QuidelOrtho Corporation (QDEL) Q1 2021 Earnings Report, Transcript and Summary

Welcome to the Quidel Corporation First Quarter 2021 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'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 first quarter 2021 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 May 6 for a period of 24 hours. Please note that this conference call will include forward-looking statements within the meaning of federal securities laws. Forward-looking statements, by their nature, involve material risks, assumptions and uncertainties, in particular our expectations and assumptions around the COVID-19 pandemic impact and response on our business, results of operations and financial condition and that of our suppliers, customers and that of our business partners, are highly uncertain, continuously evolving and unpredictable. 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, May 6, 2021. 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 ended March 31, 2021. If you have not received a 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.

Thank you, Ruben, and good afternoon, everyone. Thank you all for being with us. I know it's quite late for many of you, but your time and your interest in our company are appreciated. As you saw in our press release, our first quarter 2021 results showcase a very strong performance, execution and capital discipline of our Quidel team. We delivered a 115% increase in revenue, a 163% increase in gross profit and an approximately 340% increase in net income and earnings per share compared with the same period one year ago. We achieved this growth, while simultaneously launching new products, expected to have high impact, like our QuickVue at-home OTC rapid antigen test and Solana SARS-CoV-2, completing the construction of a new distribution center, continuing to establish our new manufacturing facility in Carlsbad, managing a challenging supply chain, negotiating regulatory clearances and advancing innovative new product platforms that will give us the foundation to capitalize on mass market opportunities that will serve Quidel well into 2021 and beyond. These results would not be possible without the extraordinary vision, talents, commitment and grit of the entire Quidel team. We see it every day in our labs, manufacturing facilities and packaging operations as well as across our strategic and specialty teams from regulatory and quality to HR, marketing and emerging markets. Everyone is stepping up big to take on the unique challenges brought on by the global pandemic. While doing our part and the fight against COVID has remained a top priority for us, we have also undergone a significant transformation as a company over the last several years centered on the belief that what we do empowers others to take charge of their personal health and well-being. In doing so, our customers can pay it forward by taking prudent steps to protect their families, coworkers and communities. That is the diagnostics-based force multiplier that is helping to contain the pandemic. The breakthrough products we have introduced are meeting society's needs, thanks to our R&D and innovation teams. As a result, we have several other strategic growth drivers worth noting. As most of you know, we are poised to introduce Savanna, our multiplex molecular analyzer that enables professional customers to analyze up to 12 pathogens or targets plus controls in a single assay run in under 25 minutes and built on our proven robust real-time PCR techniques. Given an ingenious combination of many unique factors, we managed to achieve superior and differentiating performance for turnaround time, simplicity, ease of use, modularity and versatility of the platform. This revolutionary Savanna technology promises to disrupt and decentralize multiplex molecular testing, extending bigger and centralized lab capabilities to moderately complex labs, regional hospitals and potentially physicians' offices, urgent care clinics and other point-of-care settings. Feedback from customers has been tremendous. We have submitted our first Savanna for respiratory panels to the FDA recently and we expect to submit our first 510(k) package for the Savanna platform in the back half of this year. Regarding cardiometabolic, product development we began US clinical trials in April for Triage High Sensitivity Troponin and expect to submit the de novo 510(k) package for PLGF also known as placental growth factor this quarter. Very soon, we look forward to introducing our long-awaited Sofia 2 coronavirus antibody test or as it will be more properly known the Sofia 2 SARS-CoV-2 antibody IgG Fia. Our proprietary technology employs immunofluorescence for the rapid qualitative and differential detection of human IgG antibodies to SARS-CoV-2 nucleocapsid protein, spike protein one and spike protein two from finger-stick whole blood, venous whole blood and serum and plasma specimens from patients suspected of COVID-19 exposure. Our Sofia 2 analyzer instrument also reports semiquantitative signals to cutoff values for antibodies to each protein, which is an indicator for antibody titers or levels in the body.That's the technical side of the story, but the use case is far more understandable and compelling. Patients who experienced COVID-like symptoms before PCR and antigen tests were widely available want to know two things. Did they have COVID? And do they have antibodies against future infections? Our COVID blood test detects antibodies to three distinct parts of the virus along with the individual's degree of active immune reaction to COVID-19. The test can also be used to confirm a vaccinated patient's asinine reaction by detecting antibodies to spike 1, which is the single target protein for current COVID-19 vaccines. We plan to submit to the FDA an EUA packet imminently and believe that access to this antibody test will bring peace of mind to countless people with pressing concerns about their immunity or the vulnerability to COVID-19 infection. We are already getting calls from urgent care our medical practices with patients asking for the test. Also in the coming months, we look forward to introducing our compact and competitively-priced Sofia 2 analyzers, which should accelerate and amplify Sofia platform penetration across traditional point-of-care outlets and ultimately reach the over-the-counter market. During the first quarter, we also focused on portfolio and channel expansions to enable Quidel to enter new markets, which we expect to be significant drivers of market demand and revenues going forward. Several of these opportunities have been secured and are beginning to take shape in the second quarter. Perhaps the most significant inflection point for our company came on the final day of the quarter, the first quarter that is when we received EUA from the FDA for non-prescription use of our QuickVue at-home OTC COVID-19 test for presymptomatic and asymptomatic screening through serial testing. This over-the-counter sales authorization and embrace of frequent testing, represents a sea change for viral diagnostics regulation. That is already generating a wave of demand for at home testing and testing for reopening at schools, workplaces and entertainment sites. The next day which was the first day of our second quarterm we received an EUA for serial screening with our Sofia SARS product. This clearance for objective observed screening provides employers sports leagues and talents other commercial operations with a means to give their employees and patrons greater peace of mind when returning to commercial workplaces and venues with assurance of compliance with FDA and CDC guidelines. Both the QuickVue, OTC and the Sofia screening EUAs are truly path-breaking regulatory developments that overcome significant barriers to both market adoption and the benefits that flow from frequent antigen testing. The potential implications of this regulatory shift extend well beyond the immediate addressable markets for OTC at-home and reopening testing at schools, workplaces and entertainment sites. We see tremendous opportunities ahead of us to leverage our rapidly expanding installed base of 70,000 Sofia analyzers along with the potential rise of telemedicine to drive sales of our full array of Sofia assays for flu, strep line disease and a host of other conditions. Similarly, we believe broad consumer adoption of our QuickVue at-home test could open the door to OTC approvals for at-home use of several of our other diagnostic products and platforms. Quidel is determined to capture significant share in these newly addressable markets through our strategic partnerships with global distribution and retail leaders, including McKesson and Walgreens. We believe that these partnerships could be significant and helpful in driving brand awareness, as well as significant retail scale. For example, our partnership with McKesson enables us to continue to supply our existing customers in the professional segment, while at the same time reaching significant new markets, such as retail, testing for reopening schools and for health departments employers, entertainment centers and many other locations. Our agreement with McKesson will provide us with access to multiple retailers and its HealthSmart franchise, allowing Quidel access to a network of over 5000 independent pharmacies. Finally, McKesson will provide us with the ability to rapidly introduce products across multiple e-commerce sites such as Amazon, eBay and Simply Medical. Our partnership with Walgreens will allow us to sell our QuickVue at-home OTC COVID-19 tests to consumers at any of the more than 7,600 Walgreens locations in the US and Puerto Rico or@walgreens.com further enabling consumers to take charge of their own health. These important and significant partnerships will give us unprecedented exposure to the OTC segment as well as fulfillment pathways to serve employer groups that are seeking to bring employees back to offices and work sites. We are extremely proud of these new partnerships and the promise they hold for democratizing access to our innovative rapid antigen tests for the well-being of families, workplaces and communities everywhere. As we look at the second quarter, in the month of April, we realized the same demand for our professional COVID tests, as we did in February and March. For May and June, we anticipate some reordering of our professional COVID tests and expect accelerating demand for our QuickVue at-home OTC test, aided by our key strategic partnerships. Moving forward, we see increasing revenue opportunities tied to at-home and on-site testing of asymptomatic individuals in support of back-to-school and work initiatives but it's still very early. In summary, we have a powerful mix of products partnerships and macroeconomic trends. COVID-19 testing, which represents a significant component to our near-term growth strategy is just one aspect of the long runway ahead of us. While it's hard to model with any certainty the effect that COVID will have on our business, we are confident that there are three macro trends: symptomatic testing, asymptomatic screening and at-home testing that could prove to be material to both market demand and our revenue growth going forward. These innovative products combined with the gateways they provide for our broader portfolio of diagnostic assays, pave a long exciting road map for our continued growth and success, as we advance diagnostics to improve human health. That's our value proposition. While we understand that we will report revenue and margin each quarter and to a certain extent be valued based on short-term performance, the longer-term value of our company is far greater. Randy?

Thank you, Doug. Good afternoon, everyone. As Doug stated, we saw very strong year-over-year growth in the first quarter. We continue to make great strides to develop, introduce and scale new COVID-19 assays, as well as progress on our longer-term goals and strategy, which involves the rest of our product portfolio. As reported, total revenues for the first quarter were $375.3 million, compared to $174.7 million in the first quarter of 2020. This 115% increase in revenue was driven by significant growth in our rapid immunoassay and molecular categories due to strong demand for rapid antigen and PCR COVID-19 diagnostic products and to a lesser extent demand for our Solana isothermal molecular products. In the quarter, we also saw solid growth for our cardio and metabolic line while our specialized diagnostic solutions product category saw a modest decline. Foreign currency had a positive impact of $2.1 million in the quarter. It's interesting to note that for the first time in 10 years the CDC's IOI data never crossed a 2% threshold, 4% positive cases, illustrating the fact that there effectively was no influenza season. Our all-in flu revenue for the quarter was $5.2 million compared to $79.6 million in the first quarter of last year. Our rapid immunoassay product revenues increased $141.7 to $237.7 million in the first quarter of 2021. Within this category Sofia products grew $156.4 million or 240% to $221.6 million of which $212.1 million were attributed to Sofia SARS antigen sales. Of the $15 million in QuickVue product revenue in the quarter $12.4 million was attributed to the QuickVue SARS test. As a reminder and as Doug mentioned, we did not receive the EUA for our QuickVue at-home OTC COVID-19 test until March 31. For the cardiometabolic immuno assay business revenue was $66.6 million or a nice 23% increase from the first quarter of 2020. This is our second consecutive quarter of year-over-year growth for our cardiometabolic segment demonstrating a return to pre-COVID levels as we continue to see strong performance from both our Triage and Beckman and BNP Global businesses. Of the $66.6 million in revenue, $33 million came from the Triage business and $33.5 million came from the Beckman and BNP business. For both Triage and Beckman/BNP year-over-year growth came from all geographies. Revenue in the specialized diagnostic solutions category decreased $5.6 million in the first quarter to $10.9 million driven by a decline in sales in our respiratory products from our cell culture business the result of very little non-COVID respiratory disease. Our molecular diagnostic solutions category increased $51.9 million in the quarter to $60.3 million driven by $51.6 million in sales of our Lyra SARS-CoV-2 products. Solana revenues grew 11% to $7.1 million in the quarter. Solana SARS-CoV-2 assay generated $4.2 million of that $7.1 million in the quarter. This is below our interim estimates due to the late EUA approval for the product resulting in being a late entrant into the market. Gross profit in the quarter increased $187 million to $302 million and gross profit margin was 80%. Margin improvement was driven by demand for the SARS-CoV-2 assays which drove favorable product mix. The sequential decrease versus fourth quarter of 2020 was also due to product mix with less SARS-CoV-2 product sales. As it relates to operating expenses we continue to invest in R&D with the goal of launching our Savanna platform this year and advancing on our longer term initiatives new Sofia assays that can leverage our large installed base of instruments, next-generation platforms like Sofia Q and other exciting technologies. We will also continue to invest in sales and marketing as we develop more partnerships and expand sales promotion and marketing dollars in new markets such as at-home testing, OTC and other markets that can significantly broaden our customer base. As it relates to the provision for income taxes for the quarter, we recorded $44 million in income tax expense, which resulted in an effective tax rate of 20%. Tax benefits from excess stock-based compensation reflected our effective tax rate in the quarter by approximately 3 percentage points. We are currently estimating a full year effective tax rate between 22% and 23%, excluding any potential impact of legislation, which remains uncertain. As of the end of March we had approximately $981 million in cash and cash equivalents. During the first quarter, we generated $585 million in cash flow from operations. In the quarter, the company also invested approximately $65 million in capital expenditures. Relating to capital deployment, in April, we made our annual $48 million payment to Abbott for the Alere assets we acquired in October of 2017 and have a remaining balance of only $88 million on the deferred consideration then that will be paid over the next two years. For the remainder of the year, we plan on spending approximately $200 million in support of our Savanna cartridge manufacturing, increased capacity for our amino assay products and upgrading our overall information systems. And with that, we conclude our formal comments for today. Operator, we're now ready to open the call for questions.

[Operator Instructions] And your first question comes from Alex Nowak with Craig-Hallum.

Great. Good afternoon, everyone. The biggest question…

Good afternoon Alex.

Hey Doug. I think the biggest question that everyone has here is how do you quantify all these new markets to sales in both in the near and the long-term? It sounds good you got testing going from the professional market. You got to go into asymptomatic you have to go at-home you're making these distribution deals. But of all the deals out there, just how decisive is that revenue? And how can the company take all of these announcements, all these potential channels that I could go into and quantify them by year and put them into a financial model? I think we're just looking for some clarity and some -- how to define ultimately what the revenue could look like this year?

Yeah. The short answer Alex, although I feel your pain and it's the reason we don't give guidance and will not be giving guidance on revenue or capacity is, that it's essentially not forecastable. So recognizing that you would like to build a model for your clients for most situations, I guess that would make a lot of sense. But for this new paradigm of COVID testing at retail, which is new for employers, which is new for schools, which is new sports and entertainment venues as well and travel, all of which are new it's impossible for us to model at this stage. So I would say to you all on the phone, our colleagues and analysts, how can you model it? It's just not possible. So I feel, your pain Alex in that. You try to bucket each one of these opportunities. And see what you think the opportunity looks like. But if you just take school testing for a second. You've got some states that are already out there, they have already definitively decided what they're doing and they did so without an RFP, we have several of those which will be announced shortly. In addition we have states that are just starting an RFP process to determine what's possible. And then you have some states that are living the superintendents of the schools, make the decision. So just that bucket alone, how am I suppose to figure it out at this stage with the actual demand is going to be. I can make some wild guesses, but I can't. Later, if folks want to talk about all of the different categories, I can tell you we're at, with each one of them. But at the end of the day, it's just super difficult to define, how big it could actually be. Let's -- just to provide just a little bit more color on the question. I do appreciate the question. An employer testing, we have two very, very, very large global employers that are imminent and will have impact in this quarter. They're large enough to be material. And so therefore, we will be required to announce. But we also have numerous other employers, that aren't quite so big. And they're in process as well. But how many employers can actually do it, at what price point? How big of an employer, do you actually have to be? And what sort of appetite, do you have? You've got some people to think the vaccines are the answer. Others like, my own company. We're testing twice a week, because we know we need to protect our employees. And we're not going to bring our employees back, until we know that we can say definitively for them, that they safe. Sporting venues, several are in the works. I'm not going to name them. But the pod grades, because we went public is a good example of what we're doing there. We're testing not only the employees of the park and the vendors who support the games and all that, the front office, the back office. But we're testing potentially a number of people who are showing up to quite delegate at the park to be tested. I would say to you that there are numerous other sports franchises that have reached out. And we're in active discussions with them. How big could that be? I don't really know. We talked about schools early travel. We're providing tests for a couple of countries right now, where they are testing inbound passengers upon their arrival. I suspect other companies will do something similar moving forward. In fact we've had a number of conversations with respect to that type of testing as well. Pharmacy, Retail Pharmacy is a big, big channel. But how much demand really is there. I don't know. Certainly, McKesson and Walgreens think that there is. So we've partnered with those two and have -- those have been out. But we also have several others that are going to fall shortly. And it won't be just the big name of our retailers, it'll be grocery store chains that have pharmacies in their stores. So we have a number of those in the order. So I apologize, Alex, that we don't have anything definitive that we could tell you by the major buckets, but it also is why it's just impossible to forecast.

I appreciate the answer, Doug. Thank you. And then, just the second question here. Now, that you've gotten this beachhead established with an over-the-counter test. I guess what other assays do you want to add to that platform on QuickVue, what does Walgreens really want you to add? Have they signaled anything? And then, the same question, but I guess over to Sofia, you had a really big menu lined up launch on Sofia back in, when we're talking 2019, is going to launch in 2020. Just where does that pipeline stand for Sofia? And then, again anything on QuickVue and OTC?

We're still progressing very rapidly with Sofia assay new development. And I won't go through all those on the call here now, but if you refer back to the Analyst Day, we did a pretty good job of reviewing all those things. Are they moving at the speed that we would expect in a non-COVID year? No. The FDA clearly is prioritizing EUAs versus 510(k)s or other things. So there is a noticeable delay at the FDA, understandably, not their fall, right? So you asked about other products. I think, in places like Walgreens, I won't speak for Walgreens or in the other big box retail pharmacy chains. But I would say that we've had in a number of conversations where these folks think that this could be an important sea change in terms of diagnostic testing. So we're going to move from telemedicine to what we're calling telediagnostics, right? So I think that the retail pharmacy segment is a bit mixed, but there are some larger folks talking already about, could you do flu at home, could you do strep, or could you do lyme disease at home. And so, I think there is an opportunity for diagnostic companies, whether it's us or Abbott or somebody else, to begin to build a market for diagnostic testing that is accessible for those folks who want to test at home, whether aided by the accounting of their physician or other healthcare provider or not. We certainly see that that could be an opportunity. I mean think about what happened in pregnancy testing or glucose testing, completely over-the-counter. I think it is an opportunity. We're certainly planning as if there is an opportunity. And I think that that is an additional market segment that could be very helpful for us moving forward.

All right. Excellent. Appreciate the update. Thank you.

Thank you, Alex.

And your next question comes from the line of Brian Weinstein with William Blair.

Hi, guys. Good afternoon. This is Griffin on Brian. Just a quick one on the Walgreens announcement. Can you clarify what your pricing is into the channel? And then maybe what you think that pricing is going to end up being to the end user? And then, on the -- and second one here. Are you shipping directly to Walgreens and revenue recognition? Is there a right of return, or is it revenue recognized on shipments?

Yes. We're recognizing revenue directly into Walgreens. So that's the short answer to that question. What am I missing the first part?

Pricing to the end user.

Yes. So I'm going to answer it two different ways. First I'll start by saying price is interesting because in Q1 we didn't actually see any change in price. Moving forward though other than to say we believe our products can command premium pricing we aren't really going to be very specific. But I would say this that the QuickVue -- the OTC QuickVue product is faster and easier to run than our competitors. Therefore, we believe that we should be priced to the end user at slightly higher. And so wherever they go we will be slightly higher. That's my view.

Okay. And then just one more here on the non-COVID side. There are about six months removed from your last Analyst Day where you gave some pretty specific revenue targets one of which was core non-COVID revenue to grow at about an 18% CAGR from 2019-2024. Is there any reason to think that there's a change there, or are you still endorsing those revenue targets from the Analyst Day?

Yes. We believe those are solid. You heard Randy talk about the cardiometabolic segment. We're poised to continue to do well there and to grow I would say low to mid single-digits. With the prospect of growing more rapidly when we introduced high sense troponin. As I mentioned when we started clinical trials in April. We think that that's a pretty big opportunity. Obviously that would be huge growth beyond what you're talking about. And then PLGF, we're going to submit to the FDA the data and we'll see what the intended use claim is. But at minimum I would say that we'll get a claim for that product that says it's useful in assessing placental health. If we got something that was a little bit better you could say that physicians could use this as an aid in diagnosis of pre-eclampsia or to be used as a predictor of pre-eclampsia. And so if we were to get clearance for that product I see that as being a huge growth driver as well. And then on top of that what I see is the next big flagship product for this company. Sofia was a home run, I think, Savanna is going to be a grand slam. And so we -- as you heard Randy say, we're spending another $200 million of ramping up cartridge manufacturing because we firmly believe we've got a product that is going to be best in market.

Great. Thanks, Doug.

Thank you.

Thank you.

And your next question comes from Tycho Peterson with JPMorgan.

Hi, guys. This is Casey on for Tycho.

Hi, Casey.

Yes. Hi. How is it going?

Good.

Going back to a comment you made earlier regarding guidance so you're not giving 2021 guidance obviously. But I think I heard that you're not giving capacity guidance anymore. Just wanted to clarify so the 240 million unit run rate for Sofia and 600 million QuickVue by the end of the year should we still think about that how you're tracking towards that, or maybe that one just…

I'd just tell you we already know we're going to beat those numbers. We're running ahead of that now, but I'm not going to get into the nitty grid because there's so many moving parts from week to week. One week this number. And the next week it's another. You guys think it's simple but it's not. It's a highly complex supply chain. It's a highly complex set of people doing a lot of things for us that are outside the company. And we don't always have control of absolutely everything. So, it's very difficult for us to save one number and then come in on that number. It's just way too hard. But what I would tell you right now, the important component of the manufacturing process is the pouching of strips and we're running ahead of schedule, pretty significantly. Now can we catch up with all the other stuff? I don't know. It looks like we could. Fingers crossed, but you guys don't want to hear fingers crossed. You want to hear a number but I don't have a number for you.

Got you. Okay. That makes sense. Going back to Savanna, following up on the previous question. Is Savanna still tracking towards a 3Q launch here? And then maybe what sort of early conversations you're having with customers given the scale by new competitors in the space you think of Mesa Helix thinks that's starting to become sort of crowded in that space. So maybe just talk to a little bit about how you can differentiate here.

Yes I'll start by saying the companies you mentioned are tiny. They are – I mean tiny has not been a good word, microscopic. So their ability to ramp and to compete with the big players like Cepheid and others, I don't see as imminent. We on the other hand are ramping up manufacturing pretty dramatically in order to put out a number of cartridges into the space. The other thing these other companies lack that we possess is menu. We already have six products, multiplex products that we're going to be launching into the market. They're going to be in clinical trials this year. So we've already submitted the EUA for RVP4. So we're way, way ahead of those companies, so not only in terms of product quality but in terms of our ability to ramp and to manufacture. Plus we have a commercial organization. So I don't want to sound defensive here. I hope I sound offensive, okay because we intend – we don't intend to worry about those guys. We are worried about what Cepheid's reaction is going to be.

Got it. And then maybe if I can just sneak one last one in. On the combo test for Sofia, obviously flu didn't materialize this year. But given a more normalized environment, how should we think about the split between stand-alone and combo? I know previously you've talked about potentially as much as 80% of the Sofia COVID going to the combo. Maybe just wondering some updated thoughts on that. And then maybe longer term, how will that combo test potentially maybe cannibalize the regular food business with flu and COVID being tested together moving forward. Just how should we think about that. Thank you.

Sure. Well I'll start Keith was saying that we do have inventory of the combo product and so we're ready to roll in the fourth quarter, if indeed we need to ship product. We were asked to develop that product by folks in the administration. We did so. We were asked to manufacture a lot of the product. We did. And then we had no food. So of course, we have the [indiscernible]. And so I wouldn't see us manufacturing significantly more at this stage. And moving forward that's a really good question. I can see a world in the future, where you're going to be looking at a respiratory panel that includes the flu RSV and COVID. If you want to throw another one in there that's probably more prevalent than us you probably should have human melanoma virus on there too. So our ability to do that, I think is going to be great timing as we move into future respiratory seasons. And so people with sentence of fever and a cough, which could be almost anything these days anything that's indicative of the viral infection you kind of want to test on a panel, I think. So I do think that – I don't know, if you'd call it cannibalize necessarily, but I do think that our influencer products will be part of a combination of whether it's on Sofia by the way, where we're doing a combo assay two that includes those things, or if it's by a molecular method. And we're in a position I think that's great from a customer perspective and from a commercial organization's perspective as well. When we go in to see a customer we ask them what they want and we give it to them. We don't debate whether moleculars better or immunoassay is better. They're both better depending on what you're looking at. Are you looking at speed, or are you looking at affordability? Are you looking at sensitivity and performance? And so we are one of the few companies, I could name the other ones but we're one of the few companies that obviously goes in and see what the customer wants and we give it to them. And I see Savanna with the panel now, making that even more so the case, because we have a product that basically will go just about anywhere that testing is done.

And your next question comes from the line of Steven Mah with Piper Sandler & Co.

Hi, guys. Thanks for the question.

Hey, Steve.

And you might have discussed these already. And if so I apologize. But my one question just a follow-on to Savanna. So – and maybe you can just bundle that in with an update on timing of Sofia Q as well. And then my question was what is the CapEx going to be to support the Sofia Q launch and the Savanna launch? And how should we think about timing of that CapEx spend?

We'll start with the CapEx question, Steve. We already said in the script that we were doing $200 million – $200 million total between now and year-end, and I did just sign a fairly a big chunk of an RSN CE this morning. It was obviously big enough that require my signature. So we've got some – I would say, it's pretty evenly distributed between the quarters the $200 million. So you want – $70 million, $70 million, $70 million something like that. That would be about right, if you're trying to bucket into – bucket it into the quarter. Regarding Sofia Q, we're in great shape there we've already submitted to the FDA. They have the data package they're reviewing it right now. Or as they like to say, it's under active review, which means they're looking at the data, they're sending back questions. It's kind of like the chess clock, right? We send data back and then we hit the button et cetera, et cetera. So does that answer what you were looking for Steve?

Yeah, that's right. And then Savanna is set to launch in Q3 still?

No, no, no it's never been Q3, it's Q4.

Q4, sorry.

Q4 launch. And obviously, we've done some things to pull it forward given things that we had to solve for along the way. So I'm pretty proud of the fact that we're still sticking to Q4.

Okay. Got it. Perfect. And next question, yes, I saw congrats on the Walgreen for OTC. Do you have timing for the other big box retailers?

Soon. Very soon. Amen-Amen.

All right. Fair enough. And then a final question on the -- I know there is this government contract out there to deliver 60 million at-home tests by the summer and I know things are impossible to forecast. But can you give any color on that and confirm if you guys are in the mix for that at all?

Is it 60 million school kids, Steve? Is that what you're asking about?

No, this is that government contract that's like -- they got like a $230 million grant?

No, no, no. That's not what that means, they were funded in order to ramp up manufacturing capacity.

Yes, this is the 60 million at home.

Yes. What they're doing is the government has agreed to buy those in order to fund the manufacturing capacity ramp-up.

Okay. Got it. Yes. I know they had mentioned there's going to be like six or seven companies, but they only announced one. Okay. So that's completely separate.

Yes. So we're not in that group because we're more like the larger companies. Although we're not as large as obviously, Abbott, Roche and others. But we don't need funding in order to ramp up manufacturing capacity. We did get some funding as you know to ramp up Sofia manufacturing. I think the number there was...

72.

72 right? And that was...

That was Rad at 70.

And then we're still doing minus 10 and 11 on our own. And then for the Rutherford facility in Carlsbad that's all self-funded as well. So unlike these smaller companies we don't need the funding.

Okay. Got it. Thanks for clarifying. All right. Thank you.

Cheers.

And your next question comes from Andrew Cooper with Raymond James.

Hi, guys. Thanks for the time. A lot has already been asked. Maybe one and I appreciate that things aren't necessarily signed yet. But just when we think about the state and kind of the schools and what this can look like. Can you help firm up what the structure is? Obviously the spaces in that are getting the money from the federal government. Are you having more conversations where it's a hunting license? And if the school wants to buy or school district wants to buy it's sort of a right to buy, or is it direct sales to the state or school district level? And how are those conversations really shaping out?

Yes. Let me repeat or maybe I'll just say it again and then maybe to be clear at the second time. So schools have -- I'm sorry states have received funding. And most states already have access to the funds, some states are implementing state-wide testing and have they held their own plan. They're looking for turnkey solutions, which we're providing in a number of cases. There are also states that are early in the process and have therefore just now begun sending out RFPs. So there are some states running way ahead of others and are embracing it and there are others that are involved in the RFP process and are sort of trying to see which way things are going. And then there are states that are basically allowing the individual school superintendents to make the decisions on how the testing will be done, when it will be done when it will start when it will stop and they have a bunch of school superintendents doing that. So you have two approaches; one, the latter being the bottom up and the other thing somewhat top down. And it's easier for us to obviously work with the states that are top-down because we go to them and we pursue a proposal on how we would do that for them and that they engage with us. And we have at least three states that fit that particular profile that are already committed to using our product as a platform. So what I would say is, it's impossible at the states to predict the magnitude of all those. But I would say that, we hear the wind blowing and we see signs that the trees are beginning to move.

Okay. Helpful. And maybe just -- you said there's three states that are committed to using your product in the top-down way. Is that exclusively or in conjunction with whether it's lab-based or other sort of point-of-care products? Can you help us think about what that is?

I would call it practically exclusively. So you might have a state where this chunk is going to you and the other may not yet be decided. So it is pretty darn complex. We've got a whole team of people that are just doing schools right now. And because every state is so far a little bit different not dramatically different, but they're all just a little bit different.

Okay. Helpful. And then maybe just one on sort of the pacing of the quarter and the comment you made around kind of April looking more like February and March. Can you give a little bit of granularity? Obviously you had a tremendous amount of inventory in the channel as systematics were coming down in January.

Andrew, I think you misunderstood the comment in the script about the month. What we were talking about there was the testing for COVID in the symptomatic professional segment right? I think I just said professional segment which you may not have connected the people who are getting sick, right? So that base level testing that is for people who have fever and cough that group.

Okay. I understand that. I guess you were talking more about kind of end market utilization not necessarily the revenue trajectory to quite out. Is that a fair comment?

Yes. But then again, there's two components right now. This is this a little bit more complicated than last year when we were only testing people who were either symptomatic or they have been in contact with somebody who's symptomatic or they were just awarded right? Here there's that underlying demand and that demand looks a lot like those months, right? So when you look at April, it looks a little bit like the back half of the first quarter, right? So it didn't change much. We're now seeing it an uptick. And what we're pointing out is that inventory that we talked about that was in the channel, we're now starting to bleed through that. And so we're now seeing reorders in the back half of this quarter, which we had not necessarily anticipated. We had hoped that that would be the case. But right now we see positivity rates from various states decreasing up. We see some states where at least one-fourth of the cases are on kids and kids obviously haven't been vaccinated. So, kids are spreading infections primarily at the stage. So that's the point we were trying to make Andrew, was that the underlying demand is always going to be there for some period of time, because we're not going to be able to eradicate COVID. It's going to be at a certain level. And we thought that that had flattened, but now we're actually seeing it start to tick back up and we are starting to actually see reorders for our traditional professional product. That's what that meant. Now, on top of that, of course, you now have this transition into asymptomatic testing. And that's I think where much of the volume is going to be at least in 2021 and probably 2022 as well.

Understood. Thanks a lot. I’ll stop there.

Sure. Thank you, Andrew.

[Operator Instructions] Your next question comes from Jack Meehan with Nephron Research.

Hey. Good afternoon.

Hey, Jack.

I was wondering if you could give us an update on your progress with employers around back to work testing. I think you had previously said you would have, hope you have had something announced by now. How are those conversations going? And how do you feel kind of with your capacity the ability to build out some of those relationships?

Yes. I think maybe there's so many of us that are connecting calls today as has just jumped down a little while ago. Early in the call I said that with employer testing, we have two very, very large global employers that are imminent. And I would add a little bit more color on to say that we're in the final throws, and it's the back and forth. It's when are you going to get your approval in India, so that we can do testing for our employees there, and so these are global employers that are significant. And if we can get it done in time, they're going to have a material impact in the coming quarter. And there's numerous other smaller employers as well. So, I would say we're in the -- at the point where we are expecting to announce one or more of these imminently.

Great.

In fact the larger of the two, I believe we've already shipped product. Is that right guys? A small amount in order to get started right, but we have begun shipping. Yes.

Great. Then on Savanna, I know you had started the clinical trials last quarter. Can you give us an update on the status there and what the data looks like just in terms of the performance of Savanna in the field?

I can tell you that things look great at this time, but we haven't tested every single one of the six cartridges. We're doing it in a phased approach. And obviously we have data on the RVP product as we've already submitted it and it looks very good.

Is the plan with the initial approval for it to still be for moderately complex settings? And how do you think the demand is going to look like from hospitals to add new equipment in the fall as it kind of pertains for COVID testing?

So we intend Jack to be both 510(k) and CLIA-waived. We could have made a decision to link those together which would have given us a more predictable time line with the FDA. Rather we've decided to separate it and go 510(k) in order to get the instruments into the hospitals as quickly as possible. And we also want CLIA waiver though because we want those larger integrated delivery networks to be able to democratize testing in other words decentralize it out to their clinics where do they want to that. For example, a lot of folks would tell you that it's really handy to have STI or GI testing pallet into the clinics and they're not actually able to do that at this stage very, very easily. And so it's that sort of thinking that causes us to believe that having a CLIA-waived product will be very important.

Makes sense. And if I can do one last one. I know it's obviously difficult to model right now. I did have a question about one specific product. Lyra as it goes for the COVID sales, how is the funnel there in terms of demand? Just any commentary around what you're thinking there for 2Q?

Well Lyra looks pretty solid I have to tell you I hear other companies talking about the demise of PCR testing, but we're not seeing it. I do think we're taking some customers to them. We have some targets that we're actively working, but we haven't seen the falloff that others -- it's reasonably stable at this point. I think there has been a decline -- if you want to look at it as a same-store sales you see a decline, but we're offsetting that with gains particularly in the regional reference lab segment.

Thank you, Doug.

Thanks, Jack.

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

Well I'll just conclude by saying thanks everybody for your support and your interest in Quidel. We had an excellent first quarter, not necessarily the best forecasting on the planet, but we're in good shape to achieve our growth objectives over the next few years. We feel great about it very optimistic and we're not done yet. So thanks again for being on the call.

Ladies and gentlemen we thank you for your participation and ask that you please disconnect your lines. Goodbye.