evaluation. And those evaluations take, oh I don’t know, 30 days or so. And then after the customer says yes, then we got to get them to wear the product and put it in the system and all that. So there is a bit of a lag that we’ve been overcoming. We are pretty pleased with the progress so far, but it hasn’t translated into noticeable sales.

In terms of you guys getting in to accounts in general, you’ve added more people to do that, you made that pretty clear to the investment community recently. Can you give us a little more texture to the type of people, where you’ve pointed them, how many people you’ve added in the most recent swap?

We’ve completed the additions probably in the first quarter of this year. And then we had a training in the second quarter. And our call points are very similar to the call points that we make on most of our products with the exception that foresee this so we also spend some time with infectious disease folks. Yes, the people that we added most recently, if you are referring to that Steve, were on the physician office segment. They wouldn’t be making a lot of AmpliVue calls.

But you’ve been talking about better supporting [indiscernible] and PSS in the wake of their merger and that’s part of where these folks were pointed I am wondering whether or not…

Okay, that's true, I thought we were still talking about AmpliVue, I am sorry.

No, not so largely segway to the overall sales and marketing strategy and what you’ve done with that group. And was that a swap of maybe 10 or so extra people pointed in that direction, you just mentioned?

Oh, it’s closer to 15, I believe.

Now, in terms of your efforts with pricing and more favorable pricing declined down with Sofia assays, you know what can you tell us, at least qualitatively about how those efforts are going, and whether or not you’re encouraged by your ability to do some of the things you intended to do or whether you are discouraged?

We are comfortable that the pricing matrix we put together is appropriate and the pricing for Strep and hCG is higher, and noticeably so.

And in terms of the delay or the shift in timing of distributor orders from the end of Q…

I think we just lost him.

(Operator Instructions)

That delay or the timing shift you experienced with distributor orders from the end of Q3 to Q1 that you gave us some nice color on. Was that a function of your inability to react to some last minute orders, or for whatever set of, administrative or other reasons, you didn’t get those orders to Q4?

We just didn’t get the orders from our major distribution partners. We were expecting them as we do typically in Q3 to come in at the very end. And for whatever set of reasons this year, we saw very large week 1 Q4.

If you see a buying pattern Steven, you know September, early October time period, you know this year we just saw kind of move over a week to 10 days.

There’s nothing other than that. Our relationship with our major distribution partners is solid, and actually I would say terrific and for whatever strange set of reasons, it didn’t get done before the Thursday, nor did they get the product shift to FOB destination, that’s basically it; nothing sinister Steve, just timing.

Our next question comes from Shaun Rodriguez with Cowen and Company.

So Doug, I was hoping you could share your thoughts on trends with regard to rapid test share of the total influenza market, as you have Sofia picking up share clearly, but maybe the rapid category overall losing some share to molecular and somewhat related; where you were at about well a 100% quick view, just a couple of years ago at this point; what does this mix look like now within influenza, with Sofia placements obviously continuing to progress?

Sure, well I'll start and then just follow up Shaun, if I am missing something behind the question you are asking. In Q3, roughly one-third of flu shipments were Sofia but in Q4 sales actually so far for Sofia are larger than QuickVue. We had assumed when we modeled the year that the ratio would be 55% QuickVue and 45% Sofia, but Sofia cannibalization at 35% means that most of the Sofia placements of course are new. So our 55:45 forecast may be off by actually a lot and we'll obviously know a lot more when we get end-user data over this quarter and then in the next quarter. It’s encouraging because of course the significant percentage of our business then would be stabilized and it would be on the right platform moving forward regardless of what the FDA requirements are. So we are pretty comfortable with that, is that kind of what you were asking?

Yes that definitely answers part of the question. The second one was any trends in Rapid share of the total influenza testing market, just trying to think through as you are clearly picking up share for Rapids. I would imagine that as a category Rapids might be still losing some share to molecular so just some updated thoughts on that dynamic.

I think for sure that the folks that manufacture Rapid influenza test will tell you that we were losing share to molecular and we probably gotten down to somewhere around 8% of the volume moving over to molecular but with our product introduction and the other instrument in the market, I actually think that the category is [indiscernible] some of that back and I have some specific customer detail and evidence of that. So where, these instruments Sofia our instrument and the reader from our competitor are actually being used on the very front end and only the customers that are reflexing that would end up being molecular. So I am anxious to see what it looks like at the end of Q1, now that both competitors and some of the other guys have lot more instruments out there. But if you take what we know our instrument units to be a new assume that there is a similar, that’s a large number of placements out there that are in the hospital segment.

Yes Sean as Doug said, certainly know lot more after Q1 and we go through another full season and we will know lot more about the sale through versus currently kind of more selling information.

Right, the key is if you assume that this was just a physician office product then you could arrive at the conclusion that molecular category was kind of gain share of the number of test but that’s not turning out to be true or the same significant orders [indiscernible] hospital segment.

That’s very helpful, thank you for that and secondly may be just a higher level question. Over the past four quarters, revenue outside of influenza has been about flat, right. So as we are sitting here in Q4 2013, we are looking a pretty good inflection required, pretty soon outside of flu to get to your 2015 targets and so I was just hoping you could use this opportunity to talk about whether the expected timing or magnitude of this inflection has changed in your mind and may be whether the acquisition of BioHelix and [indiscernible] say anything about that, certainly acknowledging and appreciating all the great progress in the pipeline.

Sure, I think the easiest way to think about this is to go back to what we have said a couple of analyst days ago when we said we are going to aim at developing products that would create incremental revenues of $100 million in 2015. Of the 100 million incremental revenue in 2015 that we modeled, our model says that 79.5 million of that is from sales of products that are already developed and cleared. So for Sofia those products are flu Strep hCG and then our model of the 65 million net of cannibalization that we have in for Sofia, 59 million of that is just those four products. So you would -- and the reason we modeled it that way in other words the reason we haven’t modeled a ton of revenue associated with all those other -- the remaining five products is because we knew that we had certain technical risks and so we risk adjusted our numbers as a result, plus we didn’t know about the timing. We feel very confident that we can develop these products that we're aiming to develop but the risk to us we see as timing, so having those done in 2014, enough time to have a big impact in 2015, we weren't sure so not to beat this thing to death, but we significantly risk adjusted the five remaining products relative to what we thought we would do with those first -- those four plus or the first five. On the molecular side, if you take the assays that are already cleared which most of them in terms of numbers of course are the PCR products and then you add the first AmpliVue product only those account for 20 million in 2015 than our model of the 25 million…

(Operator Instructions). Our next question comes from Zarak Khurshid with Wedbush Securities.

I apologize is I missed it in the prior comments. But how is the food channel shaping up at the distributor and physician office level versus last year?

How is the channel shaping up? You are talking about inventories?

Yeah.

I mean if you look over last five quarters there is really no significant changes in any of our major products with the inventory levels at any of our major distributors.

We think at the moment we’re somewhere around three weeks in the channel, and two weeks with…but again that hasn't changed much, it's been quite lower by couple of years now.

That's what we were thinking, thanks for that color. And then just curious on CapEx in the quarter, what was that again and then how should we be thinking about CapEx over the next couple quarters and year?

CapEx for the first nine months as I have indicated was 17 million. Pretty much, we spent about $5 million with the expansion in Athens on our molecular platform, spend a couple million dollars with our ERP system. Our normal maintenance is somewhere around -- has been pretty consistent and then as you are aware that we are capitalizing the Sofia instrument is included there as well. I think we estimated approximately 20 million full year and I think we're still tracking towards that number.

And then as we look out to next year, should that come down significantly?

I don't know about significantly, but it will definitely come down. Yes. This is a normal year because of the build out in Athens and our ERP investment.

And then just dovetailing on one of the prior questions on molecular in competition and so forth, obviously one of the big players out there is talking about a clear waved flue and RSV combo test up teed up for next season. How would you guys sort of think about that in terms of potential threats or overlap? Thanks.

Sure. I can tell you that when customers don't like Sofia, it's because it’s a 15 minute assay instead of a 10. So if a clear wave molecular assay were at 10 minutes or less, it would be a significant threat. If it's more than 10 and certainly more than 15, I don't know how that fits into the work flow. So doesn't mean that there wouldn't be larger places take those assays on board, I would assume that there would some but I can’t imagine that the demand for any product regardless of what the technology is would be high if the assay time was long.

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

You’ve been helpful in forthcoming with some of your plans and assumptions for this cold and flu season and mixed with Sofia. I’m wondering on clear waiver status of those products, I know that’s a process that's difficult to pin down and forecast but what kind of assumptions have you made about that coming into play this cold and flu season if any or is that just something you hope to have in place fully for next season?

We’re not making comment or forecasting on any of that again for the reason you just stated Steve it’s so unpredictable, you can point to the last time that we had something clear waved, it took six months that was with the influenza product, but 510-K approval while it’s on the clock of clear waiver applications are not with the FDA. So, there is absolutely no way for us to relate. Obviously we’re hopeful that it will be earlier rather than later but there is just no way for us to forecast how long it's going to take. I would have to say that the government shut down probably didn’t help.

Now the acquisition you just made obviously it was for content that you want to bring in the United States here but was there any even noticeable revenue stream of these products internationally at this stage, what can you tell us about that?

Yes, there certainly was -- is some revenue, they were doing somewhere between $0.5 million or $1 million a year in revenue and certainly we think that we can certainly accelerate that over the next couple of years since they were totally outside the United States.

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

This concludes the call for today. Thank you for your time this afternoon and for your continued support. Take care everyone.