Ladies and gentlemen, thank you for standing by. Welcome to Quidel Corporation Third Quarter 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] I’d now like to turn the call over to Mr. Ruben Argueta, Quidel’s Director of Investor Relations. 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 Randy Steward, our Chief Financial Officer. Our third quarter 2020 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, on October 29th, for a period of 24 hours. Please note that this conference call will include forward-looking statements within the meaning of federal securities laws, including our anticipated revenues for Q4 2020. Forward-looking statements by their nature involve material risks, assumptions and uncertainties. In particular, our expectations and assumptions around the impact of the COVID-19 pandemic on our business, results of operations and financial condition and that of our suppliers, customers and other business partners are uncertain and subject to change. Many possible events or factors could affect our future financial results and performance, such that our actual results and performance may differ materially from those in the forward-looking statements. For a discussion of such factors, please review Quidel’s most recent annual report on Form 10-K, including the section titled Risk Factors, 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, October 29, 2020. 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 and nine months ended September 30, 2020. If you have not received our news release, or if you would like to be added to the company’s distribution list, please contact me at 858-646-8023. Following Doug’s comments, Randy will briefly discuss our financial results. Then, we’ll open the call to take your questions. I’ll now hand the call over to Doug for his comments.

Thanks, Ruben and good afternoon, everybody. Welcome to my 47th consecutive quarterly earnings call. I hope that you and your families are well and safe during these challenging and uncertain times. At the moment America faces the prospect of a third wave of COVID-19 infections as indicated by a rise in the number of daily cases. Now up to 23 infections per 100,000 residents. The spread of the novel coronavirus is migrated from metropolitan centers to suburban areas and even to the countryside. The weather is getting colder and the flu season is still looming. As we face the potential for a third wave and another rise in infections, our company understands the need for increased testing and continues to rise to the challenge in the fight against COVID-19 by expanding access to affordable, highly accurate diagnostic testing throughout our communities. I couldn’t be more proud of our people. Those deemed essential as well as those working from home. With the way that they’ve embodied the Quidel spirit through dedication, determination, perseverance, singular focus, quick problem solving ability and a team first mentality, all the qualities that are a bedrock of our company’s culture and allow us to tackle a challenge like COVID-19 head-on. We had a record quarter in terms of revenue, consistent with our pre-announcement and a record in terms of profit for the quarter. To be efficient, I’ll let Randy provide more detail on revenue and margin in a minute. Here are the revenue drivers for Q3 at a high level, and what we can expect in Q4. First, the rapid point of care operations and supply chain teams in San Diego exceeded expectations. Line two was converted to SARS, our antigen production and the nasal foam swab issue that slowed the kitting process has been resolved,…

Thank you, Doug. Good afternoon, everyone. As Doug stated, we had another very strong quarter that exceeded our own expectations. Our employees have truly resent to the COVID-19 challenge by delivering new products to markets and continuing to expand production for newly launched COVID-19 antigen and PCR products, making a profound difference in people’s lives and livelihoods. Through the dedication and hard work of our organization, we’ve positioned the company for a strong end of the year and beyond. As reported, total revenues for the third quarter of 2020 were $476.1 million, this compares to $126.5 million in the third quarter of 2019. The 276% increase in revenue was driven by significant growth in our rapid immunoassay and molecular categories driven by considerable demand for our COVID-19 diagnostic products. We did realize minimal declines and demand for the Cardiometabolic and Specialized Diagnostic Solutions product categories. Foreign currency had a positive impact of $500,000 in the quarter. Rapid immunoassay product revenues increased $294.5 million to $337 million in the third quarter of 2020. Within this category, Sofia products grew $303.2 million to $331.9 million of which $317.9 million was attributed to Sofia SARS Antigen sales. QuickVue product revenues decreased $8.7 million to $4 million. In September, we did not realize the ramp up of distributor purchases of influenza, Strep and RSV heading into the respiratory season as we have seen in previous years. We intentionally prioritize our production and shipments towards the SAS Antigen test. As a result, influenza rapid immunoassay revenue was $7.9 million with approximately 90% of that revenue derived from the Sofia platform. For the Cardiometabolic Immunoassay business revenue was $64.8 million, a 3% decrease versus the third quarter of 2019. More importantly, this category was up $10.6 million sequentially, and we’re optimistic that the cardiometabolic categories are…

Thank you. [Operator Instructions] And your first question is from the line of Brian Weinstein with William Blair. Please go ahead.

Hi, guys. Good afternoon. This is Andrew Brackmann on for Brian. Thanks for the questions and for all the color. Just to start for a housekeeping, I may have missed this, but did you give guidance for Q4? And if so, could you just break down Sofia Antigen as part of that?

We said previously, actually in a pre-announcement that revenue for the fourth quarter will be at least $800 million. We’ve not broken up the contribution of Sofia SARS Antigen or the ABC product, but I can tell you that we do anticipate manufacturing on average around 2 million tests per week. And that would be inclusive of all the products. So whether it’s the combination essay or it’s SARS Antigen only the total would be 2.1 test per week – million tests per week.

Okay. Thanks for that. And then recognizing, it’s the end of October and a number of cross winds to consider. But as we sit here right now and thinking about 2021 the outlook there. So we’d be assuming sort of demand for COVID testing across your portfolio, sort of persist at least through 2021. And then along with that, should pricing remain relatively stable.

It seems to be the question of the day and the week Andrew. I would say there’s not enough known yet about this virus about immunity. And in particular we don’t know enough about re-infection. I could say though that we’re certainly being asked by a number of folks, including the government to ramp up production to really high levels. And so I think it’s the expectation that this is going to persist well beyond 2021, whether it’s 2022, 2023, I couldn’t say at this stage. But at this point, it feels to me like this will not abate in terms of the level of tests required certainly until sometime in 2022 and beyond.

Okay. That’s helpful. And then I don’t want to steal your thunder for a couple of weeks from now. But as we think about the end market dynamics here, how should we be thinking about the use case for antigen testing between symptomatic and asymptomatic testing, sort of evolving overtime. And I guess along with that, how should we be thinking about any potential asymptomatic claims for your products here, moving forward? Thanks.

Well, two questions in one there. But I see asymptomatic testing becoming more routine. I think we’re seeing in the Pac-12 and the Big 10 as an example comfort around daily testing and the desire on the part of both conferences to keep their – excuse me, contact sport athletes safe. And I think we’re going to see data coming out of the University of Arizona that may be published sometime soon. We’ll see some studies that we’re working on with the NIH that will be published as well. So I do think that as a country, we’re going to get comfortable with the idea that even though I don’t have symptoms routinely testing is probably a pretty good idea, whether it’s folks gone to school, whether it’s grandma and grandpa who needs to know whether they can safely have their kids come visit, whether it’s our employees. Currently we’re testing every Wednesday. I got swapped yesterday. I assume that I didn’t get a call, so I guess, I’m negative. But we’re testing everybody who comes in here every Wednesday. And right now the prevalence is low. I guess, we have – actually had one positive. But we think that that’s what we need to do to keep our employees safe. And I see that going on for some period of time. So asymptomatic testing seems like reasonably good strategy. Obviously, the number of people who are symptomatic could decline over time. And that would be helpful. But I do see that asymptomatic testing is going to become pretty important moving forward. We don’t know what’s going to happen on the serology front. We still don’t know really what the benefit of all that is at this stage. But we’re going to learn more moving forward. So thanks for that question, Andrew.

Thanks, Doug.

Your next question is from the line of Steven Mah with Piper Sandler. Please go ahead.

Great. Good afternoon. Thanks for taking the questions.

Sure, Steve.

Maybe just to continue on this question about asymptomatic testing, how big the market could be? As I start seeing, universities doing a lot more testing, back to work, you see like major league baseball, sports teams doing this more. And it does seem like we are going to asymptomatic testing. What do you think the – sort of the run rate is going to be, because I’ve heard a lot of numbers thrown out by think tanks 3 million to 5 million tests per day. Can we get some color on what you think the run rate will be?

Yes. I can only talk about the conversations we’ve had. I can’t talk about ultimately what the total market might be. We certainly have not spent that amount of time and frankly, I don’t know for smart enough. But I can tell you that from the calls that we’ve taken, and I’ve said this publicly before, just if I add up the number of tests being requested by different organizations, whether it’s entertainments, sports, large employers, just that number of calls and the sum of that, that adds up to about 685 million tests per year. So is that real? I don’t know. I’m just telling you that that’s what we do know. We’ve taken these calls from these types of people and some people have sent us t-shirts and hats and all sorts of things and trying to get us to chat with them about how we could do this for him. 685 million is the number I have right now of who’s requesting from me to do their testing. I hope that’s helpful, Steve.

Yes. No, that that’s helpful. I did notice, there was a 2 million – a couple of 2 million tests per days a couple of weeks ago. Okay. So my next question, it’s a two-part question. More along, the high throughput testing reimbursement, it seems like Medicare lowered the rate to $75 with a $25 kicker, if they can meet some performance parameters. So could you maybe address what you think the – if there’s going to be similar pricing pressures on the low throughput side and then the second part of the question have you considered pricing of your combo assay and if you can give us some color on, on your thoughts on pricing.

Sure. So on the first question regarding reimbursement, it is true that the laboratory reimbursement, the folks who are being reimbursed actually running the test is going to be reduced in some instances from a 100 down to 75. By the way, just on that and I don’t see how that has any impact whatsoever on pricing. Certainly hasn’t had an impact on pricing on PCR test at this stage. When you think about it, we’ve said before that we price our product into the end user market for PCR somewhere around $30 relative to the $75, that’s still less than 50% of that reimbursement. And when you look at our space generally over time, you’ll see that typically you can pass the red face test if your product is in that 50% to 60% range relative to what the reimbursement is. So in other words, that leaves a lot of margin for the lab after paying for labor, buying your product, performing the test that still leaves a lot of margin for the lab. So I see no impact on the pricing there. Similarly, I wouldn’t see any impact on the low end as well. Right now, we’re certainly at $23 a test significantly below what the reimbursement is. So the reimbursement were adjusted downward slightly, I wouldn’t see that that would have any impact there as well. At the end of the day, the price in the market today for these products, isn’t necessarily driven by the reimbursement. It’s just driven by demand. And so there’s no reason to look at price differently. I think from our perspective, relative to other competitors in the market, we are priced appropriately we’re at the low end. And so I don’t see any price pressure, particularly when you consider that we – I know, I’m biased, but I would suggest that that Sofia SARS Antigen is the premium brand. And so I think we’re priced about right. So I don’t see any price pressure for us certainly. And I don’t see it for the PCR folks either. And then pricing on the combo, which was your second. We’ve said before, that we are going to be at an end-user somewhere around $35 realized that net sales would be lower as we would obviously pay a rebate to our distributors. So net-net, we would be just under $30, I suspect.

Okay. Thank you.

Sure. You’re welcome.

Your next question is from the line of Alex Nowak with Craig-Hallum Capital. Please go ahead, sir.

Great. Good afternoon, everyone. We’ve seen some big partnership announcements.

Hey, Alex.

Hey, good afternoon. We’ve seen some big partnership announcements with Quidel and some others like the Pac-12 and the Big Ten. But I think the two places that that make the most sense to see Sofia in every single store is someone like a CVS or Walgreens. So maybe not those two directly, but can you just speak to any more of the retail oriented partnerships that you’re in discussions with?

Sure. That’s a great question, Alex. It’s a logical place for Sofia. It’s a logical place for Sniffles as well and we’ll talk more about that at Investor Day. But please remember that when we started here, we said that we were going to do what we could do for the greater good to get testing democratized into the communities closer to the patient, primarily at the onset to make sure that healthcare providers and first responders were being tested. So therefore we felt obligated to be in the segment that we would call the professional segment. That’s hospital labs, large clinics, urgent care and all of those who logically could provide that testing to folks who really at the onset of all this actually needed the testing. We were constrained as you’ll remember Alex, by the number of boxes we were producing at the time. We’ve now expanded our production from the instruments we get from Australia to about 2,500 a month. And you would have seen that up not so far from Neenah in Wisconsin. We are manufacturing as many as 7,500 instruments per month there, so for a total of 10,000. We’re nearly there. We think we’ll be at that level sometime in November. And at that time, as I said, in my prepared remarks, we should be able to move into those other segments like retail. So you can imagine that we’ve been contacted by everybody that you can name and probably some that you don’t even know about. So we do think there is a robust retail segment. We think we have a product that fits that segment super well, and we will be pleased when we can actually ship them the instruments that they’re asking for.

No, that’s great. Very helpful. And then expanding on the asymptomatic testing, assuming routine asymptomatic testing does take hold clearly an at-home test is going to be necessary. So you touched on it a little bit, but can you just expand on Quidel’s plans for home testing, how that product would work? It’s going to be over the counter and then when we could see something launched here by Quidel?

Step one is the QuickVue SARS Antigen approval in the traditional point of care segment. Very quickly after that we will conclude work in the at-home segment. It is our intent to be in that segment. It’s one of the reasons why we feel like we need to make the investment to get to 50 million tests per month. And we’re highly interested in – I think, it is a watershed moment and the evolution of diagnostic testing. I do think moving forward that you’ll see more and more at-home applications for routine conditions. And we want to be at the forefront of that. So I do know that there are others that are interested in it. They should be. We certainly are, and we plan to be there as quickly as we can get there. So QuickVue will be our entry there. And we’re debating on Sniffles. Do you really want an instrument that system at-home? I suppose we could. We do have one very large retailer that I won’t name today that has been chatting with us about our various instrument platforms, including Sniffles. And we’ll see what transpires moving forward. We’re not at the stage yet where we would announce exactly what our intent is, recognizing that our transcript gets a read it around every one of our competitors that there were so. Describing the game plan today, I’d love to, but I think it’s just a little premature.

No, I understood. But maybe I’ll ask when do you – would you expect to get to a 50 million test run rate on QuickVue if you’re willing to share it?

I think there’s some variability there, depending on the rate at which our engineering companies can fabricate the equipment that we need. We’ve placed orders. We’re trying to find other folks that can scale to do the same thing. It’s not really our effort or our timeline. It’s more of the timeline of the folks that are building that equipment for us. We certainly have an existing footprint right now that will accommodate some of that. And I think we can get to a 100 million tests per year right away. So that’s about 20% of what we need. What we need is the remaining 80%. And that’s where we’re at. So I haven’t named a month yet. Just because we have a plan, I’ve seen the plan, we’re executing the plan. Can we pull it forward? I hope so. But it’ll be sometime in 2021 or at that level.

That’s great. Really appreciate it. Thank you.

[Operator Instructions] Your next question is from the line of Jack Meehan with Nephron Research. Please go ahead, sir.

Thank you. Good afternoon. Hey Doug and Randy, I was wondering, if you could give it a little bit more granularity, just bridging from the third quarter to your expectations for the fourth quarter, for some of the key products, were you expecting for the ABC test, the amount of conversion toward that. And do you have anything built in for QuickVue in the fourth quarter and Solana and the new assays coming in.

Yes. Thanks, Jack. I appreciate that question, because we did say at least $800 million. And so the first bucket is Sofia SARS, Sofia ABC, and Sofia flu. There – again, we won’t be making more than 2.1 million tests per week of any one of those or all of them. So the max is 2.1. We’ll spread it between those two. Obviously, we’ve made some flu product. We’ve made some combo product. There will be demand, obviously, for some people with legitimate reasons to run just the SARS products. So we’re mindful of that. For example, customers that are serving the pre-surgical market, they don’t need to run flu. So let’s not make them buy a flu test, but for folks that are symptomatic and the upcoming flu season, we’re going to hope to persuade them, to buy the combo product exclusively. And then we’re planning on even forced converting, if we have to a portion of the market. Clearly, there are some folks that need to run Sofia flu exclusively, or separately, if you will. That would be the Sofia one customers that haven’t converted Sofia two yet. So obviously, we have an obligation to get those people instruments and we will that’s our intent. So that’s the major bucket of growth. The cardiovascular business, we expect to be nearly back to what it was before all of this. And I think we’re going to do something in the mid-60s, right? Maybe $65 million or so is what we have scheduled for the fourth quarter. So that should be back in line. Another big increase, as you may have heard on my prepared remarks is, we’re getting another third increase in terms of our sales of Lyra SARS. So I won’t force you to figure the math out.…

Thanks. That’s all helpful. On the new product front would be great to get an update as to where maybe the progress you’ve made since the second quarter on Savanna? I’m sorry, Randy, what were you saying?

No, I mean, you just wanted an update on Savanna, which will give them a lot more detail on analyzers.

We will provide. But what we’ll tell you is this, just briefly. We have engineering competence build units. We put those all the sub-components through their paces. The instrument itself is performing extraordinarily well. We did have a little bit of a challenge withdrawer that receives the cartridge. You can imagine remember the old CD days where you put a CD and you just touch the drawer and it pulls it in. So you have a motor that’s actuated by you pressing. You had to press a little too hard, and but we’ve changed that. So we’ve changed the motor. We’ve changed all that. Other than that, everything else is going to move forward into the alpha units. And it’s those units we’re building now that will use in the clinical trials, will be in customer sites. And actually in some cases, they’ll just keep those instruments. And we expect to build 73 analyzers that we’ll be doing clinical trials in at least three or four major sites throughout the country very early in the first quarter.

Sounds good. And then last one…

But I just want follow – Jack, when we talked to you on November 12.

Okay. Looking forward to that. And Randy, the build on the balance sheet for accounts receivable. Do you think that I heard the commentary around cash flow for the year, but do you think that continues to build a sales expand? Or is there an opportunity that given your positioning in the market to maybe pull that in a little bit and improve?

Yes. Talk about the McKesson thing a little bit as well, Randy. Because we had expanded the…

Yes, for a short time period, Jack, we had provided some extra terms to our distribution partners as they were ramping up as well. That now has gone back to more normal terms. So we’re going to get back to more normalized DSO terms that are in the 45 to 50 day period. So that’s where we will see as the DSO perspective or reduction here between now and December.

Thanks, Randy.

And that is all the time we have today, please proceed with your presentation or any closing remarks.

Well, that’s all we had for you all today. I would just say, thanks everybody for your support. And of course, you’re interested in Quidel. We had an excellent third quarter as you saw, we’re expecting an even better fourth quarter and we’re in really good shape to achieve our growth objectives over the next few years. You’ll see more detail on that on the 12th of November. And I’ll just say thanks again for being on with me on my 47th earnings call.

Congratulations, Doug.

All right. We’ll talk soon, everybody.

Thank you. Ladies and gentlemen, we thank you for your participation and as such that you please disconnect your lines. Goodbye.