Q4 2020 Quidel Corp Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the quite Old Corporation fourth quarter and full year 'twenty 'twenty 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.
If anyone should have difficulty hearing the conference. Please press star zero for operator assistance.
I'd now like to turn the call over to Mr. Rubin argue better quite else director of Investor Relations. Please go ahead Sir.
Thank you operator, good afternoon, everyone and thank you for joining today's call with me today is our president and Chief Executive Officer, Doug Bryant, and Randy Steward, our Chief Financial Officer on.
Our fiscal fourth quarter and full year 2020 earnings release is now available on IR Doc quite L Dot com.
Mr Relations website.
We will also post our prepared remarks on the presentations tab of our IR website. Following the conclusion of this call on February 18th 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 and.
In particular, our expectations and assumptions around the impact of the COVID-19 pandemic on our business results of operations and financial condition and that of our suppliers customers and other business partners are uncertain and subject to change many possible events or factors could affect our future financial results and pro.
<unk> 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 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 SEC.
Furthermore, This conference call contains time sensitive information that is accurate only as of the date of the live broadcast February 18 2021.
Quite how 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 channel.
Today quite old released financial results for the three and 12 months ended December 31, 2020, if you have not yet received our news release or if you would like to be added to the Companys distribution list. Please contact me at 85864 680 to three.
Following doug's comments, Randy will briefly discuss our financial results then we'll open the call to take your questions I'll now hand, the call over to Doug for his comments.
Thanks, Ruben and good afternoon, everyone and thanks for joining us.
Given the many factors that are affecting our business I will be brief so that we can address as many of your questions as we can draw on the hour.
You've seen the numbers for the quarter, both revenue and margin which speak for themselves.
We had a very good quarter, some might even say excellent.
Here are a few comments that may provide a bit more color.
First our viremia D identify testing data that are collected in real time.
From a large and statistically significant set at the same Sofia two analyzers.
Reflected what we were all hearing in the news.
In terms of prevalence of Covid.
In the U S J.
July and August testing volumes in the professional non reference lab nongovernment segments were stable.
And then they jumped sequentially in September and October.
Then peaked in November December as testing volume was slightly higher than October and.
And January was slightly above September.
In other words when graft the vie Rina testing data for the period from September through January are and almost perfectly symmetrical bell shaped curve.
As a result shipments of Sofia Sars antigen into distribution and out sales from distribution into hospitals urgent care centers.
And other professional use settings spiked in the fourth quarter and were large.
Hit it and shipped every Sofia Sars antigen on combo test that we manufactured and importantly, we exited the year with unfilled orders.
Second while we gained clearance from the F D. A to markets a lot of Sars and quick view Sars antigen under an EUA.
Which is another accomplishment.
<unk> for both products came later than we had expected and revenue for those products was well under what we had forecasted internally.
We manufactured in pouched several million quickie, Sars antigen tests, but given constraints on kit components did not kept them all and we chose to fill Sofia orders on step through.
Third at the request of many very large customers and formed by experts in the epidemiology community of the potential for a perfect storm of influenza and COVID-19 during the traditional respiratory season.
And the impact on an already burdens health care system.
We built and shipped millions of Sofia Sars and flew combination assays.
First that were priced higher than the Sofia Sars only tests.
This resulted in increased revenue and margin for the quarter, but not as much as we had initially forecasted internally.
As it became clear that ili percentages were low relative to previous years, we began to reduce the volume of Commvault manufactured to SAR is only for the quarter. The unit volume was approximately 37% combo.
And 63% Sars on me.
During the fourth quarter, the R&D and regulatory teams performed extremely well.
With Solana and quick few EUA clearances, our fifth and sixth Covid products for the year.
Our quite health scientists became the most prolific COVID-19 diagnostic assay developers in our industry.
We made progress on our submissions for quick few surface antigen for both prescription use and OTC claims we expect to submit our Sofia finger stick point of care Serology assay.
Before the other this quarter and have begun a major vaccine study in which we are tracking semi quantitative antibody responses to an S. One and S. Two proteins overtime from subjects that have received COVID-19 vaccines and.
In addition, Sofia Q remains on track, we validated our manufacturing processes for the instrument.
And we'll move to mass production this quarter, which will enable us to deliver as many as 100000 instruments by the end of May.
Savanna, our rapid point of care PCR instrument remains on track as well and.
In fact, we began clinical trials in the U S.
For our RVP for assay and the instrument on too.
Tuesday of this week and finally, we made steady progress with triage true.
Our high sensitivity troponin assay.
With a number of clinical sites that are ready to rule excuse me ready to enroll pay.
Patients increasing every week.
Overall, a great quarter for the R&D teams across the organization.
During the quarter, our manufacturing and supply chain teams made great progress on line seven is up and running and we can manufacture that so few cartridges that we had expected.
The number of tests, we can kit each week has lagged our ability to make car switches.
It depends on the availability of each of the kit components.
Variability in the number of kits shipped has narrowed however, as we made progress in securing our supply chain overall, a great quarter for the operations group as well.
In summary, 2020 was a fantastic year for our company in Q4 was phenomenal I could not be prouder of the entire organization for their resilience.
And for having risen to the challenge of the Covid pandemic quite a delta was built for this sort of response, but.
But we still have to execute and execute we did.
Announced 2021, and we still have lots of work to do I recognize that our investors would really like to be able to peg our performance for the year and for each quarter.
As much as I would like to be helpful. I am not sure that we can provide anything further that would be precise enough to be helpful. In your modeling.
But perhaps the listing of what's known and unknown might be helpful. So let's start with what we do now.
There was a testing spike tied to increased Covid prevalence that peaked in November orders for our Sofia Sars product replaced and distributors reacted by stocking up.
After the spike testing in the professional segments resumed to where they were previously concomitant to the reduction on COVID-19 prevalence to a level of demand that we were previously struggling to fulfill.
For the first time, we have modest inventory, but have significant interest from what we call new markets, which include many categories like travel entertainment sports and dining.
From our Sofia launch in May through the fourth quarter, we have been unable to begin to consider any of those opportunities. We now have a decision to make regarding whether we can support some of these new market opportunities or not.
Given our commitments to our current customers.
We placed a significant number of Sofia instruments on a year.
And continue to ship at a higher rates.
Each of the Sofia professional placements is on a multi year contract with the.
Excuse me with a clawback provision.
A high percentage of the new placements are new quite our customers.
Further the new arrangements very often include influenza.
<unk>, and RSV, which bodes well for us on the future.
It has also been very cold across most of the country.
But no influenza significance and no recurring price lift.
Due to sales of Sofia ABC combo there.
There is some inventory of Sofia Sars on flu combo products at distribution and with customers.
The dating of our products as long.
However, dramatically better than our competitors, which interestingly it makes us a better value relative to lower priced competitors.
Very little Sofia, Sars product only about 5%.
Has been shipped to federal or state stockpiling programs. Therefore, our products have not really been stockpiled in a meaningful way.
And here's what we don't know how.
How long will it stay cold on what impact the weather is having a prevalence and demand for testing and what orders will our distribution partners place each quarter.
Which is often driven by leading indicators like upticks on prevalence how much longer will molecular companies on labs be able to rely on better sensitivity of PCR to delay the avalanche of rapid testing that the federal government are suggesting the country needs to get the economy back on track.
The demand for Covid tests, and new market segments to include OTC is as significant and sustainable or some are projecting.
Or what pricing or margin will look like as the capacities of the larger manufacturers on our industry to include ourselves increase.
How good we are really.
We will continue to execute at a high level.
And R&D and operations and commercially.
But will we continue to maintain our leadership position in the COVID-19 testing market.
Clearly theres a lot to think about it in many variables that may make quite <unk> business on forecastable at any level of precision.
Though we will try to be helpful.
And finally, a comment about M&A.
The short answer is yes.
Yes, we continue to look at just about everything out there most of which isn't a good fit for us and we move on.
But it's my hope that you would leave that to us to figure out.
And in return I promise that we will not do anything stupid.
We have a fantastic company on a highly profitable business, we have cash and easy access to capital, but are not compelled to acquire anything that isn't a great fit strategically.
Bold claims by new competitors can be fun.
And rumors can sometimes be fun too.
But sometimes rumors can be annoying.
And time consuming.
And on that very positive note, let me say again, we had a terrific year and add that I think we are poised for another 2% or three great years and our future.
Prior to 2020 into the COVID-19, pandemic <unk> already performing well.
Executing a strategy that we believed in and are firmly committed to our strategic intent to leverage immunoassay and molecular technologies to bring testing closer to the patient to democratize testing remains unchanged our ability to address the testing challenge presented by this pandemic.
Will allow us to invest in the manufacturing capacity that we will need in the future and affect the Covid pandemic has given us the opportunity and the funds to accelerate and in a way to de risk the execution of our strategy.
Randy.
Good afternoon, everyone.
The year 2020 was a significant importance to quite health and we could have not realized such substantial strides without Doug steady leadership.
And as Douglas said I'm truly impressed with the level of passion and dedication shown by our employees and.
And we are making a profound difference in people's lives and livelihoods, we had a great year in the midst of a challenging time and we believe that the company is well positioned for a strong 2021.
As reported total revenues for the fourth quarter of 2020, we're eight or $9 $2 million. This.
This compares to $152 2 million in the fourth quarter of 2019.
Foreign currency had a positive impact of $1 $4 million on the quarter and had a minimal impact on the growth rate.
The 432% revenue growth was due to the considerable demand for our COVID-19 diagnostic products.
Total COVID-19 revenue was $678 7 million of which $591 2 million was from our rapid immunoassay products and $87 $6 million was from our molecular products.
Within our product categories rapid immunoassay revenues increased $566 3 million to $631 $3 million in the quarter of 2020, driven by demand for rapid antigen Corona virus products.
Within this category Sofia products grew $573 $8 million to $624 million.
$587 $6 million was attributed to Sofia, Sars antigen and the Sofia combo ABC product sales.
The revenue mix was 46% combo, ABC test and 54% was antigen.
Quickly product revenue were $9 8 million of which $3 $6 million or for the Sars antigen product in.
In the fourth quarter as Doug had mentioned, we did not realize the typical ramp of distributor purchases of influenza strep and RSV as in prior years as we intentionally prioritized our production and shipments towards the Sars antigen tests.
As a result influenza rapid immunoassay revenue was $28 $1 million on the quarter was approximately 90% of that revenue derived from our Sofia platform.
This compares to $45 million on influenza revenue for the same period last year.
For the cardio metabolic immunoassay business revenue was $70 million, a 6% increase versus the fourth quarter of 2019 and up 8% sequentially.
Of the $70 million on cardio metabolic revenue $36 $4 million were derived from the triage business, an 8% increase from Q4 of 2019 and $33 $6 million from the Beckman BNP business, a 4% increase over Q4 of last year.
Per triage gross came from all geographic areas, except for China, which showed a slight decline.
This trend was realized within the Beckman BNP business as well.
Overall growth in our cardio metabolic category was broad based which is a very good sign for the category going forward.
Revenue in specialized diagnostic solutions category decreased 20% to $11 $5 million on the quarter, mostly driven by a decline on our respiratory products for our cell culture business.
Molecular diagnostic solutions category increased to $89 $4 million on the quarter to $96 $4 million driven by $87 $6 million on sales of our COVID-19 products.
So on a COVID-19 revenue was approximately $400000 on the quarter less on our internal estimates due to a later than anticipated EUA approval for the product, which was December 20, <unk> and that certainly had an impact on <unk>.
Impacted the launch we continue to see good growth for these products as more small and mid sized labs look to bring in molecular testing in house.
In the quarter total influenza revenue and this includes rapid immunoassay ehi respiratory and molecular diagnostics decreased by 36% to $32 $3 million.
Hiring was due to a very low prevalence of influenza in the fourth quarter as well as the introduction of our Sofia accountable ABC test, which is not included in the influenza revenue number.
Gross profit in the fourth quarter of 2020 increased $606 $7 million to sub on a $101 $5 million and gross profit margin was 87%.
This significant increase was a result of the introduction of high margin coronavirus products as.
As well as running significantly more volume through our manufacturing plants with relatively fixed overhead.
We continue to invest heavily in R&D with the goal of launching additional COVID-19 diagnostic assays advancing on our Savannah initiatives as well as introducing new Sofia assays on next generation platforms, such as Sofia Q, formerly known as project Sniffles.
From a sales and marketing perspective, we will continue to invest in people and resources to include expanded customer service support as we expand our customer reach and enter new markets such as at home testing and occupational health.
In the quarter, we retired $6 8 million on principal of our convertible notes.
We have now retired all the principal outstanding amounts on our convertible notes.
The only remaining debt obligations, we have on our balance sheet or a small facility lease obligation and the deferred and contingent consideration, which currently has a remaining principal amount of $136 million.
As it relates to our annual provision for income taxes, we recorded $230 million on income tax expense.
The effective tax rate was 22%.
<unk> tax obligations increased our rate above the federal statutory rate of 21%.
This was partially offset by the tax benefits from excess stock based compensation.
For fiscal year 2021, we're currently estimating a full effective tax rate between 22% 23%.
Excluding any potential impact of legislation, which as we know remains uncertain.
The upper end of this range is higher than previous estimates due to the increase on pretax income expected.
On the proportional impact of other rate him impacting items to this increased pre tax income.
Regarding our contract with the NIH, we are progressing nicely and achieving our manufacturing capacity goals.
We have achieved for the southern milestones and have received $26 million of the up to $70 million contract value.
As of this week, we have cash on cash equivalent of approximately 700 $760 million as we mentioned previously we have no outstanding and net indebtedness, except for the small lease obligation on contingent and deferred consideration.
In 2021, we are expecting to spend approximately $300 million on capital expenditures, the majority of which relates to plant capacity expansion.
And all we have a very strong capital structure and access to credit and excellent cash flow, which places us on a great position to support our future initiatives.
As we continue to increase our R&D investment strength and expand our supply chain.
<unk> ramp up our manufacturing capacity and pursue strategic M&A.
With that we conclude our formal comments for today operator, we're now ready to open the call for questions.
Thank you Sir at this time I would like to inform everyone in order to ask a question. Please press star one on your telephone keypad again that is C star one to ask a question.
We have your first question from Alex Nowak from Craig Hallum Capital Group. Your line is open.
Great. Good afternoon, everyone. Doug I wanted to go to the Bell curve right ahead here I just wanted to be clear about the demand for tests. A day did you say that test demand is still at an elevated level maybe back to the September level and that you are still having a hard time fulfilling all of these tests or have tested the market started to meet demand at this point.
Well I guess I'm, saying is that we had a spike.
October November December.
When you look back at where we were before.
The uptick in the fourth quarter.
We already had at that point more orders than we could fill.
And I believe that will be the case moving forward.
We do have a little bit of a disconnect right now in terms of product that's moving to distribution.
But in effect, we'll have to see what happens.
At the end user level, so through January to be specific.
I think it looks fine.
Im seeing some softness in February so far the first two weeks.
Which will look into I don't know whether its weather related it does appear though that in places where the weather is warmer.
Debt the test volumes.
<unk> declined.
Certainly.
That would be indicative of demand so I'm not sure. If that's the case, but based on what were seeing geographically.
The thing that people are not getting in their cars and going to urgent care centers to be tested on its whatever temperature. It is out there we.
We struggled to related Alex because we live in San Diego, but but I do watch the weather channel.
No.
And you mentioned being at this crossroad regarding entering new markets. So I guess what is the what gives you the okay to want to move into those markets, whether it's retail or pharmacy or entertainment travel et cetera is they're reaching a certain point on capacity that gives you. The the okay to move there or is it more.
More on the end customer demand for tests in those markets.
Our primary obligation is to the professional segment, we've said that all along.
And we've done a good job of keeping our share.
Shipments into those segments with the health of our distribution partners I do.
Feel like as we ramp up manufacturing capacity, though we will eventually get super comfortable that we can supply everything that we're being asked to.
That are tied mainly at this stage to all of the Sofia analyzers. So.
We're still placing analyzer, we're still gaining new customers and I just want to make sure that if we start somebody that we don't immediately put them on back orders. So.
But I do think there is hope that we can begin to address that I've got a group of people that is focused on it.
Pretty large group of people focused not only on the new market segments, but also looking at.
At home testing through various vehicles, including retail pharmacy of but there are other couple of channels that we're looking at as well.
So.
I think within this first half of the year, we will feel more comfortable that we can address.
More of these segments, but.
The question's a good one because when you do.
The analytics when you do the analysis.
On who could potentially fit into those categories. The number adds up on the sheet I just looked at earlier to about $400 million.
Folks and then you have to apply whatever frequency of testing that you want to that model and you can get to some pretty big.
<unk> pretty quickly so I think.
The.
On the opportunity is.
As fast.
And we just want to make sure if we make a commitment let's say for example to doing airport testing.
That we can handle that volume reliably and sustainably.
We don't want to be in a position, where we can't do what we say we're going to do.
Yes understood. There and then just last question you mentioned a quick few OTC and I know a lot of people are waiting for this test I think it would be great for Codell, but also I think we all want this test for our homes. So it was originally expected debt. The quick you OTC would get approval late January early.
February where obviously beyond that so just where do we stand with discussions with FDA for approval of this assay is it still going to be OTC are we looking at on Rx.
Just any update on the on the at home component would be really helpful. Thank you.
Sure. So we continue to conduct studies and it's true Alex that we don't have the approval that we had hoped at this time, but we are in the middle of conducting additional studies and gathering data.
To support that OTC submission.
Especially studies and the asymptomatic population.
And in that population to be transparent, we need to find more positives.
And in some areas, where we've been collecting those data.
Because of the frequency of testing.
They've been weeding out the positive so it's harder to find positives when you go to sites that continually test frequently because.
Unless you are able to go directly to their contacts.
It's really hard.
Times to find all those positives so we're going to continue to work on that.
And obviously that's in progress in the meantime, we've submitted for a prescription use claim.
Which we had not thought we would do but the reason that we're doing that right now.
That debt Rx claim for at home use is so that we can support a number of studies that we've committed to in the short term so under a blanket prescription we're going to be able to conduct the studies that we had committed to and so we're going to go ahead and do that our goal though is unchanged.
And then much of the quick <unk> Sars <unk>.
Manufacturing this quarter, however may be sold on the point of care professional segment.
While we work through the last details of getting to the OTC claim. So I don't have any reason to believe that we won't get there, but you are right. We are not where we want it to be quite yet so.
There will be virtually no impact in Q1.
In terms of at home testing for <unk> other than the studies that were supporting that we had committed to the government to do.
Okay understood. Thank you.
Sure. Thank you.
<unk>.
We have your next question from Steven Mah from Piper Sandler Your line is open.
Great. Thanks, and thanks for taking the questions.
So just a follow up to Alex's question about quickly OTC.
Heard of.
I know you said youre going to be conducting additional studies to support the OTC.
Sure.
Per FDA and maybe can you talk about some other discussions you've been having with FDA now evolved over the last month or two.
Yes, the MTA has specific requirements as a template that we must complete and fill them and meet their requirements.
We don't have the positives on the asymptomatic population yet to support our submission that's the primary thing that.
Is the obstacle in front of us.
This this is not this is not the FDA being difficult. This is us finding it difficult to find a positive so.
We have had active dialogue.
We were in the interactive phase.
We just don't have the data yet.
Port that so we're now.
Generating additional studies.
More sites more locations.
In order to find those positives.
PS presumed.
Asymptomatic.
Debt that we're testing does that makes sense Steve.
Yeah that makes sense.
Just heard of a few other test manufacturers getting additional requests from FDA. So it sounds like its just youre just doing a normal submission it's not nothing on the FCA side.
So the way the process works is you submit a pre EUA.
And then.
You do studies and you enter into what we would call. The interactive phase and then we go back and forth explain this talk about debt can you give us data on this.
And that is normal it's not peculiar to the EUA process. This is similar to what is done on a five 10-K as well so there's nothing new there.
This does nothing arduous.
It's just hard work and it's not the FDA is fault, we owe them the data.
Yes, Okay, alright, thanks for clarification and has has the delay affected your discussions with its retail partners. I know previously you had said you'd been talking to a potential retail partners. So quick D. OTC.
It's creating discussions across a number of the channels to increase to include the retail.
Pharmacy, Steve I wouldn't say that our entire OTC strategy is reliant on any one particular channel, but youre right.
We've obviously had to.
To be very open in terms of timing and a couple of things that we had planned from a marketing perspective, we're going to have to push back.
One of the events to be nameless was actually an annual event, which we're going to we're going to mess. So.
<unk>.
Unfortunate but.
From a revenue on margin perspective, it has very little impact because of that same product.
We'll simply shift to the point of care professional segment, where we are.
We have demand for the product there so but.
Disappointing sure I'd like to be further down the path, but I don't think it's I don't think it's a show stopper at this point.
Okay, great. Thanks, and my last question, so the bite and administration announced a $1 $6 billion investment too to support testing on on Wednesday.
Can you discuss any any conversations you've had with them I know it looks like you guys are lacking some of the kit reagents for for Sofia and Thats, causing a.
Not to be able to manufacture as many.
Covid tests.
Do you think theres going to be an impact and have you.
Do you expect to receive any of that money.
Debt was a multipart question, let me just start with Sofia manufacturing, we very clearly can manufacturer of the number of cartridges debt.
We were expecting to at this stage, we have completed line seven it's validated we demonstrated that to the satisfaction of the RF <unk> team at the NIH.
So that's all progressing very nicely.
Line eight is actually running ahead of schedule.
And on line 910, 11, all come right. After that so the issue. Obviously is I think youre, suggesting is on on the cartridges. It's on the supply chain of all the other things and as I tried to point out in my.
Formal comments that we think we've done a pretty good job on the fourth quarter of shoring up some of the some of the variability around some of those things so im not really anticipating.
Big lag as we move forward in terms of our ability to kit and ship.
On the products that are needed. So there's no issues, there, particularly with respect to.
Sure.
To your second part defined administration's discussion on on what they'd like to do.
With the 1.6 billion on funding.
As I read around $650 million that would be for schools.
And then they're going to go directly through.
With their calling new coordination hubs.
I will be very eager to understand what that means and how.
They would want us to participate I would suggest to you that right now.
The government conversations that iron ore that we're having are mainly centered around the quick <unk> product because of the ease of use.
And the.
And no requirement for an instrument.
And other factors so.
The Sofia.
Manufacturing capacity.
Probably continue to be dedicated to.
Two our professional segment.
Here in the U S and potentially elsewhere. Just this morning I read on E mail on I learned that we had just been cleared by the Japanese Ministry of health.
To ship product there it is.
Now cleared there and I don't know what their volume requirements will be but that will come out of the Sofia capacity as well.
And then there is another.
800, or so million dollars around the things that go into these kits slight nitrocellulose.
Specific injected molded plastics, and all that sort of thing, which frankly from our perspective has not been an issue so that $800 million in spend doesn't.
At least as far as I can tell we won't have any impact on anything that we do.
Does that answer your question, Steve Yes. It did yes. Thank you.
We have your next question from Brian Weinstein from William Blair. Your line is open.
Hey, guys. Good afternoon, thanks for taking my questions.
Hi, Brian.
So let's talk on a little bit about expectations going forward. Here you guys had said to assume kind of a flattish Q1 and talked about I think a doubling of revenue in 'twenty one over 'twenty.
Is that still kind of the expectations and I wanted to clear here because I think there is some belief that a delay relative to expectations on her T. C impact your revenue outlook and that's not how I understood. So I just want to.
And to be clear on.
Chemicals expectations.
The delay in OTC.
We will have no impact and in fact to the extent that the pricing.
Be different.
Actually in a funny way it would be advantageous to Q1 exactly C. I just want to be clear their debt.
C here delaying their.
By a quarter or two and actually maybe even waiting until we have much larger capacity to manufacture quick view.
In a funny way helpful.
It's still on Forecastable, though Brian.
And.
The annual target.
Annual aspiration goal.
What I like to double the revenue.
We sure are going to do everything we can to make sure that that happens but.
From quarter to quarter right now it is not Forecastable, we have no control over prevalence and timing.
We don't ship direct to most of our customers.
When will the next wave wave four people are calling on when is that going to happen when impact will that have when will we see another spike.
Thats going to be on its warmer so.
How much longer are we going to C.
These these really cold temperatures.
Epidemiologists set be wary of the perfect storm of flu on top Covid do you remember in the winter.
And people were pleading with those customers and the government to please manufacturer <unk>.
A combination assay. So we built about 9 million tests.
And sold all of it in Q4.
And yeah.
And we had no flow.
And we have no fluid now.
So.
Therefore, we're really not able to manage our business from quarter to quarter.
As we may have done in years past.
Based on interactions.
With experts and government officials, we think we should continue to pursue our longer term strategy.
We have a fundamental belief.
Debt more testing for Covid and other.
Existing and emerging respiratory.
And other infectious disease pathogens will be needed and so we're building manufacturing capacity. So I do understand that people would like to model.
And I really do but right now with all the variables variables in front of us.
I think it's on Forecastable.
I totally appreciate that answer and thanks for the clarity on.
Especially on the comments on how OTC would not impact revenue, but you did say earlier just about six weeks ago that you did expect a flattish Q1 to Q4, we were.
Two thirds of the way through roughly two thirds of the way through the quarter for this quarter does that comment still stand is that kind of where you want people thinking it was relatively flattish Q1 versus Q4 or do you have.
Any kind of additional visibility there.
Well from a starting point, Brian, Let's just talk about what we do know there is no flow.
Well.
Theres very little flow.
Not enough to generate more orders for combo product.
And that combo product, we sold 9 million tests in the fourth quarter and approximately $10 higher than we charged for Sars only.
So just from a starting point.
Alright, just to go quarter to quarter, we're already we're already playing catch up.
Understood.
I don't have anything further to tell you I don't know what that means because I could have we could have an uptick in the quarter as well.
And who knows what could happen and so I really think Brian it's on Forecastable.
Just as we thought we were going to see flu.
At some level and that people would be running the combo product.
So that was on our initial model and I guess, what I'm, telling you right now.
Yes.
I just doubt that we're going to see flu at this point and.
In Q1 were halfway through February.
Yes understood.
Second question is around this evolving use case for testing.
Symptomatic cases are coming down a bit.
For right now at least I am curious about the evolution of the use case here in the seriousness at which you think that these use cases are developing I mean, we've heard a lot for nine or nine months or more of our cruise lines about Eric about airports about travel entertainment and theoretically I completely understand and agree with jon's, but.
Curious kind of what you're seeing from those actual entities as they think about what they need to deal with in order to gain public trust to have people come back and enjoy entertainment on market on airplanes or whatnot.
C. A radical things that you guys are working through or are these representative of actual substantive discussions that you guys are having and are trying to figure out whether or not you could supply.
Thank you for that question actually we had a conversation as I was walking down the hall.
With Rob yesterday with.
And Officialize D NIH, who was talking about what we could do to work with them to see if we can figure out how to get people back on restaurants.
So these are live daily conversations we're having.
I've heard some of the bold projections being tossed around.
Bold projections as I said earlier our fun.
But since we're actually in market and are having conversations with real people across various new market segments, who are asking us to set aside volumes for them.
Our definition of market sizes, obviously, a bit lower but it's still large for the OS.
<unk> segment, only our customer survey research.
Actually look at it while I'm talking to you Bryant.
Points to an estimated potential market size of about $4 4 billion tests per year, just here in the U S. Assuming current levels of infection and public concern I know that there are people out there with larger projections than that but we looked at adults who are both very interested in the at home Covid test.
And are the main decision maker.
Those who are both.
That are interested in at home testing, it's about 24% of those surveyed so about a quarter of the people that we talk to debt were adult.
And actually we're a decision maker in their home, 24% said, they would and we looked at across several categories people, who would be testing themselves.
Or their spouse or partner or their children and their parents.
Or others, we looked at also people, who said they would test daily a few times per week once per week few times per month once per month. Once every few months.
Or only when symptomatic to arrive at the numbers that we have so I do think that demand actually out there Brian is real based on the research that we're doing.
And so we are going to.
Increase our capacity in order to address that particular notion and segment, but we're also going to look at those other new market categories as well so what I would say in summary is we think there is a legitimate category that we're calling new markets.
That includes travel entertainment.
Dining and other uses.
And also includes OTC.
And I think the numbers are large.
And we are engaged actively in conversations with people, who formerly we told we're not ready yet.
We're now this quarter finally able to say hey, we think we're going to be ready.
Q2 on Q3 or whatever so.
Is that essentially what you are asking yes, yes.
Great. So the demand side looks great.
We determined that.
How does pricing look as my last question. There is what are you seeing on price, obviously, Tom you talked a little bit about cutting price pretty significantly on his call on I'm. Just curious kind of what you are seeing in the market as it comes to price it and how you think about price volume.
Thanks for taking all the questions guys.
Youre welcome Brian its a legitimate question but to be Frank.
I'm really not thinking about price and price competition in the professional market segment at the moment.
So if your agreements are priced at one single price regardless of volume.
Across the United States.
And they are multiyear agreements.
Further there is no revenue or gross profit incentive for our distribution partners to erode pricing.
As our manufacturing capacity expands as though and we're able to address transactional new market opportunities, it's likely that we will price products differently by segment or what.
We call class of trade.
Certain market segments, I can already see that the price may need to be different.
And we'll address those as they come along but if we're looking at our bread and butter our core market.
We're not seeing price at this point in time.
And certainly the people who.
Did that they are lowering their price we have not seen them have success.
We have your next question from Andrew Cooper from Raymond James Your line is open.
Hey, guys. Thanks for the questions.
I'll start.
Just on on the Capex color can you give us a little bit more insight on obviously job growth capacity expansion look like to you for Sofia.
For the distribution facility.
Then moving some first Savannah as you think about that product coming to market. So is there anything else to think about or any way you can sort of health side. Some of those moving parts on the on the Capex then rolling through 2021.
Yes, probably the most significant on one that we've added as our new facility.
<unk>, we're ramping up our quite few manufacturing.
We had mentioned on.
Alright, Jpmorgan conference, we entered into on a lease agreement for a facility in North County here in San Diego and we.
Basically right.
Kind of refurbishing the facility by the end of this year, we'll be able to manufacture.
<unk> million on quite a few tests our model.
It's probably half of that $300 million is that investment alone.
On that as you mentioned.
On line seven through 11 on Sofia Savannah, we are.
Accelerating our automation and that's all there is.
Incrementally a little more than what we have thought maybe six months ago on that investment as well.
Okay. That's helpful.
You mentioned sort of some of the conversations that about a month ago. So.
One other things that stuck in my head with just a comment I was hey, we think we can sell everything we can make every quarter pretty bluntly stated.
Has that changed at all or do you still think you can whether that means more international or potentially there is some timing dynamics around getting to the OTC markets or some other sort of new markets as you describe them.
Any commentary there to sort of square the circle on what you said a month ago versus where we sit now.
I still firmly believe that we can sell everything that we make.
As we get to the $50 million a month total 70 million tests per month.
Not counting molecular.
We think.
That there is a home for all of that.
Clearly the demand exceeds what we're manufacturing now and so we're going through right now is some soul searching around do we try to forecast what's happening in the professional segment and see if we can take this modest inventory we're now building.
And push it somewhere else.
So.
It's not a demand issue on <unk>, that's the timing on allocation.
Which obviously over a few quarters will sort itself out but.
Matching up.
Demand and timing at all.
We will be the key to <unk>.
Moving on the product but.
At the moment at least through the first two or three quarters of this year.
Again, there is a way more demand for our products then we can they can currently supply.
Okay, Great that's helpful.
And maybe just last one on on Sofia SKU.
What should we be looking for how can we be thinking about it.
That moving through the regulatory process and potentially yes.
Maybe a quick do you wait to get OTC.
Pushing that to some of these other use cases.
Just any color there I'm sorry on how you how you compare one versus the other when we think about some of the alternative market for steel.
Well, that's an insightful.
Thought because Sofia Q, while it could be applicable.
In retail pharmacies or or or at home.
There are a number of locations where.
Because of the smaller volume.
Per site.
<unk> with its lower cost would be more applicable.
So if you're a cue with its low cost also.
Tables us to expand.
Globally in a way that we couldnt because it costs with the cost per Sofia too so.
Yes.
I. Thank you for your question because if we've given you the impression that Sofia Q is strictly for at home here in the U S.
That's not actually what we're thinking we're thinking that and several other use cases.
Okay. That's helpful. I appreciate the question.
Yes, I think we have your next.
We have your next question from Jack Meehan from Nephron Research Your line is open.
Thank you good afternoon.
Doug maybe just.
One bigger picture question I was curious to get your latest thoughts on some of the Covid variance and how you think the antigen test.
Performance looks like for some of the variance versus.
What the tests have been approved for so far.
Your question is timely Jack.
Just it sounds like I walked the halls here, but I just ran into our head of R&D on all.
About an hour ago.
And where we were on the study that we're getting but we manufactured recombinant proteins that mirrors the sequences.
In the nuclear capsid proteins of the variance there recall for example on the B one seven that there were three mutations of the 17 that affected the nucleocapsid protein.
So we manufactured these recombinant proteins are basically look like these variance.
We tested them with both Sofia and quick view.
And they both look very good when testing against those proteins, even at low concentrations.
And what's interesting is we also looked at three other companies.
Who have similar products to ours.
And their performance with recombinants and the good news is two of the three actually look fine.
And the one other appears.
To be.
Less useful at lower concentration. So we will publish set study here shortly.
I mentioned that only to suggest that.
It's not a lay up on your question actually is irrelevant.
Good to know.
So, let's turn to the molecular side then.
I was wondering if you could just give us some thoughts on what youre seeing in terms of your demand on the first quarter I think that kind of surprised everybody last year in terms of the initial demand, but as testing is coming down what are you seeing there.
On the flip side with Salon.
Building off of basically a base is euro.
Revenue contribution do you think that could contribute.
Sure Lira sales right now are relatively flattish we came out of the quarter doing pretty well, we had forecasted internally to do about $60 million for the quarter. I think we did 83 ish something like that so we actually did better than we thought.
Our holding steady I do recognize it in some situations the big labs are seeing less demand.
I've heard at least one of my colleagues that hasnt molecular products out there that they're seeing lower demand, we're not actually seeing that at the moment.
Interestingly.
Nothing of significant.
Reduction at this point.
On the Salon aside it's early.
We've got a little bit of a lag because customers.
We are competing with vaccine site for.
<unk> safety freezers.
So right now the vaccine sites are winning.
But we are slowly getting the customers there.
Freezers that they need in addition of course.
Same customers will need to validate so we have a little bit of a lag but for the most part we have a pretty long list of customers that are in process.
<unk> up.
Were doing about a half a million test from a manufacturing perspective per month.
Obviously, we're on the process of now.
Ramping up so it's early days, we hope to get to about 1 million tests per month here shortly.
Great and last question on.
The press release I was very excited to see savanna coming soon so I was wondering if you could give us a progress update in terms of the EUA submission.
And what the commercial strategy look like.
Yes.
Well, we just started the trials Tuesday.
We will have a limited launch in the year, we're expecting the manufacturer about $1 2 million cartridges.
And to have about.
Uh huh.
Instrument, let's see I'm going on just ads in front of me here I've got a chart checks.
30.
About 1000, or so instruments in that range, maybe a little bit more than that but mainly to do.
The trials and then on studies and develop use cases.
And.
Hoping to have a pretty meaningful impact in 2022.
Cartridge manufacturing ramp up but also instrument ramp up throughout the year, we'll submit the EUA.
In pretty short order in Q2 actually so we should be on pretty good shape.
We're going to make a comment like where are we expecting this in 2015 and the answer was yes. So we're only slightly delayed.
Hi.
To contain myself I do remember the Philadelphia, ACC and that was great.
Eagerly awaiting for it so.
So it was a while ago good to catch up thanks, guys.
Thank you Jack.
We have your next question from Tycho Peterson from Jpmorgan. Your line is open.
Hey, Thanks for fitting me in on this.
Standing Youre reiterating your manufacturing target tier $240 million on Sofia $600 million quickly can you just talk about how much inventory you're building for the OTC launch so how much you're diverting away on the professional channel.
Over the next couple of quarters ahead of the OTC launch and then what's the latest thinking on pricing for OTC.
Yeah, we're not we're not building a lot of inventory at this time for that because mainly because I don't have clearance yet we do have in mind that debt.
<unk>.
A few million tests that we would build in inventory.
But it would move Tycho almost immediately into the channel. So we're not stockpiling anything at this stage for that launch.
Rather we're taking the beauty is that we're taking that same product, we're simply moving it into the to the CLIA waived point of care space.
So theres really no.
It's kind of a nice thing actually I don't have to hold inventory waiting for something because I can use the product elsewhere in terms of pricing.
Going to vary depending on how we actually move it in.
Sure.
You can imagine on the different sorts of channels that might be.
<unk> deployed we do have in mind.
The pricing strategy for the retail segment that has been put together in conjunction with a couple of different retail partners.
And the pricing actually is not bad.
Okay.
I wanted to revisit some of the discussion on the nonprofessional channel as well I mean, so far a lot of other segments you referenced.
Sports arenas and alike require PCR test 72 hours in advance based on what we've seen and I think the CPC actually came out yesterday and said they are not requiring on site testing in airports.
I guess the whole PCR antigen debate still persists.
Our view that the quality of the antigen.
Is not that much of a hurdle for adoption in some of these markets debt so far seem to be asking for PCR.
I am saying, absolutely that's okay Tycho.
I think what youre going to C is.
People are getting tired of the we're more sensitive argument.
And I think youre going to see an avalanche.
Demand shift over to rapid and I think the government is going to be interested in making sure that happens but.
So are the folks out there I do respect the idea and we manufacture of PCR tests that it has.
Has use cases that really matter and that are that are.
Important.
In terms of the things that we're talking about doing.
It's pretty clear that it's not useful to do PCR.
And.
So thats my belief I realize that you don't necessarily believe that but.
But that's our belief.
Last one I guess, just as we think about durability here.
The strength.
It's been a slow rollout on the vaccine is your view of kind of the tale of the testing into the back half of this year and potentially it really next year changed at all kind of mixed things from the manufacturers.
No.
Dealing with what seven variance now in the U S. B 117 in the South African and Brazilian we just saw our first debt some.
On an elderly person on because of the Brazilian vary.
I don't know, whether we'll be able to stay ahead of the variance.
Boosters over time I hope that's the case, but in any event I think it's pretty clear that we're going to see a combination of either continued.
On frequency.
Antigen testing.
Or we will see.
On a serology testing using <unk>.
Products like the Sofia Serology assay in order to two.
Continually understand whether you indeed have.
Some tighter.
Which which would be helpful. In terms of neutralizing whatever we have and I do think that there is a belief by the way that on.
Some of these cases that the antibody is being developed.
After inoculation are going to be somewhat effective against.
These variance, but the question is amongst some of the experts at what tighter.
And will it be necessary to.
To maintain a very high titer in order to actually demonstrate that you can neutralize whatever comes your way.
<unk>.
So therefore, I believe that semi quantitative.
Screening.
It could be helpful. As well, so I think we're positioned whether it stays antigen or as it goes for allergy semi quantitative tranche.
Quantitative I think we're on a pretty good shape either way.
Okay. Thanks.
Thank you Tycho.
Alright that is all the time, we have today.
Please proceed with your presentation or any closing remarks.
Yes, thanks, operator, and thanks, everyone for your support and for your interest in quite a while we had an excellent fourth quarter on a great year end.
We are well positioned for success I believe over the next few years, thanks very much.
Ladies and gentlemen, we thank you for your participation and ask that you. Please disconnect your lines Goodbye.
Okay.
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Yes.
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Okay.
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