QuidelOrtho Corporation (QDEL) Q2 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation Second 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 would 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; our Chief Financial Officer, Randy Stewart; and our Vice President of Finance, Kristin Caltrider. Our second 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 August 5th, 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 other 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, August 5, 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 and six months ended June 30, 2021. 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

Thank you, Ruben. And welcome to everyone on the call. We really appreciate your time and interest in Quidel. I understand that several of our analysts actually are covering multiple names today. So again, we appreciate you being on this call. And obviously, we'll try to be respectful of your time as we are succinct as possible. I want to start by recognizing the entire Quidel team for their tireless dedication and skill. The past 18 months have been a grueling test of all our systems and teams, from our R&D and clinical teams, to our production floors, to our supply chain and all other functions including HR, finance, regulatory affairs, sales and marketing, legal, business development, and international of course. Not only have they met the pandemic test, they aced it. Our product platforms and offerings have never been more robust. Our productivity is up across the board. And our market penetration is deeper and wider than ever before. From high-complexity labs, to healthcare facilities, point-of-care locations and direct-to-consumers at retail and online, the Quidel name, our branded assays and analyzers, are accessible and sought after. The net effect has been transformational for our company and positions us exceptionally well for long-term revenue and earnings growth. So, to all my colleagues at Quidel, I say, again, thank you. Turning to the second quarter of 2021, you will see from the press release that, while revenue is down 12% versus the prior year quarter, the pace of our business remains impressive with revenues of nearly $177 million. We’ll unpack all the numbers in a moment, but what stands out to me as the leading indicators of the quarter, relative to our long-term strategy, are the following: We delivered solid 24% growth in our core business. We further broadened our installed base of Sofia analyzers. Demand for our SARS products continued, with Quidel shipping over 8 million tests in the quarter across all platforms. And we established a strong beachhead for COVID testing in the Retail segment. The implications of each will extend well beyond a single quarter. Please recall that, in Q2 of last year, we saw a significant rise in COVID-19 and influenza revenue that largely resulted from the onset of positive COVID-19 cases in North America, the emergence of testing for COVID-19 and the introduction of our Lyra and Sofia COVID-19 testing products. We were early to market with molecular testing and the first to market a rapid antigen test. Demand was high and competition was limited. By contrast, in 2021, there was essentially no flu season, and the market for SARS Antigen testing has become much more competitive. As a result, while demand for COVID-19 tests in Q2 of this year was still present, and perhaps stabilized, revenue was lower when compared to the surge in orders that we saw in 2020. But if you drill down a bit further, you will see that the top-line numbers obscure the underlying strength of our Rapid Immunoassay business. In Q2 of this year, we sold 6.6 million SARS Antigen tests, as compared to 3.1 million tests in the second quarter of last year. We saw a significant shift in product demand. We shipped fewer Sofia SARS Antigen assays to the professional market, and saw significant demand for our QuickVue SARS Antigen tests, about 4.8 million tests, which weren't available in Q2 2020. Of course, our QuickVue tests are priced lower, coming in during the quarter at an average of just under $6 per test, which explains the resulting lower revenue for the category. Quite frankly, we’ll accept that gladly, because over the course of a year, we’ve succeeded in democratizing testing and pushing the boundaries of access beyond the professional point-of-care setting to include retail and at-home testing. We’re quite proud of that achievement and believe it's the forward edge of a broader home-testing trend that will continue to drive earnings over the long haul. Now let’s look at our core business, excluding COVID-19 and influenza assay products. We were up 24% as I mentioned before to nearly $92 million, as compared to $74 million in the second quarter of 2020, as we began to see a return to normal testing for cardiovascular, Strep A, and our microtiter businesses. Growth of our core business is important going forward as we strive to maximize the utilization of our Sofia instrument placements, adding new assays, such as our suite of gastrointestinal assays, and expanding into new segments within diagnostics. We envision leveraging our rapidly expanding platforms to broaden our footprint and create a demand funnel for a wide variety of future tests and diagnostic products that can be employed in numerous settings including hospitals, physicians, offices, urgent care centers, pharmacies, retail and other institutions. One recent success of note is that, on June 11, we received EUA for our miniaturized, artificial intelligence enabled Sofia Q device. Sofia Q will make access to our Sofia tests easier and more affordable for professional point-of-care customers. Longer-term, it could create a retail pathway for our full portfolio of Sofia tests for influenza, RSV, Strep, line disease and other conditions. So, the combination of our expanded installed base and continued demand for our Sofia and Sofia 2 instruments with the expected adoption curve of Sofia Q, positions us favorably to be the brand of choice for addressing the coming flu, Strep and respiratory disease seasons and whatever else comes along. At the start of the call, I noted the terrific work of our R&D, operations, and clinical teams. During the quarter, they continued to advance Savanna, our multiplex molecular diagnostic analyzer, which we believe could be our next flagship product. We recently received the CE Mark, we are building out our instrument and cartridge manufacturing, and expect to launch in Europe in the fall, with U.S. clinical trials expected to begin toward the end of the year. Once approved, Savanna will enable professional customers to analyze up to 12 pathogens or targets, plus controls, in a single assay run in fewer than 25 minutes. This makes Savanna a perfect fit for testing in hospitals, moderate-complexity labs, physician offices, urgent care clinics and other point-of-care locations. As I’ve said before, customer feedback is fantastic, and I am confident Savanna will be a big part of our quarterly discussions in the future. Let’s turn now to the subject that has been a big part of our discussions over the previous five quarters, COVID-19. While we are actively working to expand our diagnostic platforms and product mix in other areas, COVID-19 testing remains a significant near-term opportunity. You've probably seen our announcement with the State of Delaware to provide testing to students and faculty. It is a testing-as-a-service model that we have replicated in other states as well. We also are pursuing a variety of other opportunities with schools, employer groups selling in select U.S. and ex-U.S. markets and evaluating other non-traditional markets. While we expect to close more accounts with employers, and have several promising partnerships in the pipeline, they involve a good deal of blocking and tackling and are hard to predict or value, especially when guidance from CDC and the landscape of COVID testing seem to evolve daily. The most recent example includes warnings from public health officials that vaccinated people can become infected and spread the highly transmissible Delta variant of COVID-19 appears to be a near-term driver for more masking and testing, especially as schools and offices look to reopen in the fall. Regarding the Delta variant, I can report that preliminary studies confirm that Quidel’s rapid antigen tests are effective in detecting the Delta variant. We are continuously monitoring the COVID-19 mutation situation, as well as monitoring other circulating strains as the global pandemic continues to evolve. While our ability to pick up the Delta variant positions us to capture market demand for symptomatic, asymptomatic, and at-home testing, at the same time, any uptick in testing to detect the Delta variant will likely be tempered by continued competition and pricing volatility. So, I can’t give you much guidance on where all this could go beyond what I’ve shared in the past and that is for the moment, we expect to achieve revenue of $20 million to $25 million per month from our SARS-related rapid antigen and molecular diagnostics business. But if there's market upside for testing, I should point out that we do have a premier portfolio of testing solutions and a highly capable sales and distribution team. We are certainly well-positioned to compete for whatever opportunity presents itself. Last week, we announced that we are transitioning our Beckman BNP Business to Beckman Coulter, concluding the ongoing litigation that followed our purchase of the business from Alere in October 2017. This agreement is a major step forward for both companies. For Quidel, it eliminates an uncertainty, locks in the economic benefit for the duration of the contract, and lets us focus on expanding our core businesses and executing on our longer-term strategy. It eliminates market risk and creates a stable cash flow stream for the remainder of the existing BNP supply agreement term. As a reminder, we purchased the asset for $280 million in 2017 to be paid over 6 years, and have now secured annual payments which effectively are EBITDA of between $70 million to $75 million per year through 2029. So, we are quite happy with the outcome and the ROI. It’s a win-win for both Quidel and Beckman. Lastly, I'd like to talk about M&A. I can't reiterate enough that, with respect to acquisitions, strategic fit is very important to us. We continue to actively look at opportunities within our funnel, or as I've said before, tongue in cheek, we're kissing a lot of frogs. The headline here is that our cash position remains strong. We’re looking, and stand ready to deploy capital to further strengthen our product portfolio should the right opportunity present itself. So, to wrap up, the second quarter of 2021 proved to be another very solid quarter and an important step forward in our long-term game plan. We have fielded a powerful mix of products and partnerships and are benefiting from the tailwinds of macroeconomic trends. When we add in the talents and spirit of our team, it gives us every confidence that Quidel will deliver continued growth and success as we advance diagnostics to improve human health. Randy?

Thank you, Doug. Good afternoon everyone. As Doug stated, we had a solid quarter, and we continued to make good, steady progress on executing on our longer-term goals and strategy. As reported, total revenues for the second quarter of 2021 were $176.6 million, compared to $201.8 million in the second quarter of 2020. Foreign currency had a positive impact of $2.8 million in the quarter. The decrease in revenue was due to lower influenza revenues, a shift of SARS product mix, as well as price reductions for some of our SARS products. Influenza revenue was down in the quarter because there was no flu season in early 2021. Influenza revenue in the quarter was $1.6 million versus $18.7 million in the second quarter of last year. Included in the influenza revenue number for this quarter was $300,000 in ABC revenue. This combo product was not yet available in the second quarter of 2020. We will be reporting the Sofia ABC with our flu revenue moving forward. Total SARS revenue in the quarter from all products was $83.4 million and this compares to $109 million last year. Rapid Immunoassay product revenues were $60.1 million in the second quarter of 2021. Within the category, Sofia products were $27.5 million, of which $23.7 million were attributed to Sofia SARS Antigen sales. QuickVue product revenue in the quarter was $32 million, of which $28.6 million were attributable to the QuickVue SARS tests. With regard to demand, distributor inventories for Sofia Antigen were 62% lower than Q1 2021, and distributor inventories for Sofia ABC tests were 11% lower than in Q1 2021. As of the end of the quarter, we had very little QuickVue inventory with our distribution partners. For the Cardiometabolic Immunoassay business, revenue increased 32% and was $71.7 million in the second quarter of 2020, split, $36 million from the Triage business, and $35.7 million from the Beckman BNP business. On the part of Triage, growth came from our Shortness of Breath panel as well as BNP and other assays. Year-over-year growth was led by the U.S. and China markets, and similar to the performance last quarter, growth came from all geographies. Revenue in the Specialized Diagnostic Solutions category decreased $1.4 million in the second quarter to $10.4 million, driven by a decline in sales of our cell culture respiratory products, due to a non-existent respiratory season. Our Molecular Diagnostic Solutions category decreased $20.7 million to $34.5 million, and our Lyra SARS-CoV-2 products were $27.2 million of that total. Solana revenues grew to $6.5 million in the quarter. Solana SARS-CoV-2 assay generated $4 million of the $6.5 million in the quarter. Gross profit in the second quarter of 2021 decreased to $106.2 million, and gross margin was 60% of revenue for the three months ended June 30, 2021. This compares to gross profit of $148.8 million, and 74% gross margin for the three months ended June of last year. The decreased gross profit and gross margin were driven by a shift in product mix, from selling primarily Sofia SARS in the Professional segment, to selling large volumes of less profitable QuickVue and selling proportionally more of the less profitable core products, as well. Onetime costs associated with expediting product and supply chain 12 challenges added an incremental 4 percentage points to our cost of sales in the quarter. The majority of these costs are not anticipated to continue into the back half of the year. Based on the projected product mix, we're estimating gross profit margins to be in the mid-60s for the next couple of quarters. On the spend side of the business, we continue to invest in R&D and specifically our Savanna platform. We are also spending in support of our longer-term initiatives, such as new Sofia assays that can leverage our large installed base of instruments, next-generation platforms and Sofia Q, to name a few. In the second quarter, R&D expense was $22.6 million, and a large portion of which was focused on Savanna instrument and cartridge development. We're still expecting R&D expense for the full year to be approximately $100 million. Sales and marketing expense for the second quarter increased $10.5 million to $38.1 million dollars, with the biggest driver being higher marketing and advertising spend associated with the launch of our QuickVue At Home OTC COVID-19 Test. The incremental marketing spend was approximately $6 million higher than it was 1in the same period last year. We also realized increased travel and meeting costs. Back half of the year, we will continue to invest in our sales and marketing as we develop more partnerships and increase marketing dollars in support of our broad product portfolio, as well as promoting other markets that can significantly broaden our customer base. As it relates to the provision for income taxes for the quarter, we recorded $2.6 million in income tax expense resulting in effective tax rate of 12%. The tax provision this quarter is impacted by lower pre-tax earnings for the quarter relative to the anticipated annual pre-tax earnings, as well as tax benefits from excess stock-based compensation. We are currently estimating a full year effective tax rate ranging between 20% and 21%, and this would exclude any potential impact of legislation, which remains uncertain. As of the end of June, we had $593 million in cash and cash equivalents. In the quarter, the company invested $130 million in capital expenditures, and for the full year, we are expecting to spend approximately $250 million on CapEx, net of the NIH-RADx reimbursement. Also, in the quarter, we spent approximately $103 million to repurchase 950,000 shares. Also, relating to capital deployment in April, we made our annual $48 million payment to Abbott for the Alere assets. We have a remaining balance of only $88 million on our deferred, contingent consideration to be paid over the next 2 years. As Doug mentioned earlier, we announced an agreement with Beckman Coulter on the Beckman BNP business, and I'd like to add a few more details. As consideration for the arrangements, Quidel will receive from calendar year 2022 through 2029 a minimum annual payment of $70 million with amounts of $17.5 million payable quarterly, and a maximum annual payment of $75 million. This additional $5 million payment is dependent on sales volume of the Beckman BNP assays. Such minimum and maximum payments will be pro-rated for 2021. The minimum payment is not dependent on sales of the Beckman assays. The proration for 2021 is based on the period commencing on the date of the initial transition to Beckman, through December 31, 2021. The initial commercial transition is expected to be completed by the first of September of this year. Quidel will continue to provide Beckman services in connection with the business, including continued supply to Beckman of the Quidel antibody used in the manufacture of the BNP assay. The payments under the master agreement are expected to be EPS and cash flow neutral to the existing supply agreement through calendar year 2029. Quidel’s reported EBITDA under the master agreement is expected to be similar to the EBITDA derived from the Beckman BNP business prior to entry into the master agreement. The Beckman payments going forward will be recorded as product revenue in Quidel’s financial statements. And with that, we conclude our formal comments for today. Operator, we will now open the call for questions.

[Operator Instructions]. The first question is from the line of Alex Nowak with Craig-Hallum.

Jumping between a few calls here, so I may have missed some of this in the prepared remarks, but the kind of the first question I have here is I know COVID is highly variable and you got the Delta variant coming back and so the mask mandate coming back. But when you go to this upcoming respiratory season, what does your glass ball say about flu? Is flu going to come back? What are you hearing out there in the field?

It's basically just like with COVID, I think, unforecastable. We're seeing nothing in Australia. We would have expected that we would see RSV in advance by about a month of the season. And in Australia, they had a very, very robust RSV epidemic. I don't mean to smile when I say that, that they had a pretty big outbreak but not followed by flu. So I don't know what that means for us at all, Alex. I will say that, that we are going to monitor very closely a couple of leading indicators of influenza such that, although we do have some inventory of the combo product remaining, we feel like we can within a 3-week period ramp back up and manufacture the volumes that are required. And I won't go through leading indicators, just recognizing that every competitor is reading our transcripts just as we are reading. So -- but we're going to try to monitor it very closely. Our supply chain and manufacturing teams are ready to roll. In the meantime, we're gearing up for all the other products, including our various COVID plans as well.

Okay. Understood. Makes sense. And then actually just on the competition, a lot more players have really come online in the market the last 18 months. You've got a variety of different players with varying volumes. So how do you view the competitive environment for COVID testing? But just going beyond that, how do you think the competitive dynamic has changed in the last 18 months for the flu market, the Strep market, RSV, et cetera?

I think we're in good shape. And I would say that I don't believe that the entrance of these smaller competitors will have much of an impact given the fact that very high percentage of our Sofia placements are on contract for multiple years, most 3 years for committed volumes for all products, including COVID, influenza, RSV, Streps and others. So a very high percentage of people that came online for COVID-19 testing entered into longer-term agreements and include influenza. So there, I think -- I would say, in the Professional segment, which would include mainly hospitals, urgent care and larger physician office practices, we're in pretty solid shape. The situation on retail and employer testing and schools and all that, obviously, more fluid. We think that we're in good shape there. We've been doing quite well. But that's where I think the entrants could have an impact if they're going to, but it would not likely be in the traditional setting where most flu testing is done.

The next question is from the line of Casey Woodring with JPMorgan.

This is Casey on for Tycho. Maybe first one, just to follow up on the last question on competitive dynamics. Can you talk a little bit about market share on the COVID side, just listening to Becton this morning, I think they sold more than 200 million in Veritor antigen tests. That's compared to Sofia, which did $24 million in the quarter. So maybe can you talk about share gain or loss this quarter? And then I guess, looking forward.

First of all, we didn't do 24 million tests. And I don't know what -- I have no idea what we sold or whatever. So I don't have an answer.

Revenue, I mean. Okay. Maybe we can talk -- yes. I don't know -- maybe.

Yes. We did $83 million in the quarter, Casey, for all-in COVID. I don't know how that compares against the competition.

But we don't obviously go out with an international product that would be shipped out of China either.

Okay. And then just looking in terms of next year's earnings power normalizing for COVID, if I look at the 2019 of around $3 per share, how does that fare for 2022? What sort of upside is there to that number for the base business?

Well, Casey, I mean we're in such a different environment now than we were in 2019 with the installed base increase, everything else. So we really haven't stated an EPS expectation for 2022 off the core business.

Okay. And then maybe last 1 on capacity for me. Are you guys still building towards that 800 million annual run rate by the end of the year? And is excess capacity of inventory a concern at all given this quarter’s kind of testing run rate?

Yes. Certainly, it is small, Casey, we don't have the excess capacity. We're actually trying to ramp up. We've got QuickVue At-Home to build, we've got Sofia to build across various different products. Of course, we're ramping back up with molecular manufacturing as well. So at the moment, I would put us in the position of having excess capacity. We are bringing on board more equipment beginning this month with an expectation of being online before the end of the year. We do have a home for most of that capacity. But I think it's important for you all to consider, and maybe that's been maybe not explain well enough on our end. But all the capacity that we're talking about has already been paid for. And we are neutral between the 2 sites, McKellar and Rutherford. And so there is no increase in infrastructure costs per se. What we will have, though, if we choose to increase our manufacturing volume, what we will have is a fungible environment that -- in which we hire more people, and we secure more volume inputs in our supply chain in order to manufacture more products. So when you ask the question like that, it implies -- or yes, it does imply that you think that there's some sort of problem with us building capacity. We will have the capacity to compete with larger manufacturers should we choose to do so. And basically, it's been funded by COVID. So from our perspective, we got basically increased capacity for free.

Plus it gives us a global reach we haven't had in the past.

Yes. We can reach whatever we want at this stage based on the ability to manufacture more product should we choose to do so. We're not obligated obviously. And I wouldn't say that hiring people is overnight this thing. But I think you've seen others in our industry ramp up in terms of their employment base pretty quickly. And we feel like in this environment, in this particular county that we can do that.

The next question is from the line of Jack Meehan with Nephron Research. You may proceed.

Wanted to start and talk a little bit about Sofia. Sorry if I missed this in the prepared remarks, but how many Sofias are in the field today? And do you have an estimate for how many are active versus some that are out of use as COVID has waned.

Yes. Again, first, I'll start with the number. That's around 71, 000, Sofia analyzers out there. Most were installed in 2020 with a contract that included the other products. So even if the COVID volume is not as big as it was when they acquired the analyzer. They still will be using the analyzer for things like influenza Strep to a lesser extent line. RSV is another big category for us. So we still have a footprint that should pull through more volume. We certainly took a lot of customers away from a couple of key larger players. And we can expect then that, that installed base will be a beautiful asset when we launch other products moving forward. So your point is a good one. The 2020 volumes that they were purchasing running to those fees are obviously going to be down. But we now have a different business, as Randy said, it's a completely different business in 2019 now because of a number of things: one, a more robust supply chain and manufacturing operation, but as well a much larger asset and customer base into which we're now selling product.

And I just want to understand this dynamic of placing the instruments with the contract for additional tests. Just when I look at the Sofia revenue in the quarter, $27.5 million of which about $24 million was COVID. So it implies about $4 million was non-COVID. So why are customers not utilizing these instruments for other testing, how does the contract work?

But Jack, I mean, if I just -- when I say this too, you're going to go, obviously. There is no flu in Q2. There's no state there's no Strep. There is no respiratory season in Q2. If this were a normal prior to COVID year, you wouldn't have asked the question because you would have known that Q2 is a low watermark. We don't do much respiratory testing in Q2.

And if -- just thinking about as you go into the fall, I think there is a view that at least at the point-of-care combo testing could become more prevalent. Just if you have a little bit more flu, there could be more demand for that. We are seeing some RSV outbreaks across the country. So I was wondering today, your combo test is COVID, just the path to adding RSV to that.

Yes. So we have a program, as you know, to add that. It will be on the molecular platform, but it will also be on the Sofia platform. And your point is a good 1 that we are seeing a bit of demand for that. In fact, about half of our inventory that we have on hand for the combo assay itself on Sofia SARS COVID -- SARS flu, about half of that inventory already shipped. So whether that will be renewed will depend on if there is indeed a flu season, I think.

And last 1 on Savanna. I think I heard in the prepared remarks you asked there are now U.S. clinical trials before the end of the year. That was a new update. Why what are these trials versus what you've already done? And then what does that mean for the timing of the U.S. launch?

Yes. We've already completed a number of trials. Our issue really is on the 510(k) products, Jack it's not on SARS or the respiratory biplane. So the issue with us right now is that we're competing with automobile and appliance manufacturers for the same sort of chip components, and our third-party manufacturer is struggling to access all of the things necessary to create the volumes of instruments of Savanna that we want to have at launch. So right now, I have pretty lengthy conversation yesterday with our Head of R&D. We think we're in good shape to start the 510(k) trials here imminently. He thinks he has enough instruments. But to actually complete everything that we need to across all of the products that we've already developed is going to require more. And so we're monitoring all that closely. We're exercising supply chains. We're trying to help out our third-party manufacturer who has a pretty constrained limited number of folks that they normally work with. We're trying to help out there. We also were engaged in the conversation with federal government a couple of days ago, during which we said, please, can you help the industry, not us, not Quidel. Can you help the industry, please? -- to make sure that we get our fair share of what's necessary to build these pieces of equipment that effectively could improve public health. So we'll see what happens there. But that's really what's happening now. I mean, from a scientific perspective, from an assay manufacturing perspective, we're in awesome shape. From an instrument building perspective, we're holding our breath right now, Jack.

[Operator Instructions] The next question is from the line of Andrew Cooper with Raymond James and Associates.

I was not surround I hope this hasn't been asked. But what I did want to ask just on the BNP side with the agreement -- Are you precluded from selling your version after 2029. What does the pathway look like there? Do we think about a little bit of a cliff because of that? Or is it something you can compete with moving beyond 2029?

Yes. I appreciate you asking the question because I think there's a little bit of a disconnect. This whole situation that we we've gone through in the last few weeks to resolve this is not nuanced at all. It's pretty darn straightforward. We make an antibody that is supplied to Beckman, who puts it in their kit. And as part of the agreement, they entered into with Biosite years ago, we sell that product for use on their analyzer. You can question why they would have entered into the agreement in the first place. But at the end of the day, they benefited because they were able to have a BNP assay on their equipment when they didn't have access to the IP related to that particular biomarker. So it was a win for Biosite, it was a win for Beckman. That agreement was scheduled to end x number of years after the last country was entered into that product. That last country occurred a while ago, which meant that the agreement was meant to expire in 2029. Regardless of whether we settled this litigation or not, it was meant to expire in 2029. So there is no terminal value. There never was. There won't be moving forward and it doesn't change. We don't have any terminal value now, but we didn't before effectively either. So there is no difference there. So we really don't have an agreement that says we can or cannot make our own DMP because, of course, we can. We already deal with Triage and it's a big product for us. We also have a to put it on our Leapfrog product where, as I probably have suggested before, we plan on making all the cardiovascular products, including hisense troponin, BNP and other things, all available on this next-generation platform. So I appreciate the question, Andrew. It's a very good one. There's nothing about this that precludes us for moving forward with our own BNP other than the 1 we already have on Triage, we could put it on -- I mean if we can put it on whatever instrument we come up with, including -- obviously there's not a lot of value in making a product or somebody else who already has a BNP. So I don't see us doing that. But our own next-generation immunoassay analyzer, we will have the cardiovascular products, including BNP. Does that make sense? Or do I need to further cut up by Andrew?

No, no, that's helpful. That's helpful. I won't ask anything on Leapfrog quite yet on this call, but maybe just to sneak 1 more in. When we think about the the pattern we see from ordering and where the demand comes from, I still have been a little bit surprised by molecular first antigen. And frankly, QuickVue, I think, is a different place, especially as we start thinking more about combo products. Just I know it's sort of an answer a little bit how do you think about maybe a shift in that demand if we do start to see flu pick back up or how that evolves into the back half of the year in terms of QuickVue versus Sofia versus Leer. Just any color you could offer there would be great.

Yes. That's an excellent question, and you're right. It may not be completely answerable. But what I would say is that if there is a respiratory season and people feel ill, I think there is reason to believe that there will be demand for influenza testing, RSV testing, but also COVID. I think and influence the season will likely drive a little bit more volume. We said before that we think that there's an underlying floor at $20 million to $25 million a month for us. No, I don't know whether things have changed as a result. But certainly in the last couple of weeks, demand seems to have picked up dramatically. And internally, what we're have picked up dramatically. And internally, what we're have picked up dramatically. And internally, what we're doing is trying to make a decision about which mix of products make a most of sense. Right now, I would say that in order to sustain a presence in the retail segment whatever region we launch and we want to make sure we don't run out. So we are going to preferentially make the QuickVue OTC product. We're also going to pursue a combination product that could be useful. Because we're 510(k) cleared or ready for an influencer product by QuickVue, it should be possible to get that done. So that could be something interesting. Sofia, you get so many placements out there, and now we're beginning to ship to distributors in the professional segment in a meaningful way, that product, that's a different production line, though, set of production lines, which is now somewhat helpful. So we should be able to meet the demand there. On the molecular side, I can't tell you for sure. I think that the demand for molecular testing for us at least, has plateaued a bit. And I would just say there's not a stain on molecular testing necessarily, but it clearly has some disadvantages relative to a test that can tell you that indeed you're infectious. So I don't know what that's going to mean for us, but I'm not counting a lot of like uptick moving into the fall. And we never saw an influenza testing. I mean there's a certain segment of the population of hospitalized patients where you would expect to see molecular influenza testing. But that really hasn't grown much in the last couple of years.

The next question is from the line of Brian Weinstein with William Blair. You may proceed.

This is Griffin, on for Brian. Just first I want to understand the dynamics of the core business a bit better here, pretty flat sequentially in that low $90 million range. So anything to call out there? And then how should we be thinking about growth in the core business moving forward, especially in non-COVID rapid immunoassay line item.

It's not flat. It's up 24% over the prior year quarter. 24%

I'm sorry, sequential.

94 of sequentially.

Yes, sequentially.

Yes, because Q2 is always sequentially down. Number due to the yes, lower we always see Q2 is really the low quarter of the 4.

In a business like just to be helpful in a business that has a large portion that's tied to a season. It's almost not meaningful to look sequentially. Because you could say the same thing next quarter, if you want to why is Q3 so much bigger than Q2? Well, because people are going to start buying respiratory products. Why is it get up just because we're heading into the season, right? So that's all you're seeing there. There's nothing more than that.

And then on Savanna, I think you guys are targeting somewhere around $300 million for that product in its third full year following launch. So just to think about that ramp and any color on utilization expectations would be appreciated.

Sure. I am very comfortable that the ramp provided I get supply of boxes. And I mentioned earlier, I think when Jack was asking a question that we're worried a little bit about the inputs into the projection gain. And our suppliers doing -- our manufacturers are doing a great job, but they can only make many instruments as they can get the parts for us. So notwithstanding that any delays there, which we're going to try to minimize, of course, but notwithstanding any sort of delay, I'm pretty comfortable with the way we ramp this. The good news is the entity assay development team is actually exceeding our expectations, doing a fantastic job. We're running the assays on our own people. And the Savanna instrument performed extraordinarily well. The curves look terrific in the assays. And we're pretty confident, to be honest with you, but except for I got to get instruments.

And just

Yes. Go ahead. I'm sorry.

Sorry, about that, Randy. Go ahead, please.

No, that's I was going to say again. And we obviously are rolling out those next 5 or 6 assays over the next 12 months as well.

Yes. And just to squeeze 1 more on M&A. Can you just refresh us on what you're looking for, you previously talked about digital health capabilities and some infrastructure. Any change to that?

No, that's certainly interesting to us. And again, as I said in my prepared remarks, it's more about fit. And can I leverage the asset I'm acquiring can I leverage my own infrastructure such that 1 plus 1 is more than 2. And I'm not a big fan of the science projects. I'd like to see revenue and margin. I don't like to see that we think that we can grow it. I'm not interested in something that flattens us out. So that let us remember things that we think limits the number of frogs that are going to turn into a prince.

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

Well, thanks, everyone, for your support and, of course, your interest in Quidel. I do realize that so many of you have so many names you're covering today and I've been reading some of the reports on a daily basis, and I'm saying, "Oh my God, it feels like you guys you're in school. You got to do a project every night. So I'll hang up real fast so you can go right your report. And happy to take questions here in the next couple of hours as we need to. Thanks, again, everybody

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