Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation Fourth Quarter and Full Year 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, February 11, 2014. 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 full year ended December 31, 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 fourth 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 then we will open the call for your questions. I’ll now hand the call over to Doug for his comments.

Thanks, 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 third our product development update for Sofia, AmpliVue and Savanna. Although this year’s flu season start later in Q4 than the previous season did revenues in the fourth quarter were $50.2 million slightly less than the $53.9 million we reported for last year’s fourth quarter. On our last call, we described three different possible scenarios for the flu season in Q4. $10 million for our light flu season, $16 million for a normal flu season and $28 million for a severe flu season. In the fourth quarter total flu revenues were $20.9 million and of that amount $6.4 million were due to sales of Sofia influenza. Further, at our cannibalization rate for Sofia flu held steady at approximately 32% which means that roughly two thirds of all Sofia flu business or approximately $4.3 million was new. Inventory levels at distribution were 17% lower in the fourth quarter than they were during the fourth quarter of 2012 which tells us that orders during the period were indicative of real end user demand. Clearly Sofia has been instrumental in solidifying our base flu business and its evident that we’ve also picked up some market share with end users in the fourth quarter. In fact based on end user data and third party channel checks we believe that we may have gained between 6% and 7% dollar market share. We attribute this success to our focused Sofia sales effort particularly in the hospital segment along with bringing online our distribution partners. The momentum we see with Sofia placements has been driven by demand for influenza but now…

Thank you, Doug. As Doug mentioned in his opening remarks, total revenues for the fourth quarter of 2013 were $50.2 million, compared to $53.9 million in the fourth quarter of 2012. Global infectious disease revenues were $39 million in the fourth quarter as compared to revenues of $44.3 million in the prior year. Influenza product revenue was $20.9 million as compared to $26.3 million in the fourth quarter of last year. The decrease was driven by a more normalized influenza and respiratory disease season in 2013, as compared to an earlier and more severe season occurring in the prior year. Sofia influenza revenue showed strong demand at 6.4 million a 103% increase over last year. Also contributing to growth in the category was a 48% increase in total RSV sales which also benefited from new sales under Sofia instrument. Strep A revenue was relatively constant to the fourth quarter of last year. Revenues for the Women’s Health category were $8.0 million in the quarter as compared to $7 million for the same period last year. This increase was due to growth in pregnancy product revenue of approximately 24%, catching up on the timing of orders from the previous quarter. [Indiscernible] product revenues grew 10% in the quarter, our gastrointestinal product category revenues were $1.9 million in the quarter compared to $1.5 million in the fourth quarter of 2012 mostly driven by increased AmpliVue C Diff revenue in the quarter. Gross margin in the fourth quarter was 63% as compared to 67% in 2012. The decrease in gross margin was primarily driven by the change in product mix, associated with higher influenza sales in the fourth quarter of the prior year. Also negatively impacting the margin versus last year is an incremental depreciation incurred from the placement of additional Sofia instruments…

[Operator Instructions] And your first question comes from the line of Brian Weinstein with William Blair. Please proceed.

Hi, guys. Thanks for taking the question. This is Matt in today for Brian. Maybe I was wondering if you could provide what the total Sofia number was in the quarter and maybe you could characterize contribution of pricing relative to expectations any to the assay categories? Thanks

We’re not going to disclose total Sofia sales. I mean, we did obviously provide the flu number.

6.4 million.

6.4 and we also disclosed the amount of business that was new of that. In terms of pricing, I think we’ve previously discussed the pricing for the flu product is approximately $1 higher for Sofia than it is for QuickVue. For Sofia group A Strep, we do have a price increase over the existing product that is meaningful, hCG is the same. For RSV, it’s typically about the same so we aimed to be equivalent between QuickVue and Sofia for RSV.

Okay, thanks. I was just wondering if you could just talk little bit about how you expect cannibalization to trend here in 2014, 2015 it seems that it was probably 35% it’s been little below what you were expecting it. How you was thinking about what that dynamic look like in 2014.

Well, originally we had modeled overall to have 50% cannibalization which would be a mix of cannibalizing the legacy products offset by new products. So, that’s sort of how we had originally modeled 2015 a few years back. What we’re discovering though is that for these qualitative products for the existing legacy products that customers are preferring the objectively read answer and as a result I think our sales people certainly are more focused on converting our competitors' products than they are ours. Over time I would like to see a bit more cannibalization but for the moment I do think that the 65-35 split that we’ve forecasted for 2015 looks pretty good.

Your next question comes from the line of Bill Quirk with Piper Jaffray. Please proceed.

Hi. Good afternoon everybody. Its Dave Kiley in for Bill. First question for me just wondering what percent of your flu revenue do you think that 4Q represents for those ’13, ’14 flu season?

Say that again Dave.

Yes, I mean in the past you’ve said that the revenue in 4Q represents 40% or 50% of your total expected flu revenue for the season. Do you have any kind of [indiscernible] this time around?

Well, with the math to say is that we had 175 million in revenue for 2013 and Randy says that our total sales of flu products excluding -- molecularly excluding DHI would be 62 million. So, roughly a third.

Oh I see, you’re interesting in understanding what’s happening in Q1 for flu.

Well, I mean in the past you’ve said that your 4Q you thought that it would be about X% of the total revenue for the flu season. I’m just wondering…

Yes, let me be more helpful than that. Okay. I understand where you going Dave. Through the end of January, inventory distribution was approximately what it was at the end of January 2013. And our distributors are telling us right now that flu sales are running slightly stronger than they were at this time last year. So, if we were to model conservatively after the February-March 2013 sales and our distributors managed inventories of flu down to one week hand by the end of the quarter which would be typical for us then they will need to order a modest amount of product which gets us to our mid case estimate for the quarter. So for Q1 2014, not counting sales of molecular influenza and DHI respiratory, here are three scenarios, flu sales in the low case scenario would be 20 million, in the mid case they are at 25 million and in the high case they are at 35 million. So, you know what our sales were in Q4 you can do the ratio now, it’s going to range from a very worst case of 20 million to a high case of somewhere around 35 million.

And you think you’re kind of tracking to that mid case?

Well, I gave you the scenario that got me to the mid case.

All right, thank you for that. Thank you. And then I was just wondering if you could maybe give a little bit of an update on some of the longer term AmpliVue assays, I think you’ve talked about Trichomonias and chlamydia and gonorrhea in the past.

Sure. We have. So, just a very quick recap. [indiscernible] launched group B Strep, we are lunching group A Strep, starts clinical trials this week. Actually started this week, already started and AmpliVue [indiscernible] also starts this week. We should be in clinical trials with Trichomonias shortly, we did conduct a beta trial already. And so then we do have, as you mentioned a couple of that there is out there [CT/NG] that’s a little bit further out. In the future, we -- well I’m not mentioning that one. Sorry. That’s it for now.

Your next question comes from the line of Jeff Frelick with Canaccord. Please proceed.

Hey Doug, with respect to our Strep how was the incidence in the quarter versus the third quarter?

It actually rebounded a bit, and it sort of was in line with Q4 2013 -- I am sorry ‘12.

Yes, it was significantly higher than Q3 Jeff.

So you did see incidence pick up?

We did, and pretty much does mirror in that quarter what's happening with flu.

And inventory specific to Strep in the channels?

Low.

So you have launched a lot of products you have a very expanding pipeline, is that some of the primary care physician office sales force. Are you starting to see increased focus from your distribution partners in that marketplace?

Sure, I think what we saw early was with the acquisition of PSS by McKesson, some integration issues if you will and for the most part I think our commercial guys will tell you those things have been sorted out and that the entire organization McKesson, PSS are active and out there.

Yes, just one, I trying to get at that my other observation is what you meant to the distributors a couple of years ago, X number of dollars to them and their overall product offering. You’ve grown that significantly and probably will continue to grow that. So I guess you’re getting your fair share or more so timed focus right along -- are your reps starting to get somewhat overwhelmed I guess with the attention. Or not quite there yet, how should we think about it?

Well I think you should think that the Sofia launch has demonstrated that the product is pretty compelling and that with each new [many item] that we add, it’s just another thing for our distribution partners to focus on. We just now launched hCG and immediately we saw an uptick in activity from our distribution partners. So I would just say yes having more products does create more leverage. And it’s handier to have more things to sell than just flip.

Your next question comes from the line of Steven Crowley with Craig-Hallum. Please proceed.

Good afternoon gentlemen and congrats on the floury of development and regulatory activity on the stretch of ‘13.

Thanks Steve.

You were nice enough to share with us some data on a pick up and market share in flue. You said up to 6% or 7% from what you can gather. Where do you think that is ballpark? Where does it move to in terms of percentage at this point?

You mean since then…

No I mean after you picked up 6% or 7%, what is the total up to it at this point? What’s your best guess? At least a ballpark.

Overall it’s very difficult Steve as you know; we try to drop on a number of data sources to try to figure it out. The market leader is still is Alere and we’re still second. And then after that it drops off dramatically, so we’re still on that position but I like the fact that we’re closing the gap.

And I think another vein of thought that’s come out of recent discussions with you and Randy is that you had a very productive fourth quarter in terms of penetrating the hospital base versus the physician office lab, with Sofia. One, is that accurate what kind of color can you give us on that? And we probably haven’t seen the extent of the market share gains since you’ve just started seeding these accounts. So hopefully the trends you are praying for a while there.

First Steve I would say your comment is accurate; we did see a significant increase in the number of placements in the hospital segment. We like the hospital segment because the volumes are significant and they are about double what we see for the average Sofia placement. So you are right that we should see some revenue growth that’s associated with that market share gain and you would not have seen that fully realized in the fourth quarter because many of these placements were just being installed. So honestly I know what the contract say but say the contract and actually with this order could defer based simply on the incidence so for RSV and Strep.

Okay that’s helpful. Now, Randy, or Doug and Randy, you gave us some sense for the delta that could be there with influenza from Q4 to Q1, you have some other infectious disease categories and product line along with some new introductions that should spur growth sequentially in non-seasonal products like hCG, I’m wondering, if your mid case is about a $5 million sequential increase in flu, are there buckets that add up to about that amount in other products from Q4 to Q1? Is that a reasonable way for us to think about it or are there other dimensions and variables in here that we need to consider?

The greatest variability of course in any of these quarters is the flu number. So for that reason, we’ve provided, a range low and mid and a high case, but it would not be our intent to provide revenue guidance beyond that.

Will take me 15 minutes to walk you through all those variables Steve on all those different line items, but Doug said I think flu an excellent way to trend.

Okay and then just one question on the regulatory experience you are having, can you give us some indication of how the agency has reacted responded to your recent applications for AmpliVue and Sofia in terms of the path and the timelines and what kind of template there might be there for future approval timelines, can you give us some recent experience at least on some tests?

Sure, I’ll caveat all of this by saying that the submissions and their approval vary depending on the quality of the package, the type of product et cetera. Most recently -- the most recent AmpliVue submission was actually our fastest in recent times, it was, but I wouldn’t expect that to be the -- to be the norm and this particular package for group B Strep we’re approved in 28 days, that would not be difficult. But I will say that on average most of the 510(K) packages end up being approved if they are approvable certainly within the 90 day window.

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

Hi, guys. Thanks for all the color. Just thinking about the margin profile longer term, I think you’ve thrown out thinking that maybe this could be a 25% to 30% kind of GAAP operating margin business in ’15 or ’16 when you kind of hit the revenue targets that you kind of outlined and I just want to compare that target relative to the 2% GAAP margin that you put up in ’13. I know there was some kind of one time items this year but just maybe better help me explain some of the lever points that you see over the next two years as you think about getting to that projected target? Thanks.

Yes, certainly, we are confident in achieving operating margins in excess of 25% and EBITDA margins in excess of 30% as we realized that incremental 100 million in revenue growth. By 2015 gross profit margins we are projecting to exceed 65%. Really two drivers there, one is a discontinuance of Alere royalty amortization and then other one is the incremental margins improvement with our new product launches. Relating to our operating expenses, we believe we have -- we can leverage our current operating expenses, the base today without any significant increases over the next couple of years. We did provide guidance on our R&D spend where in 2014 we think that’s going to be below our 2013 spend, and as Dough has mentioned, we certainly have currently a fully functional sales team that will support, we believe is, will support our sales growth over the next couple of years. So we do see expansion in the operating margins and the EBITDA margins over the next couple of years.

That’s very helpful and then kind of thinking about the acquisitions that you did in 2013, AnDiaTec and BioHelix, how should we think about their contribution in ’14 and ’15 as some of their products and that you’ve spent a lot of money on R&D in the quarter kind of ramp up and are you thinking about more tuck in M&A in ’14 as a better way to maybe accelerate your molecular profile? Thanks.

Let me just talk generally about product development. We’re in a very good shape from that perspective. All of our new product introductions in 2014 will be molecular. We have two PCR products at the FDA that we believe will be important for us, those were developed organically. We’ve completed the development two others that are ready to move into clinical trials as well, and of course as you suggested, of course we now have the AnDiaTec assays and a number of which we’ll bring into the US this year as well. I mentioned already the AmpliVue assays, we’re really pleased with how that program is going, five or six new products, AmpliVue products by the end of 2014 is a pretty good move on our part, so obviously we’re really pleased with how that program’s going. And then of course there’s Sofia, the clear waivers, the first two point assays and a couple of others that are also in the works. So that certainly overall where we’re at, I would see 2014 looking a lot like 2013 in terms of our R&D productivity.

Your next question comes from the line of Figo Peterson with Morgan, please proceed.

Hey guys, thanks for taking the question, just one or two quick ones on flu and then a few others, a follow up, just you know you talked about the expectation in your analyst day last year for about 22% of revenues from flu by ’15, is that still accurate in your view.

If we continue to gain share I’m not sure that’s possible. I think we had modeled somewhere around 25-26%, I seem to recall a chart, Randy. So, I think that's probably the right range, it’ll fall for somewhere around, you know a third now to probably 24-25%. So, that’s kind of where we’re at, that’s my best guess right now.

Okay and then relative to the quarter, 10 million of the beat was flu, can you maybe just talk about the delta relative to your expectations for the non-flu businesses?

In Q4, Figo?

Yes, correct.

I think that we were anxious to see what the strep revenue look like given what happened in Q3 and we had been looking at customers and numbers of customers and we didn’t see that we are releasing shares so we were certainly hypothesizing that it was timing and so we were somewhat relieved in the fourth quarter to see that that was true, and we’re also pretty pleased that we saw that the bounce back of hCG, so, that looked good. So I retain for no other reason other than just the educational things that we have ongoing, continues to grow. We were a little bit surprised as well by the 10% growth because it really hadn’t been exceeding 10 for a few quarters and so that looked pretty good, and am I missing anything Randy that’s big.

I think RSV and associate platform.

We did have a nice launch with RSV, but obviously that’s small numbers, a few hundred customers I guess at this stage but that’s gone well also. So that contributed.

And actually on peak, can you talk about how you see per box utilizations maybe trending for the remainder of this year?

Oh boy, that’s a tough one to call at this stage, early on, of course all of the placements were due to flu, we’ve just now started to see a reasonable uptick with strep, I already mentioned RSV but that’s somewhat of a niche market, and I’m really anxious to see what the utilization per box looks like after we get hCG loaded. But in general, what’s committed in the agreement so far, is somewhere around for the hospital based customer somewhere around a 1,000 test per year per box. We’re doing about 1.6 boxes per site, and so that looks pretty good, the RSV number obviously lower and so I would say we’re comfortably on our way to that early target that we had set of $10,000 per Sofia placement per year.

Okay, and the last one, what next steps we should be thinking about for Savanna?

Well we’re building the cartridge manufacturing line now and then we expect to transfer that to our Athens facility and have that done by April. That we’re doing in parallel with completion of the instrument design. We’re building fully integrated units now. We’re also going to use those boxes in conjunction with our alpha test beds to do development work on the assays, and so we would hope to have -- certainly around the time of the US launch, we would hope to have a handful of assays that we can launch early on. So that’s kind of where we’re at. We do expect to have units in South Africa by the end of the year as well, and I said that we would be at a US trade show, it looks like we could indeed be in time to show Savanna at the AACC in July.

Mr. Taylor pleasure check mute feature on your phone.

Sorry. Hi I didn’t know I was in queue. But just a quick modeling expense on R&D, big uptick in Q4 and you gave some of the reasons for that. But how should we think about R&D and 2014 other than your previous comments that it should go down versus 2013 and that 1.7 million in incremental expense you’ve called out that’s associated with the two acquisitions. Is that going to kind of continue at that level on an incremental basis or is it offset then somewhere else?

Of the 32 to 35 that Randy mentioned does include the additional 1.7 that’s associated with BioHelix and AnDiaTec.

Yes. Ross we did think that full year 2014 stand to be somewhere in the $30 million to $32 million range. The anomaly in Q4 really was we did get a benefit in Q4 of 2012 with the collaboration agreement with Life Technologies of 1.7 and we didn’t get any benefit out of that in Q4. So that’s somewhat of a unique item as well.

Your next question comes from the line of Shaun Rodriguez with Cowen and Company. Please proceed.

Hey guys, thanks. So following up on an earlier pricing question I think you mentioned you’re taking material price increases on Sofia Strep. But to be clear I think you’re just talking of pretty significantly re-pricing that market with Sofia. So are you getting less of a premium than maybe you were previously talking about and if so what was the sort of the strategic rationale before -- behind that decision?

We had originally talked about somewhere north of a $1 in terms of a price increase. We launched metrics that was significantly higher than that. So what we actually attempted to achieve in the field early on was I would say dramatically more than that. The number of customers that jumped onboard with that pricing metrics was fewer than we had hoped. So we’ve actually come back a bit toward that initial dollar, I think it’s actually north of that.

Okay. So then on the incremental revenue opportunity from the 10,000 placements you expect by year-end, and that is reflected in the 2015 targets. So it seems like maybe less pricing but you’re still comfortable with those targets on Sofia presumably because you’re expecting to get more share than previously thought. I’m just trying to understand how the pricing maybe not being where you thought it would be it’s just being offset just to…

No. first Shaun let me clear, what we modeled in 2015 was that dollar, not more. We attempted to go to market last year far north of that. But what we modeled in 2015 was what we’re actually doing now. Okay, so there is no change there. Yes. Does that make sense?

It does, it does, that’s important. And then lastly I guess when we’re thinking about the number over 5,000 placements at year end your confidence in the 10,000 we hear from Becton Dickinson it sounds like they’re already at that bigger number. So clearly, lot of momentum for this class of products and it’s evidenced in your share gains as well. I guess my question is really why wouldn’t 10,000 placements by year end if again if you’re not taking as much prices may you hoped you would. Why isn’t that a really conservative target and really why wouldn’t we expect you to do better than that by year end?

Well, when I have the evidence that suggest that the forecast is not close to that I would certainly advise folks including our investors, at this stage, we said that we’re well on our way we said we’re north of the halfway point and I think we’re in pretty good shape. Obviously we’ve got a commercial organization that’s aiming a lot higher than that and I think your intuition would tell you that if we continue to have success that the end number is going to be higher than 10, the timing of all that is the question that we have and I'm pretty comfortable and confident in saying we’re going to get there. I’m not trying to pull a [ha-ha]. Now with regard to competitors would suggest that they have shift, I really can’t comment on all that, and I won’t speculate. What I do know is our placements because we have a contract with each end user and I know that each Sofia generates revenue but I know how many Sofias are per site and what our cannibalization rate is and I know who specifically we're taking business from by site. These are things I do know. The things that I hear I don’t know.

Your next question comes from the line of Zarak Khurshid with Wedbush. Please proceed.

Hi, good afternoon. Thanks for taking the question, guys. Question on the quantitative hCG product, just curious how do you think about the size of that opportunity? And then as far as the technology goes, I guess, where do things stand as far as the validation of the quantitative aspect of the platform?

We believe we’re in pretty good shape to deliver a quantitative hCG product to be in clinical trials and in the near term. From a technical perspective, we’ve had some things that needed to be solved but they have now been solved. I think we’re on a pretty good path to get the job done. In terms of market size, I think what we’ve said is that the quantitative hCG market itself is a bit niche and that the area -- at least we were thinking we’re going to apply and I think we’ve modeled and our strategic plan is somewhere around 6 million or so tests that we will be going after. So this would not necessarily be the market that you would count on for a lot of sale but on the other hand, it was something that we’ve thought that we needed to do in order to demonstrate that we could handle this technically. The one that we are obviously more interested in is the quantitative vitamin D and obviously a lot of the work that we’ve done with hCG was somewhat of a precursor for that product and that market obviously as you know they’re good significantly larger.

Great. Thanks for that. And then just couple of questions on Sofia here, obviously nice ramp this year, how would you characterize the latest crop of Sofia adopters versus maybe the early adopters? Would you say that the latest customers are of higher quality or increasing quality in terms of the potential test utilization?

They are just by virtue of the increasing number of hospital customers. The other thing that's true is the hospital customer Sofia placements are coming in chunks when a larger organization makes a decision to place Sofia, they can be significant numbers. We’ve had systems that have ordered 50 to 60. We’ve had recently won [470] something, Sofia, so again that coming in chunks, they’re coming with three year commitments and the commitment is larger than the physician office customer.

And these large multi-unit wins I don’t recall too much commentary on that in the past is this kind of a recent inflection given the expansion of the test menu?

Remember last year with the issue that we had and a recall, we specifically tried to stay out of the hospital segment as best we could because we didn’t want to start up with a big customer only to backorder them. So this is really the first quarter that we’ve had a lot of traction. In addition, the relationship that we had that now we have with Cardinal and with Fisher was not fully formed. So in the fourth quarter, it was our guys in the hospital segment and Cardinal and Fishers as well. And frankly, it has gone extremely well. So you’re right, it is new. It is somewhat of new phenomena. We do have an IDN group though that this is what they do. They focus on the very large groups and some of those groups have taken a while to come on board. They do extensive evaluations and they compare all the products and then at the end of the day fortunately it appears as so we’re winning most of those head-to-heads with our competitors.

That is all the time we had today. Please proceed with your presentation for any closing remark.