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.

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.

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…

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…

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

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?

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.

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?

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.

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.

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

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?

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.

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

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

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

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?

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

And that is on Sofia 2, correct?

That's right.

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?

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.

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?

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.

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?

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.

Okay, great. Thank you, guys.

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

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?

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.

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?

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.

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?

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.

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.

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?

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

Yes.

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.

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

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?

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.

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?

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.

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?

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.

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

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?

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

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

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

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

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?

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

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?

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.

We're working on that.

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.

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.

Thank you. [Operator Instructions]

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.

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