Q2 2020 Quidel Corp Earnings Call
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Ladies and gentlemen, your call we'll continue to be play So music coldest conference began the conference will begin momentarily. Thank you for your patience.
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Ladies and gentlemen, thank you for standing by welcome to the Quidel Corporation second quarter 2020 earnings Conference call.
This time, all participants are any listen only mode. Later instructions will be given for the question and answer session. If anyone has difficulty hearing the conference. Please press star zero for operator assistant.
Now I turn the call over to Mr. Ruben Argueta question, what else director of Investor Relations. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining todays call with me today is our president and Chief Executive Officer, Doug Bryant, and Randy Stewart, Our Chief Financial Officer, Our second quarter 2020 earnings releases now available on our dot quite all dot 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 July Thirtyth 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 Q3 2020.
Forward looking statements by their nature in bulk material risks assumptions and uncertainties.
In particular, our expectations and assumptions around the impact of cold at 19 pandemic on our business the 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.
Performance such that our actual results and performance may differ materially from those in the forward looking statements.
A discussion of such factors. Please review quite else. 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 FCC.
Furthermore, This conference call contains time sensitive information that is accurate only as of the date of the live broadcast July 30 2020.
Quite l. 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 quite L. released financial results for the three and six months ended June 30, 2020. If you have not received our news release, where if you would like to be added to the company's distribution list. Please contact me any fivea 646.
Xone Twothree following doug's comments, Randy will briefly discuss our financial results.
In the call to take your questions.
I'll now hand, the call over to Doug for his comments.
Thank you Rubin good afternoon, everyone. Thank you for joining us today.
I hope that you and your families are well and safe a these times that certainly been challenging for everyone.
Despite the country's efforts to deliver more testing there is still a considerable backlog for sample processing.
Especially in Central Labs accounting for the long period of time between SASSA result.
Typically taking between five to seven days or more.
Obviously getting a cobot 19 test result, a week later is not helpful and not conducive to the tests and contact trace process that is needed to flatten the curve and reduce allosphere burden that we're seeing in hot spots across the country and so we believe that expanding access to affordable.
Highly accurate and timely diagnostic testing is the key to flattening and occur at quite Delaware doing our part to help address the need for probably 19 testing and four ways.
First using our lira and lira direct molecular tests to help remove the sample bottlenecks and highly complex laboratories with established testing infrastructure.
Second by offering a fast frontline test with best in class accuracy at the point of care to our traditional and not traditional channels.
Third by securing our supply chain and scaling up our test manufacturing and distribution.
For both our molecular and rapid test by over 100%.
And for us by developing multi analyte covert 19 test panels health diagnosed co infections rollout flu and other illnesses and increase overall test manufacturing scale.
Before we get answered the quarterly results I'd like to say that we're proud of what we as an organization have accomplished in such a short amount of time.
Over the last quarter, our people a good portion of which you're still working from home have shown on the positive nimble can do spirit.
It's the hallmark of quite else culture, and together, we're doing our part to help provide answers to the most vulnerable.
Quite else second quarter results largely reflects the collective efforts of our people and offer a glimpse of what our company is capable of achieving even.
Even in the midst of a pandemic.
Consistent with our Preannouncement.
Revenue for the second quarter of 2020 was $201.8 million driven by growth in our rapid immuno assay and molecular categories.
As a result of higher sales for our cobot 19 products.
Which totaled $109 million in the quarter.
We saw good demand for our two PCR assays, which received anyway and March in May and very strong demand for our Sofia Inogen rapid point of care test, which received either way in may.
Importantly, we were able to satisfy some of the need for RT PCR testing in a highly complex lapse by ramping up the manufacturer of our lira assay.
To approximately 500000 test per week.
As someone who you might recall earlier assays can be Ron on several thermal recycling platforms, including the Avi I 7500 standard.
Yeah, I 70, <unk> 500 fast.
Cogens rotor gene Q.
The Roche lifecycle for 80.
And the Quantstudio seven pro.
Which allows us to be very helpful to customers, who may prefer sample answer excuse me sample to answer methodologies, but.
But may not always received the volume of reagents. They require we expect this trend to continue seeing increasing demand throughout the ended the year demand for our Sofia rapid and should point of care test continues to be strong sustains and frankly more than we can satisfy.
At the moment.
Customers are ordering a multiple of what they had expected as the products outstanding performance is enabling and expansion of use cases for the product.
Since receiving the first eway for an antigen test in early May.
We have been on allocation, partially fulfilling customer orders, even as we continue to ramp up production to the levels we had forecasted.
We anticipate continued growth for the coming months and are actively working to increase our manufacturing scale by expanding facilities hiring additional personnel and asking more of our supply chain.
During the quarter. We also made good progress with our product pipeline.
Especially as it relates to diagnosing cobot 19.
Currently under development is our Sofia serology assay that we believe could provide better clinical utility than the current tests and market.
Also under development is our Sofia influenza a plus b.
And Sars antigen rapid point of care combination past.
Which will provide healthcare workers with all three results.
Because of the assay uses the same manufacturing lines as our Sofia flu.
Sofia antigen sets the combo test can potentially increase our manufacturing capacity, especially as we enter into the crucial winter much when the potential for co circulating Sars client of ours too.
Influenza could further strained our health health care system.
Additionally, we are collaborating collaborating with BARDA to develop a four analyte Sofia rapid point of care tests that includes influenza it must be Sars antigen and respiratory syncytial virus that we believe could help and addressing the nation's testing shortage at the point of care.
[noise] all key non coated product development projects have remained on track we plan on submitting five 10-K packages for Sofia Strep 98, C. difficile to the FDA in the fall with respect to Trpaone and true our high sensitivity to corner product, we continue our discussions with the gift.
Yeah and are designing a clinical strategy for our clinical trial, which we expect to start before year end.
Regarding Savannah work continues on the instrument with the first trial plans for early next year.
Regarding the Sapan cartridge, we plan to complete a high volume cartridge evaluation in mid August.
Using the six assays that are part of the near lunch menu. The goal of this study is to receive final proof that the performance of the cartridge with integrated assets is optimal.
Industrial design for user interface cartridge features is to be completed by the end of August on the manufacturing side Crushers high throughput production and assembly automation lines are under development with the first automated modular manufacturing and assembly lines expected to be operational by.
Remember 2020.
With regard to the Savannah instrument, we're assembling 19 prototype builds.
That will very closely resembled the commercial instrument.
By means of functionality performance size and the parents.
Once the instrument performance is evaluated minor refinements will lead to the prototype version that will be used during the call trials. So in summary, the Savannah instrument and Carter's development activities are continuing according to schedule.
In summary, Q2 was another typical productive quarter for us augmented by significant demand for our coated products.
Which is terrific in terms of our financial performance, but at the same time, we recognize the difficulty all this growth is creating for analysts trying to model revenue and EBITDA for the next few quarters.
Historically, we've not provided quarterly or annual guidance.
But the variability and forecast and expectations suggests that a revenue floor that reflects all high confidence of achievement.
Be useful.
Therefore based on the current demand for our antigen test.
Good visibility in our ordering patterns for our lira Sars front of ours to asses.
And assuming minimal supply chain disruptions.
We are confident that third quarter revenue will be at least $375 million.
And all we have strong quarter and are confident in our business outlook through the hard work and perseverance.
Of our 1300 people across the globe.
A good number of which are still working from home, we are well positioned to change lives for the better by expanding access to highly accurate affordable diagnostic diagnostic testing to our communities. We are proud of what we've accomplished thus far and look forward to contributing to the reopening of our country Randy.
Thank you Doug good afternoon, everyone.
As Doug stated, we had a very strong quarter that exceeded even our own key performance metrics.
We will continue to keep focused on servicing our customers ramping up production capacity.
Diligently as possible and fastening and future product development, while continuing to utilize our cash wisely.
As we reported earlier today total revenues for the second quarter of 2020 $201.8 billion. This compares to $108.3 million on the second quarter of 2019.
86% increase in revenue was driven by significant demand for our products that diagnose cobot 19.
This revenue growth was partially offset by declines than demand for the cardio metabolic and specialized diagnostic solutions product categories.
Foreign currency impact was minimal at $600000 in the quarter.
Rapid immuno assay product revenues increased 58.8 million the $80.6 million in the second quarter 2020.
Within this category Sofia products grew 63.6 million to $75.2 million due to $56.3 million and safety of flowers engine sales.
Quick view product revenues decreased 3.9 million to five point $5.0 million.
For the total Ralph its business, 70% growth and influenza was offset by reduced demand for strep, a down 60% and pregnancy products down 48%.
Due to decrease office visits associated with the Cobot 19 pandemic.
The influenza rapid immuno assay revenue was $15.8 million with approximately 80% of them revenue derived from the Sofia platform.
For the Cardiometabolic immuno assay business revenue was $54.2 million, a 20% decrease versus the second quarter of 2019.
In constant currency decrease was 19%.
Of the $54.2 million $20.2 million were derived from the tree out business and $26 million from the Beckman BMP business.
The revenue decline was realized in all three major geographies as patients with chest pain, either would not work could not as a traditional testing centers as a result of the krona virus pandemic.
We believe this downward trend should improve over the next several quarters.
Revenue in the specialized diagnostic solutions categories decreased 818% in the second quarter to $11.8 million.
Our molecular diagnostic solutions category increased $51 million in the quarter to $55.2 million driven by $52.7 million in sales to buy lira Sars grown a virus to product, which was granted E away by the FDA March 17.
And our lira direct Sars thrown a virus to product, which was granted you weigh on may eight.
Total influenza revenue, which includes our rapid DHR respiratory and molecular diagnostics grew 44% in the quarter to $18.7 million.
Gross profit in the second quarter increased $89.6 million to $148.8 million driven by the demand for the Sars grown virus to out saves, which drove improved product mix. In addition, higher volumes contributed to increased manufacturing overhead absorption.
Gross profit margin in the second quarter at 2020 improved to 74%.
In the quarter, we realize a significant improvement in our profitability profile over the short term, we do not incur material variable operating costs increases Boston quarters, where we realize significant revenue and gross profit growth. We see a large portion of the gross profit dollars roll into operate.
Income.
In the second quarter, our total operating expenses expenses measured as a percent of revenue declined by 17 percentage points versus last year, the 32% of revenues.
Helping improve our operating income in the quarter to 41% of revenue.
We see this trend continuing into the third and fourth quarters as well.
We are increasing our R&D spend this year as we continue to invest in additional covert 19 assays.
Our Savannah project news of the essays and next generation platforms, such as our internal internally named projects Sniffles.
We will also continue to invest in our sales and marketing organization as we expand our customer base and profile.
The full year, we're currently estimating our R&D spend to be in the range of $70 million to $75 million.
Our gionee spend for the full year should be in the range of $60 million to $65 million.
As it relates to the provision for income taxes, we recorded 12.5 million an income tax provision in the quarter and the effective tax rate was 16%.
From the federal statutory tax rate of 21%.
The difference in the effective tax rate was primarily a result of discrete tax benefits recorded for excess tax benefits of stock based compensation.
Currently we are estimating full year effective tax rate between 21, and 22% due to the increase in pre tax income versus prior years.
At the end of June we had 72.6 million in cash and cash equivalents.
During the second quarter, the company generated almost 60 million and cash flow from operations.
This number would have been even larger had an outbound for approximately $43 million investment in our accounts receivable and inventory as we accelerate our growth and ramp up to support increased production of siris assets.
In the quarter. The company also invested seven point.
7.5 million and capital expenditures.
In April we made a third annual added payment of 48 million and now have $136 million remaining on the deferred and contingent consideration that will be paid over the next three years.
Also in the quarter, we repurchased approximately 247000 shares of quite out stock for approximately $42 million.
We have no outstanding balance on our $175 million revolving credit facility and only $13 million remaining in convertible bond debt.
And that matures. This number in short we have minimal debt access to credit good cash flow, which places us in a good position to support our future initiatives.
Those initiatives include increasing our R&D investment strengthening and expanding our supply chain ramping up our manufacturing capacity and pursuing M&A.
And with that we conclude our formal comments for today operator, we're now ready to open the call for questions.
As a reminder to ask a question you need to press star one of your telephone to withdraw your question press the pound key.
Please standby, while we compute power Q and a roster.
Your first question on it Brian Weinstein with William Blair.
Hi, guys. Good afternoon us of Andrew on for Brian.
Maybe we could first start with your guidance for the third quarter, Hey, Doug on the guidance for the third quarter and the assumption sort of behind that code revenue. That's built into that so first I guess I want to clarify that the slower only includes two currently approved you weigh products are cobot, and then I guess bigger picture, how should we be thinking about the built in terms of.
Auction capacity ramp through the quarter any bulk orders you happen in pricing for their products.
Where do I start.
A lot there right.
Yes, so listen first piece or the question Andrew is that was on the corporate revenue associated here. So we have three you a products. It's it's a little confusing because two of them are that Lear product you see.
Kits that thing that requires extraction than there is the direct kit and now there is the Sofia surface antigen. So that the Q3 forecast does not include cobot products beyond that in other words doesn't include the serology product, where the combo products.
And then okay and then.
Yes.
You want to talk about capacity.
Yeah that'd be great.
Yes.
Okay, well without revealing things that are competitors would like to know.
We said before that our theoretical Max capacity with.
Current plant and equipment is 1.8 million tests per week that 7.2 tranches for months.
Managing the supply chain to achieve that output consistently.
Is the variable and is difficult.
Given the timing of delivery of all components that we need.
Each week.
Therefore, the likelihood of achieving that level on a consistent basis is not super our high of course.
At least not at this time.
Our output is.
Highly dependent on receiving all components and shipments.
Certain items have been quite inconsistent, although I will say that it's getting better.
Due largely to our activities to vertically integrate.
A number of those compliance.
And that's all I can say about that without teaching future competitors, what they should be worried about.
And that you have another one after that Andrew.
Yeah, and there was just on pricing.
Does that really staying relatively in line with your expectations in the that what's factored in.
Moving forward.
Well pricing is consistent.
With the prior quarter. So we have one price in the marketplace for our Sars management product.
And that we believe.
Enables.
And affordable.
Product price, it's well under reimbursement and also.
Is a significant deterrent to shipping product X X U.S., we do not believe.
That is appropriate for us to price less than that actually less so therefore.
We have one price for us customers and.
Very little product that has been shipped U.S. ex us.
Okay. That's helpful. And then I guess, maybe switching to the demand side of things and you gave some commentary on this in your prepared remarks, but maybe I guess can you be a little bit more specific in terms of what you're seeing for the underlying demand of the antigen product I guess, what I'm trying to get to is really the idea of if you weren't constrained by any sort of production capacity.
What do you think your average weekly volume demand would be for.
The antigen product going into different channels.
Well we've talked.
Before about ramping up to our Max capacity more in the process is doing that this last several weeks.
I have been fall and have been closer to what we went up.
Set before that we hope to be at this time.
So.
We're in good shape from a manufacturing perspective of the pouch itself, which contains the cartridge. There are other elements that go on the kit and generally those as the elements that might cause variability from week to week.
So as you can imagine one week, we can have super high amount of product for shifting out of the factory here and then the next week, we could be slightly lower depending on the arrival of certain elements that need to go into the kid at the same time, we are manufacturing asset very high level actual could set itself so that could set itself.
He is not that constrain it's the all the other elements actually go under the kids.
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Customer.
Customer demand yeah customer demand at one point in time, we had orders that were five times our capacity.
And that softened a little bit, but we entered the market thinking that we were going to preferentially.
Ship, our customers you either already had sofias or we felt that could use Sofia most efficient.
We in their practices in order to get testing done for health care providers and first responders in other words people, who knew how to batch product can run higher volumes, that's where we started that we went to those customers early on and most customers frankly had.
Very little idea about how many tests that they actually were going to need. So these customers signed up for volume of ash.
And then very shortly after that ordered four times X and so he had to ramp up to me that so most of the product that we have shipping today is to our traditional customer base.
Some of those customers are new to us, but it's still in the same category.
I would say if you're looking for a single.
Area, where it really has accelerated I would say an urgent care segment in particular has gone.
You know.
While the few wells so right now we don't have any inventory Andrew at the end of everyday there is not there isn't that a box there isn't a kit.
On the management product on the lira side, we have a little bit more flexibility and we have been trying to build a little bit of inventory, although I would say that the commercial organization.
Recently has been signing up.
Hey.
Number of customers that are larger than our former customer and.
That does create a little bit of variability in terms of will be keeping inventory right. Now we do have a little bit of inventory at the stars.
The lira products.
But again, that's not likely to last very long either so if the demand.
At this point.
If you added up well, we're able to do what.
Our other competitor in the market says, they're going to be able to do.
And then you think that Abbott.
Would be coming onboard at some point in time soon potentially by August or September on just making that assumption.
And let's assume that their scale is better than ours because of the size of the company, we add all three of us together.
We compare that with what the Admiral says that they would like to have shift in September and we still want me to the bad so.
That's the current state.
Got it okay.
That's great color. Thanks for that and then last one if I could sneak in.
At the eight seems to be.
Considering at home testing, a little bit more willingly right now so I guess the question for you guys can you play into that market via Quickvue and if so how should we be thinking about your guys market potential there I'm kit considering capacity. Thanks.
Yes, I think what you're referring to Andrew is at home a collection than to be sent to allow.
That's I think but with the FDA would be comfortable with based on what I'm reading.
Therefore quick if you would not be an appropriate product for that segment, because you're thinking that people are actually going to run the tests at all the other factor we're considering is that.
Earlier on we saw a pretty significant difference in terms of analytical sensitivity between this Sofia chemistry.
In other words fluorescent immuno assay.
And quick view, which is basic pillar metric much like the old.
Pregnancy test.
And so the difference between those two products in terms of.
Analytical sensitivity is about two blocks in other words Sofia relative to quit for you on an analytic basis, it's about 100 times more sensitive.
And so therefore, we don't plan to enter the space with the color metric assay. We don't think that that is what we should be doing and weve determined that we will not.
Be using quickvue.
At this time, even ex us I don't see.
Why we would shipper product that we know it's not as sensitive as the Sofia products.
Got it okay. Thanks, guys.
Thank you Andrew welcome.
Your next question a line of Alex Nowak with Craig Hallum capital.
Great. Good afternoon, everyone I'm, just kind of following up on Android capacity question.
Do you even have control if you wanted to get through that 1.8 million tests per week Mad Max capacity. The reason I ask because it sounds like you're really constrained by outside factors here, but becton Dickinson just announced commence ago. They just got $24 million, whether U.S. government to expand their capacity. So if there isn't enough swabs or whatnot how could.
Anyone really increased capacity on their own I mean aren't you pretty much dependent on outside suppliers at this point.
Well, if you're speaking about swaps specifically, we are looking at manufacturing our own than we have secured alternative suppliers.
And many much of that volume is coming online this month.
So we are taking things under our own hands one of the antibodies that we had been securing externally we are.
Manufacturing now and we'll do.
We will have their own manufacturing, which will ensure that we do not have a shortage of that critical supply. So if we look at the things that are really important which is which are the things that are required and the cartridge all of those things we have a great deal of control over.
The swabs, we're a concern because you had.
We use a nasal phone swap we don't use the Fox swaps that other people do.
And so we were constrained by the amount that we were getting from one individual manufacturer we now have.
At least a couple different avenues.
And looking at all that so that that really your question is to my comment about vertically integrating key components.
Because we're not interested and just getting the 1.8 per week.
Alex we're interested in.
Slide 789 and 10.
Which would give us another 200 million tests that we could manufactured by the middle of next year right. That's going to require a lot more swaps than were ordering today. So I'm not worried about getting to 1.8, I'm getting I'm worried about getting to 200 million here and that's what we're working that's the game plan that we're looking at.
So short terms that we have some some issues with swaps last month, yes, we did and we had kittens waiting for swaps to be put in the kits.
But then we were able to ship all that out and.
That was somewhat of a short term fix I'm not worried about again I'll just say at this is redundant I apologize, but we're not worried about getting to walk away.
We're worried about what happens when we go online with the next four.
Automated manufacturing lives I got to feed that that's what I'm worried about.
Okay. That's really helpful. And then just had into this flu season here can you elaborate on the company's plans for distributing the the combined code Covenant flu test the plan really to switch over all the flu testing to combine panel and then just with the conversations you're having directly with H. I asked.
More people within the U.S. government and then also your distributors and providers can you just to elaborate how the U.S. government is really getting position to manage this upcoming flu season could if they don't manager properly I think we all know what the results going to be.
Yeah first of all talk about the combo assay, we built.
A number of flu.
Kits and I think that we have.
The ability to for flu only if we want to.
To ship millions of tests over the next couple of quarters for influence that we are in reasonably good shape.
Now.
If we had a very large flu season, though it's what we worried about would we have the ability to supply the market in the events that anybody with flu like symptoms is getting tested for both flu and Sars, we worried about that beds. So having the combo assay enables.
Yes to reduce the incremental demand that we would have on food products. So again, we have inventory now of influenza Ali and of course, rather than building influenza right now we're building Sars management that kids.
But.
We will we hope.
Pending clearance by the FDA, we will have the ability to flex to a combo product and because the ability to move in and out of the products is reasonably quick.
We think that we can.
React to whatever the market will require there are some speculating that the flu season will be liked because it would have we seen in the southern hemisphere, maybe and if thats. The case, maybe the inventory that we have on hand already takes care to that which is great. Because then we just manufacture Sars and we have no decrease in Sars.
Antigen manufacturing in the event that I'm wrong, and that's a vigorous season does and.
And we still have the ability and we would ask customers to buy the combination product because we more than likely would not have much flu volume.
Right. So that's that's sort of the game plan and because of the way we manufacture.
We have.
Extraordinary flexibility.
Okay got it and then just last such last question about that HHS.
Right and I, Yeah, if you don't mind, Doug Yes.
Yes, I haven't had any conversation.
With anybody from Hs, yes regarding influenza other than we did receive comment that they like the idea is having a combination product.
Okay understood. Thank you and then just last question just on the potential for retail.
Partnerships, either with grocery stores or pharmacies, I think we both think that could be a good way of expanding tapped out there. So people can get to quickly can you elaborate on if these contracts and negotiations are taking place and really what did the limiting factor to seeing an announcement is a function of having enough inventory to launch the deals or is it more.
I have a discussion around pricing and how they think about the economics in there and in particular grocery store a pharmacy just any color there would be really helpful.
Yeah early on we had an in a number of conversations with the folks that you're talking about it.
We would like to be able to shift the number of instruments that they would require in order to do what they want to do.
We have been on allocation pretty much from the started this process.
We focused initially on making sure that in this first here.
Our traditional market segments that we supplied those customers first so.
The folks that we have been working less understands.
We because of instrument availability would not be able to meet their needs until the September timeframe. So all those customers or those potential customers still be run at that time, maybe so there really has been a discussion though to your pricing question about price that help me think thats that prices actually.
Obstacle I think the reimbursement.
As appropriate.
To Max.
Signed up for that for that national limit at $45 into entry sense.
Our products is price well below that I think it's affordable and and appropriate. So there's not been any discussion about priced the main thing is how many instruments can you get me.
And how quickly can you get them here, we've had people ask us for 700 instruments. We've had people asking us for 350 instruments 270 instruments I saw an email couple of days ago.
Those are big commitments and then on top of that HHS of course asked us for 2000.
So.
Our main constraint right now in terms of expanding beyond.
Our current traditional customer it's mainly the instrument.
Okay.
Okay got it well. Thank you for all your efforts here to help fight to spend I think really appreciate it.
You're welcome thank you.
Your next question kind of taken them with no foreign research.
Thanks, Good afternoon guys.
Hey, Jack.
Hey.
So maybe just first a modeling question the third quarter forecast you know looking for over $375 million sales can you just.
Give us a sense for what that assumes for kobin sales for Sofia and lira.
Sure. This assumes that we ship everything that we make for Sars algae.
And it assumes that.
We began to ship some of these larger customers that so rough the chart. The team are signing up.
Got it.
Okay. So if your manufacturing no. It's a million Sofia tests per week at 20 Bucks I can use.
250 million for Sofia.
Yes, that's directionally directionally good.
Okay.
And then.
Curious just to build on this concept multiplex test what commentary as the FDA and BARDA given you around you know what they're looking for in terms of performance for the flu a b coded RSV and does that is that going to require trial to bring thats market in the fall.
We are running studies currently and expect to be submitting sometimes in on that product what we're seeing is.
Product performance on the flu side.
Almost identical.
What we saw at our Standalone products, and we see equally Sars side, we're seeing.
Equivalent performance as well so.
Assuming that we can find the samples.
Reasonably quickly and get the numbers that are required I don't see.
With with difficulty, we would have and getting an easy way I and I do think that not just our company but.
But for others as well that the FDA would be receptive to the notion of.
Of combining some of these assays.
For two and including RSV as well.
So first we'll do the combo products, including flu only.
Plus b plus the color virus.
And then later this year will be.
Moving forward with the assay that includes RSV as well.
Got it.
You guys have a pretty high class problem right now with all the cash generation from the Kobin sales. So I was curious if you could just walk us through your philosophy around.
How you're planning to reinvest that and.
Thoughts around potential and likelihood to an appetite to do some M&A.
Well first priority is of course, increasing our capacity to manufacture which will also includes by the way and additional distribution center.
Which Randy is in the process of negotiating.
Currently and.
That's the number one.
Priorities for cash of course, we owe habit of payment every year as well as we've said before.
And then you're right, there's still a lot of cash left and we still have access to.
Capital.
So we do have a couple of things in mind, we think that's the world, it's going to change slightly moving forward.
How people access health care is likely to change and we're trying to think about what sort of acquisitions. We would do that would help us learn more moving forward and how we might take what we do very well and how that blends into a different world.
Where.
We have tele health health care I T.
Et cetera, and we're looking at some of those opportunities. So on the other things that we were looking at before may be actionable as well.
But suddenly although one or two of them look quite good to us.
Well they don't necessarily.
Represents something strategic is what I'm thinking about in terms of.
With that health care World looks like.
Moving forward. So we're trying to be thoughtful in our approach we're not the money is not burning a hole in my pocket as my mother would say.
That we're going to do something that's.
It's obvious inappropriate and we're not in a hurry.
Sounds good thank can squeeze in one more on that new product side.
You know this concept of home testing nipples would work pretty well right. Now. So can you just give us a little bit more of an update around timeline for that and.
How the progress is going that would be great.
Yeah that is a great question and really when you think of it the diagnostic testing at home can you rely on the fact that the patient can actually do the whole thing by themselves.
With diabetes testing picking a finger, taking a sample pretty straightforward, but with infectious disease testing, it's not always substrate for I've got to get good sample collection on that I've got.
To run the test properly and even though it's clear away. It's is it really ready to be.
At home and test isn't that matter.
I think it might be.
I don't know that the FDA would agree with me and the FDA it's really.
Concerned I would guess.
About in a low prevalence situation.
Can I run the tests and what is the positive test results mean.
Et cetera, so here's my thought.
First step has to be that we launched in a world where the physician is involved somehow.
Either and directing the patient to collect the sample to.
Have potentially a front end devices that make it almost.
So bill not to do the test properly. So this is what we're thinking about goes the investments that we're thinking about making us how do you make it so.
The average person is not going to make a mistake and they're gonna get good advice from a physician.
So I just don't think it's going to be the world, where I'm going to take a diabetes meter hall, but I'm just myself every day I just I don't think we're there yet that's my view I could be wrong. So thats why were thinking about.
What's what are the right strategic moves for us what are the right things for us be thinking about so that we operate in this world were maybe there's something between.
Something between where we're at today.
Yes, somebody buying something off the counter taking at home running it themselves. So just five you.
Chris you asked so I guess that's here.
And just.
Nipples, where that stands in terms of development.
Well technically by the end of the year, we're going to have a product. The question is how long does the regulatory process take.
So there so we'll begin studies early next year.
I do think the guys that was really like to start studies. During this upcoming respiratory season. That's a that's the goal I think they'll be ready.
You know.
And then we'll have to worry about what the prevalence is out there to problems for the things were looking for as high we'll get you to the studies quickly.
If it's not so high.
It'll take a while so I'm hopeful that we can get through all that in this upcoming respiratory season.
That's fair Thanks, Doug.
Thank you.
Your next question why not Stephen model with Piper Jaffray.
Sorry Piper Sandler.
Hey, guys congratulations on the quarter, thanks for taking the questions.
Thanks, Steve Thanks.
Hey, Pat So so real quick on the on the 375 guide.
Some of your competitors have suggested that you know there's going to be a bump.
Assuming kind of returned to work returned to school in Q3.
And then a potential slow down in Q4 step down.
You know how do you guys think about.
Hey, guys think about that do you think it's going to be.
Like that or is it going to be more of a steady demand for your for your cobot 19 tests.
No we're seeing steady right now again.
I have a multiple orders beyond what I can make.
And we're not even in this step up yet so if there is a step up.
So I see for us that the demand again will far exceed with all of the manufacturers in the rapid expansion space can produce.
For the at least the next several quarters.
And I would imagine that just as we're thinking about expanding manufacturing that.
The other two that I mentioned are doing in as well so even with all that.
It's going to be a while until we can meet that demand and.
If their schedules like mine that means somewhere during the middle of next year. We would have increased capacity and then we can figure out do we test all 76 million.
School Kids and how often do we test.
As a weekly.
I don't know.
Are we going to be able to test for.
Dental community.
Right.
We were not even going to get to that until we can get through all those other.
And so.
In a nutshell yeah, okay, no that makes content categories of testing that could be demanded we're not even going to get to that we're not going to even get I get to employ testing until until sometime next year.
Right right that makes sense and then its good problem they have.
On the I know installed base doesn't really matter because yeah, you're already selling as many kits as a and test as you can but.
Could you just let us know what the installed base for Sofia is concerned I can I can imagine once people are at capacity, that's going to be differentiating factor they have the.
A very large installed base there.
So maybe you could update on Sofia.
Yes, there's two factors there too it's a really good question that were going up we're about 50000 analyzers right now and then.
Randy has said before that.
We should be doing about 500, a week for a bit, but we're actually running little bit favorable to that at the moment. So instead of 2000 offered are closer to 25 line them up by September we should be somewhere between 7500 boxes month.
10000, depending again, it's a supply chain, we got one element.
What we're trying to ramp up some people that are making a part of this instrument.
If we can get that down we can we can potentially gets a 10000 faster than we thought.
But.
Theres still be done there.
What was the other part of your question Steve.
I know that with it but but yeah. Just just to continue it could you just remind us how many arkon PCR instruments are out there you know the lifecycle and Quantstudio maybe Ais.
It can run the lira I would.
Even be able to hazard a guess if you're talking about.
It's a lot going to last I could probably come up with a number if you'd want to include public health. That's again another tranche and then you got all the folks that have all these instruments for the life Science Research segment.
We do see a little bit of up a move of these labs. It may have been doing sequencing or something else now acquiring pharmacyclics in order to do.
Co testing so your questions a good one I don't know that there's anybody that can answer for that.
No I was actually insight.
How long.
Okay, Yeah, no problem and then my last question real quick.
The on the combo panels.
Do you do you have you have discussions with FDA is their chance that they'll have you have five 10-K, given that flu and arch Mi are already there you'd need to 510 gate for those or do you think that would make an exception if there was a combo.
I think the fact that you've got an easy way product is there.
Regardless of whether the other assays are cleared or not.
By definition of would make that and you I'd I'd have to confer by regulatory guys.
To be sure, but Mike Mike My sense tells me this is an easy way.
Which for most companies would be followed.
By larger data set and more testing than than what's done on the eway in order to get a 510 k. So.
This wouldn't be news to anybody I don't think Theres, a diagnostic company that would not be thinking they're going to take their eway product continued to do testing.
In order to address in order to potentially get a five 10-K clearance and also to look at other claims.
For example on the idea of asymptomatic testing. These tests when they first came out we're not authorized to be used in individuals who are apes symptomatic. They were only in the percent of product claims.
In the meantime, the FDA has a.
Thats a Q.
A comment on that that says most eway authorized sars virus to diagnostic tests have been authorized for use in individual suspected of covert 19 by their health care providers individual suspected of coded 19 infection or exposure can be symptomatic presymptomatic or asymptomatic.
Testing of any of these individuals is at the discretion of the healthcare provider ordering the test so theoretically it doesn't matter. However, we're going to continue to do studies and we are today.
On this in order to potentially have a claim for a symptom x. I think that's appropriate.
But for five 10-K, you're going to have to have all that right. So.
I don't think Theres a.
I'd be manufacturer. After this not continuing to do studies in order that to seek other claims moving forward, even though we have this excellent guidance certainly FDM, how the test could be used anyway does that help state.
Yeah. It does yeah. Thanks appreciate all the appreciate all the time thank you.
Next question, Andrew Cooper with Raymond James.
Thanks for squeezing me in a a lot's been covered so maybe just a just one for me, but just as we think about the comments around a vertical integration and bringing some things in house is that an area I guess two things actually one you know is there any margin impact that you would call out from from doing some of those things where.
There are immediately or sort of over the longer term and then too you know is that an area. When you think about M&A that you could do something that's maybe a little bit more sizable then then what I know you're working on in terms of bringing an antibody production.
Process in house, just anything to help us think about you know what you could be thinking about there would be great.
Yes.
Thanks for the question that it's important that qualify this the things that we're looking at integrating.
Into our supply chain are not high value items and so the cost differential would not caused me to think I should go by somebody that does that.
Yes, so I.
It's not really super valuable sort of.
Items that were talking about your site that would not be out our M&A list.
I hope that is what you're actually asking that we know that is and I guess.
Just to add to that is there any you know is there any sort of margin ramification from bringing some of these things in our in house or to your point there more some of the almost commoditized type products, where you know there's not a big cost difference between what you can make it for and it's more about just securing the supply.
Yes, they're not significantly differentiated a bull. So therefore, the cost Delta is de Minimis yeah.
As you said, it's more like the control the supply chain.
Controlling our own does need to a certain degree yes, we own it so somebody else can't come by it.
Okay. No. That's that's helpful. I will Oh, I'll stop there and look forward to catch up offline. Thanks.
Yes, Andrew.
Your next question how line of Tyco Peterson.
Hi, guys. This is Casey on for Tyco. Thanks for squeezing the end as well maybe yeah, maybe just a quick one.
On sort of any pushback, you've gotten from contract negotiations in terms of quality of antigen testing as a whole I know we've seen.
Several reports from different places there is one specifically in Vermont, where they had I think it was 35 positive antigen tests for coated and when they reflects goes the PCR only to return to positive. So maybe can you talk about any sort of pushed back you've seen on any sort of quality issues regarding antigen testing versus PCR and then maybe.
Just a follow up with that.
Can you comment at all about how do you view.
Reference labs.
Rising pooling of samples and potentially being up that competitive threats the androgen testing. Thanks.
Sure.
First there have been a small number of potential false positives.
Not necessarily pushback, we haven't received any pushback, what I would say is.
The number of false positives is very small.
Actually in relation to the millions of tests that have been performance.
With each of the customer inquires that we receive.
We logged them into our quality management system, and we began to work with the customer to determine root cause that situation, you're referring to a Vermont I can't quite comment because we haven't got to root cause yet.
But.
Even though the number of inquiries has been shoe and number that's really not.
It's not easy to comment because of the small numbers. Thus far we have not determined that there are any problems.
Once we've gotten to root cause that are related to the performance of the product. So.
Not only our leann.
Dialogue with the customer Ross and dialogue with the FDA.
And at this point in time, there are no concerns whatsoever.
Starting that in terms of ruling.
So I don't know how that.
Really affects our business.
At all.
Because again, the number of millions of tests being required.
Is in the point of care segment.
Where people want to test in 15 minutes.
He is.
I don't I don't have the right. We're a huge doesn't sound like a big enough word it's.
Fathomable.
With the demand looks like right now for a rapid point of care antigen assay that basically performs just like a PCR assay most situations. So.
I don't see that the pooling.
We will be an impact at all it will potentially help the reference labs, so with clearing some of the backlog I had a friend of my call me. This morning. He was concerned they wanted to get a test they were told they couldn't get it for 13 days well.
And could he.
You find out where he could go to get one faster.
And so I do think the pooling may have an impact, but I will tell you that I think.
That people are going to be concerned about sensitivity anytime you take.
Sample on your diluted EPS youre going to be having an impact on sensitivity. That's just the back.
So.
If.
If I were looking at it pooling.
I would be worried about sensitivity and the question as June low level positives matter. It doesn't matter if you Miss a low level positive. That's debatable. There are some people, let's say that those people are not infections.
But I would have to say I've heard for from several others that they are concerned that people are thinking that and that low level pauses actually matter, which.
Frankly, that's that's a good thing if you're a PCR manufacturer, because you're saying that sensitivity does matter right. So.
That's a tough one that's a tough when Casey.
Got it thank you.
Sure.
All right I think we're at the end I haven't heard the operators say that we have Martin of our time, but I will I will say thanks, everybody for your support in your interest in probably Dell.
We obviously had a good quarter and we're in good shape to achieve our growth objectives over over the next few years.
Not only are working on coated products and doing.
Obviously quite nicely, but we've got suzanna, which.
Who are for this would be the thing that we'd be talking about all the time and we've got a number of Sofia products that were watching as well and then gosh what happens. If we are the first point of care assay in the United States with the high sensitivity profile that could be helpful too.
So.
Hello, everybody.
Ladies and gentlemen, thank you for your participation I ask that you. Please disconnect your lines good bye bye.
Good bye.
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