QuidelOrtho Corp (QDEL) 2004 Q1 法說會逐字稿

Welcome to the Quidel 2004 First Quarter Financial Results Conference Call. At this time all participants are in a listen-only mode. Following management's prepared remarks, we'll hold a Q&A session. To ask a question please press "*" followed by "1" on your touchtone phone. If anyone has difficulty hearing the conference, please press "*" "0" for operator assistance. As a reminder, this conference is being recorded, Wednesday, April 28, 2004. I will now like to turn the conference over to Ms. Ina McGuinness. Please go ahead, ma'am.

Thank you. This is Ina McGuinness with Lippert/Heilshorn and Associates. Thank you all for participating in today's call.

Earlier today, Quidel released financial results for the first quarter ended March 31, 2004. If you've not received this news release or if you'd like to be added to the Company's distribution list, please call Lippert/Heilshorn in Los Angeles at 310-691-7100 and speak with Allen Tang (ph.). Today's conference call will be hosted by Wayne Kay, President and Chief Executive Officer; and by Paul Landers, Senior Vice President and Chief Financial Officer. Today, the call will begin with prepared remarks by management followed by a question-and-answer session. I caution that this call will include forward-looking statements within the meaning of the Federal Securities Laws. It is possible that actual results could differ from these stated expectations. For discussion of these and other factors, please review Quidel's Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q as filed with the SEC.

This conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, April 28, 2004. Quidel undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. I will now turn the call over to Wayne Kay. Wayne.

Thank you, Ina, and my thanks to everyone joining us today for our update of the first quarter financial results and accomplishments. In terms of the structure of today's call, I will begin by providing an overview of the first quarter market dynamics for our point-of-care rapid test including a focus on our three key product categories influenza, strep A and hCG. I will then provide an update on our patent infringement litigation with Inverness and its affiliates. Lastly I will address an update of our ongoing R&D work, utilizing our proprietary LTF technology platforms and speak in general terms about a very promising strategic collaboration we have underway. Paul will provide details on the quarter's numbers and then we'll take your questions.

Let's start with a review of Q1 market dynamics. When we pre-announced the quarter on April 7, we noted that our financial results reflected an unexpected decline in sales of upper respiratory products beginning mid-quarter with lighter-than-expected domestic sales of influenza and strep A test in the last month of the quarter. This decrease was largely driven by sharp fall off of influenza outbreak in the U.S. and in a typical strep A seasonal demand, which based on the market share data available to us affected other manufacturers of similar point-of-care upper respiratory test in the U.S. This overall decrease in disease incidents is supported by data from the U.S. centers for disease control and prevention on influenza outbreak in the U.S. for the months of January through March. Compounding the situation in this country, Japan experienced a very mild flu season. I note the lightest flu season since we launched our flu product in Japan 3 years ago.

Paul will be providing a report on certain product revenues but let me give you some of the important data that reflects favorably on Quidel's leading marketing position for each of our three key product categories. Looking at our influenza test product, here are the relevant facts. The sales of our QuickVue Influenza test in the U.S. during the first quarter of 2004 were up 37% compared with the first quarter of 2003, notwithstanding the sharp fall off of Influenza experienced in the quarter. According to our post-market served -- our post-season market surveys 2-3 times the number of physicians are using Rapid Influenza test in their offices compared with the prior Influenza season. Importantly among physician offices utilizing in-office rapid fluid test, 83% are using the QuickVue brand. Looking at the most recent market share data available for the past season, our flue market share now stands at 49%. We believe the majority of our market share gains are coming from the next largest player whose declining share now stands at 37% as well as growth which we driven in the physician's office segment.

In Japan, our RapidVue Influenza test commands a market leading 27% share. Comparing the entire 2003-‘04 flue season with the prior season, domestic sales of our Influenza product increased nearly three-fold while the global -- on a global basis, sales increased approximately 47%. Also during the quarter our new QuickVue Influenza A+B test, which aids into differential diagnosis of acute influenza type A and B was granted a clear waver from the U.S. Food and Drug Administration. In Japan, we’ve begun the transition of this new test and in the U.S. this test will be a companion product to our currently marketed QuickVue influenza AB test and will be introduced later this year. This new test is important tool in our strategy to remain a leader in rapid influenza testing. The Japanese point-of-care rapid testing market particularly in the hospital and acute care segment historically has been about $20 million. In the U.S. this new test opens a new end-user customer to us, namely the approximate $25 million acute care market segment.

Turning to Strep A based on distributor out sales data, we believe there was an industry wide drop in the number of Strep A tests sold by manufacturers in the first quarter of 2004. Our domestic sales of Strep A products were down about 37% on a year-over-year basis. However, we believe we maintained our category leadership, and our 43% market share is nearly three times that of the markets next largest player.

Our domestic pregnancy test sales increased 12% during the quarter over the prior year. In this more mature market, our share of the professional hCG market held steady at 50%., which is more than twice the size of the next largest player. In the aggregate, all other Quidel immunoassay point-of-care products performed consistent with our expectations.

Let me now update you on your IP litigation. As I am sure, you will understand what I can say on this subject is limited, but I would like to inform you of the status and timing of those in Europe and in the U.S. Inverness filed a complaint against Quidel in Germany alleging that the company infringes two European patents held by Quidel -- sorry held by Inverness and its affiliates. On March 16, Quidel's German affiliate was represented by a council at a hearing in Dusseldorf to confirm that it will defend its position. So far that is the extent of the formal proceedings. The next step in the process will be for Quidel to provide a non-infringement defense to the court, which we expect will occur within the next 90-120 days.

Separately, Quidel filed a complaint in the Southern District of California on February 20 against Inverness Medical and Applied Biotech alleging infringement of one of our key lateral-flow product patents. We also asked the court for declaratory relief that certain Inverness patents which the Inverness company's have asserted against other manufacturers are not infringed by Quidel and/or that they are invalid and unenforceable. In response, Inverness has sued Quidel for infringement of some of these patents in Quidel's complaint along with another. We can not speculate how long this legal action will take to resolve. On May 17, there will be claim construction hearing called a Markman hearing to interrupt Quidel's [inaudible] patent and three Inverness' patents. Following this hearing, each party is expected to bring a motion for preliminary injunction and which it will seek to enjoin one or more of the other company's products from being marketed while the case is continuing. These motions are currently scheduled for a hearing on July 12.

I want to reemphasize that we are confident in the strength of our intellectual property and our freedom to operate. These actions are being taken very seriously by Quidel, and our intention is to protect our base business from an increasingly aggressive competitor. We have very strong legal teams in place both in the U.S. and in Europe. Our domestic litigation counsel is Irell and Manella of Los Angeles, and our patent counsel is Townsend and Townsend and Crew from San Diego. Both firms are leaders in their respected areas of practice. And our lead litigator is Morgan Chu who is preeminent NECO (ph.).

Turning to our proprietary LTF Technology platforms. We continue to drive the development of Strep A Rub N Read and immunoassay platform. The goals of the LTF Technology are multiple including improved product performance, ease of use, and lower manufacturing cost. As you may recall, our LTF development program consist of three platforms; chemistry, enzyme, and immunoassay. Our LTF chemistry platform is the foundation for our currently marketed QuickVue advanced pH and amines test and its [inaudible] test which is under review at the U.S. FDA. The LTF enzyme platform is a basis of our currently marketed QuickVue Advance Gardnerella vaginalis test. It also is a platform on which our Strep A Rub N Read test has been undergoing development. This most recent season's product development field testing indicates that we have not yet achieved an acceptable level of clinical performance. Thus we may not perceive the clinical trials with the Strep A Rub N Read product in 2004 is indicated earlier. While we are continuing to address these technical challenges we are also pursuing a parallel development path for the successful completion of a superior and easy to use point of care Strep A test on LTF. Because of our depths of experience on the lateral flow immunoassay platform along with the designed feasibility work to date on the LTF immunoassay platform, we remain confident in our ability to successfully deliver this LTF platform with the flexibility to support a broad array of analytes. We believe that the LTF immunoassay platform design will be completed this year as previously stated. Once this is accomplished we can then anticipate delivering LTF immunoassay products to the market.

We have great enthusiasm and high expectations for the LTF platform and for its commercialization utility. I am delighted to tell you that the value of our technology is increasingly being recognized by other companies as well. We have talked for some time about progress with our strategy to out license the LTF technology and I am pleased to share with you news that we are working under an exclusive co-operative agreement with a Fortune 500 company to develop a new product incorporating Quidel's proprietary LTF technology. This exclusive arrangement includes initial and milestone payments. While operating under the co-operative agreement both parties are in the process of finalizing a joint-development agreement to take the product through clinical studies and regulatory approval. We expect our partner to market the product over the counter under a royalty-bearing supply arrangement with Quidel. We also are engaged in a similar effort on another major product opportunity and are considering product family extensions that will provide for a robust product portfolio offering for multiple channels and markets. We see this arrangement as a highly targeted expansion into new markets, paving the way for building a pipeline of out license product consistent with our stated strategy and opening up new markets for Quidel's technology-based product. Now, I will turn the call over to Paul to review our financial results for the quarter. Paul.

Thanks, Wayne. Total revenues for the first quarter of 2004 were $19.7 million compared with total revenues of $24.4 million for the first quarter of 2003. Let me focus on revenues for our three key product categories. In the Influenza market, we posted an increase in sales of approximately 37% to $5.3 million in the United States; this was more than offset by a decline of approximately 73% or $4.8 million in Influenza test sales in Japan. As a percentage of total sales Influenza revenue accounted for 37% of first quarter 2004 sales compared with 43% of sales in the first quarter of last year. Strep A product sales for the first quarter were $3.8 million, compared with $5.3 million from the comparable quarter last year. As a percentage of total sales, Strep A sales accounted for 20% of Q1 2004 sales compared with 22% of sales in the first quarter of last year. Quidel continued to enjoy the market leading position in the professional pregnancy test market, where sales increased 9% to $3.5 million and accounted for 18% of first quarter sales compared with 13% of sales in the first quarter of last year.

Shifting from revenues, I would like to overview gross margin, operating expenses and net income. Gross margin for the 2004 first quarter was 51% compared with gross margin of 54% for the first quarter of 2003. The lower gross margin was due primarily to lower sales of our higher margin influenza test. Operating expenses for the first quarter of 2004 decreased to $9.6 million compared with $10.3 million for the first quarter of 2003 due to the closure of our sales offices in Germany and Italy and other restructuring activities in 2003. General and administrative expenses were higher, largely due to the increased legal fees related to our IP litigation partly offset by decreased professional fees. Net income for the first quarter of 2004 was $0.3 million or 1 cent per share on a diluted basis compared with net income of $1.7 million or 6 cents per share in a diluted basis for the first quarter of 2003.

Turning to the balance sheet, cash and cash equivalents as of March 31, 2004, were $38.9 million, up from $25.6 million at December 31, 2003. Working capital at quarter end was $55.4 million, up 12% from $49.5 million at year-end 2003. Accounts receivables days outstanding were 60 days and the resultant quality and collectivity remain high. Inventory turns at 3.3 times decreased from 5.3 turns in the immediately preceding quarter due to lower sales volumes as mentioned earlier. Capital expenditures during the first quarter were approximately $900,000. We remain confident that our continued focus on achieving operational efficiencies will deliver improved balance sheet metrics going forward.

We are reaffirming our financial guidance as announced earlier this month. We expect 2004 total revenues of $100 million to $105 million and 2004 earnings per share on a diluted basis of 23 cents to 25 cents. This guidance assumes the 2004-2005 cold and flu season will reflect typical global product demand patents. We caution that the unpredictable severity and timing of Strep and flue 2004-2005 season worldwide could materially impact positively or negatively Quidel's revenues and earnings for the quarter and for the year. And now Wayne and I will be happy to take your questions. Operator.

Ladies and gentlemen, if you wish to register for a question for today's question-and-answer session you will need to press "*" followed by the number "1" on your telephone. You will hear a prompt to acknowledge your request. If your question has been answered and you wish to withdraw your polling request you may do so by pressing the "*" followed by the number "2". If you are using a speakerphone please pick up your handset before entering your request. One moment please for the first question. Your first question comes from Adam Chazan with Pacific Growth Equities. Please go ahead.

Hey guys thanks for taking my call. Let's just kind of jump into the news on the partnership here. Can you talk a little bit about kind of what happened on the balance sheet with deferred revenues, where there any changes that were material and when will we actually be able to get a formal identification as to who this party is and more detail on the scope of the project you guys are undertaking now?

Yeah. Adam this is Wayne. Let me comment on the couples of items and then let Paul speak to those financial accounting related issues as well. We certainly recognize some of those revenues and I said Paul will comment on it. As I spoke we have a definitive cooperative agreement. We are finalizing both parties right now, a joint development agreement and this JDA will have additional no doubt financial payments and milestones associated with that overtime. We are not prepared to comment on that obviously with that not yet being culminated but we believe that a future event that we are both hopeful of completing and reporting. As we have those agreements in place Adam we will do our best to provide additional color on exactly what we are doing. But I think it's important to understand that the partner that we are dealing with is particularly sensitive and we are strictly bound, as you can appreciate to a confidentiality agreement with that party. They are a Fortune 500 company, they got a proven ability to broadly market products in several channels and we believe make up an ideal first extension of our products into these new channels and markets which we intend to exploit. But I think to comment anymore would be difficult again given our confidential commitment. I may ask Paul to comment on the financial accounting.

Adam, this is Paul, as of the first quarter, everything is still been, stays on the balance sheet, and there has been no material change since year-end. However, as you can imagine with the contract accounting, we believe with the future period cash receipts of around milestone achievability that we will begin to recognize into the P&L revenues as we move forward this year.

Okay.

And Adam, let me just add, the kind of a peak to what we would expect going forward in this next phase from this joint-development agreement, it's obviously too early at this point for us to forecast sales and a full P&L impact but presuming that we are success on our efforts to gain the regulatory clearance and if our marketing partner is further than successful in the launch of the product which we both are presuming then we possible expect to see revenues that will begin to show in late 2005 for the initial product. And you know I just caution you, there is a lot of work still to be done, we are still analyzing the opportunity, there are lots of things that still need to be determined such as the volumes and prices and the go to market strategy but based on our knowledge today we anticipate that we should have a meaningful contribution coming from this effort to the growth of the company looking forward.

Okay. And just you know a little more clarity [until you crack] it this another way, this is an LTF based product that you are working on?

Yes, the initial product yes and that’s the only one that we are really commenting on at this point.

Okay. Which of the three I guess analytes or whatever do you want to call it chemistry, enzyme or immuno would it be based on and does the difficulties you had developing a Strep A product based on an enzyme translated to anything or does it pertain to anything with this particular agreement?

Yeah, that’s a great question. Out of the three -- the three platforms, the chemistry, the enzyme and the immunoassay we again -- it's based on the chemistry platform. That’s the platform which we have the greatest experience and success and not only development by consistent manufacturing of the product with as well. So I think our clarity and seeing our way to the completion of the development ahead of us has the highest level of our probability for success, given that particular platforms application.

Great. I will jump back in the queue.

Okay. Thanks Adam.

Your next question comes from Mark Smiley (ph.) with Seidler (ph.).

Good afternoon guys.

Hi, Mark.

Mark good day.

Quick question on just to follow up a little bit on previous question in terms of the Strep A rub-and-read, the rub-and-read product. You mentioned that you are going to be late getting into the clinic, is that correct as I heard it or was it -- you are not expecting this until 2005 now? Can you just elaborate on that a little bit for me please?

Yeah in our field performance, we are not achieving a level of sensitivity and specificity that we found acceptable in order to go to market with the current enzyme rub-and-read development. We are continuing to work on that but we also have launched a parallel path on another platform within LTF in order to heighten our odds for success at having a superior easy to use fluid -- sorry Strep A product in the market on [OPM].

So that using one of the different other platforms of chemistry or enzyme -- I am sorry other platforms?

That’s correct. And so what we are saying is that we had planned by this time by the end of March to be approaching a point at which we felt the initial field testing would give us that confirmation of the clinical accuracy that we desire moving forward. And because we have not yet achieved that, we are just cautioning that we may not be able to successfully complete those clinicals as originally planned, but we may indeed succeed with that. Nonetheless, we are pursuing this parallel path to help ensure our odds for success as we go forward.

So will this alternative path allow you to stay on track or will take necessitate lengthening of that?

This parallel path unfortunately doesn’t shorten the length. It will add to the time to market, if anything, and so, recognizing that any product development carries technical risk, particularly, those that are still on the R phase that are more discovery than development related, we feel it's prudent to do this and that's the path that we've committed to.

Okay. And then just a follow up question to the agreement you guys are working on. Can you give us any indication whether it's an environmental application or a healthcare application or some other type of application?

Yes broadly let me just say it's a healthcare.

Okay.

We are staying more within our own knitting and trying to branch out and this first extension into an area that's beyond our areas of core competencies.

Okay, thanks.

Thank you Mark.

Thanks Mark.

Your next question comes from Al Keodoni (ph.) with SS Capital (ph.).

Welcome Al.

Good afternoon. I wonder if you could help me understand a little bit better exactly what was different in the Japanese market than what you were expecting? I thought we were looking for a relatively subdued quarter out of Japan when we started the year, and I was just wondering what precisely was different in that market than from what you saw and what was different perhaps what you heard -- in terms of what you heard from your distributor though?

Yeah. Let me tell you, it's kind of three things that characterize soft, soft, soft, and that's what the Japanese Ministry ended up determining as they characterize seasons. They are more strong or mild they characterize to that as a mild season. And as I said in my remarks, it's in the mildest season that we have seen in the 3 years that we had the product in the market.

Let me give you a few of the specifics [Al]. As you know particularly as we see flu season, this is U.S. and Japan, typically we see a season that runs the time duration of about a 10-12-week period. The time duration was short lived in Japan. It was slow starting and it was quicker ending covering a time duration this season in the first quarter of about 6 weeks. It further was not as intense and the peak that have reached in its season compare to the prior two seasons and it was approximately 60% of the string of disease incidents as compared to the prior year season. So 60% is kind of the bottom-line summary of as compared to the prior year that really characterizes this short lived and mild season overall in Japan.

Is it fair to say that in Japan and then I guess in any market that for your forecasting purposes you essentially assume that it would be an average year as far as severity of the flu season?

Yes. We expect that it would be an average season.

Okay. That’s helpful. That’s all I have for now. Thank you.

Alright thank you Al.

Once again ladies and gentlemen as a reminder to register for a question please press "*" followed by the number "1" on your telephone keypad. Your next question comes from Patrick Tent (ph.) with Boston Company.

Hi guys, I kind of turned a little late, but I was just kind of curious can you give any perhaps on the litigation expense in the quarter?

Hi Patrick, I am going to let Paul speak to you on that and yeah we are happy to give you a little color on it.

Patrick.

Yeah.

How are you, good to talk to you today. For the first quarter we spent approximately $900,000. We still are confident that in the aggregate our total spending for the full 2004-year will be in line with previous guidance that we have given to the investment community.

Okay, thanks.

Thank you.

Your next question is a follow up question from Al Keodoni with SS Capital.

Thanks. Paul I just, guess I might have missed some comments in this area, but can you remind us where you stand in the process of establishing some tighter inventory management programs with your distributors in the U.S.? And then also if you could comment on the nature of your or characterize your ability or the relationship you have with your Japanese distributor in terms of what information they provide you with as to what's going on in the market there and then how accurate it ends up being in reality and when it comes to shipping product?

Yeah, this is Wayne Al, I will comment on the Japanese. Paul manages our vendor managed inventory initiatives in the U.S., so I am going to let him comment on that first and then I will take up the second part of your question on Japan.

Al this is Paul. As you know in past quarters we have talked with respect to the formalization of the vendor-managed inventory program with our largest U.S. distributor Cardinal Health and that has been a win-win situation for us and for Cardinal for the last number of quarters and has helped to drive down inventory levels to very manageable levels based upon the season the and the product categories in the 55 Cardinal warehouses. We are beginning to dialogue with our other leading U.S. distributors with respect to this vendor-managed inventory initiative. And while we haven’t culminated a final deal with any one of them, I am confident in the near-term that I will be reporting that we will be rolling out this program with others. Having said that, we do have meaningful timely reporting from our other key domestic distributors with respect to channel inventory, and that visibility gives us the assurances that there are no major issues with clogging in the inventory channels throughout the distribution system in the United States.

Al, to speak about Japan. Our partner is Sumitomo Biomedical in Japan for the flu product and Sumitomo Biomedical is a biomedical med-search products division of the Sumitomo Pharmaceutical, one of the strongest pharmaceutical companies throughout Japan. Japan, has a number of large distributor wholesalers that has many smaller regional distributors as well in their wholesaler network and they do not have kind of the ultimate extreme of this inventory visibility and a vendor managed inventory system like Paul referred to with Cardinal where we see real time buy individual products skew in each of those 55 centers, exactly what the level of inventory is and can watch at a screen if anything is pulled out of inventory and it ticks off out of door, driven by customer demand but they do have an EDI, paperless ordering information system that they have from these wholesalers in Japan, too Sumitomo.

We sit down at the beginning just prior to the opening of a season, typically in the early fall for semi-annual review with Sumitomo management where they provide a full report on accounting of these issues going into a season and then we typically at the end of a season have a semi-annual review with their management reviewing those same exact issues and we are scheduled for later in May to do that semi-annual review with the President of Sumitomo Biomedical and his top lieutenants in a visit here to San Diego. So that’s the system and the method of communication that we use to keep informed.

Okay. That’s helpful as well. If I could just lastly going back to the U.S. distributor network and establishing more vendor managed inventory programs within, where is the bottleneck, Paul, is it on the IT side with the distributors, I am just wondering, you know, why this isn't proceeding more quickly is it not a high priority for those distributors and what -- how would you characterize why this isn't happening sooner?

[First], you know we are ready and we have the ability to roll out that system, you know, probably within 60-90 days from the get go and everything. I think that when you really drill down what the root cause of the delay that is being generated, it's from the integration of this system at the user end and making it their top priority as it is for us. You know they have some other issues that they are working on with respect to other IF issues or other priorities that just have not risen to the highest level that we deemed it necessary.

Another issue, Al, is this -- the Med surge distribution network throughout the United States is one that -- is really evolved, particularly, over the last several years through channel consolidation and a major roll up of sometimes large players acquiring larger -- being acquired by larger players or in a lot of instances many smaller units being acquired by a group to become a large nationwide network and the enormous challenge to them of their own internal systems integration for their own information management capability are their top priorities, then at getting on with better inventory management capability through these kinds of continuous replenishment programs, follows in the order of their priorities in the investments they are making. And when you look at Cardinal -- Cardinal as a wholesaler of pharmaceutical products in Dublin, Ohio has no vendor they likely do business with, that they are not connected in the vendor managed inventory program with as we are speaking. But in Chicago and the older legions Cardinal organization with whom we work for the hospital and physician office business we were the sixteenth manufacturer out of thousands of vendors that they represent, that they committed to such a VMI initiative with. So I think it just an evolutionary thing that they will get there. We are doing our best to make certain that we are one of that first tier of companies that are selected whether it would Cardinal, Moccasin, PSS, or any of the other key players that we have unless we try to move this process along.

Okay thank you again.

There are no further questions at this time. Please proceed with your presentation or any closing remarks.

Thanks Derek. I would like to close by thanking everyone and sharing our appreciation for your interest and your support to Quidel. We work hard to at continuing to be the leader in the markets that we serve and we are making important strides in leveraging the many opportunities available for LTF Technology.

Gentlemen, we have question at this time from Adam Chazan with Pacific Growth Equities.

Okay. Adam.

I am sorry Wayne.

Maybe you could do the ramp up.

Now we will just -- why don't we just follow up offline. Thank you.

No, no we can take it.

All right. I just wanted you to walk through the process of cycling the AB product in and if there was any pre kind of training or anything else that needs to be done, which distributor here favors the acute market; and then lastly is there a premium for that product?

Okay, yeah good question, so I am glad you asked them. They are two in kind of separate strategies and approaches that we are taking with the product given the strength in the United States and separately in Japan. In Japan the Japanese market as they really launched this principally in the new flu season upcoming while introduced this as the new product addition. But they will move to phasing out the existing AEP combination product and in favor switching, converting all of their product offerings to the A plus B product that offers differentiation. Part of this is the strategy that’s driven by regulatory issues related to government support and reimbursement for which there's no premium paid whether you differentiate or don’t in an AB combination or an A plus B separation. So the Japanese will introduce this and overtime during the next season, we would expect to see a complete conversion and at parity pricing to what the product is offered to that market today given that the reimbursement is exactly the same. What it will offer us a chance to do is to get into that hospital market that requires the A and B product differentiation for which most of the Japanese competitors have and Sumitomo has not had until now.

In the U.S. it’s a little different. In the U.S. the product is being offered at as an extension to our product line. It will not be the only product, it will be both products in the market but we do expect it will by far be the preferred product, the A plus B differentiation for the acute care hospital market. That is what if you recall from Beck & Dickinson's [ph] long stay in the market for more than 10 years. They've had a moderately complex, clear kit that is A+B separation, the laboratory life stats, they desire that additional information and the market can and will offered in the elasticity of pricing a premium to be realized for that product. So, we will launch that product as we entered the next season at a 45% price premium over the existing AB product. Our AB product has an average selling price in the United States to distribution of $9.95 and the new A+B product will be marketed at $14.50. So, did that help you the questions.

Yeah, it does thank you very much.

Okay. Operator any other questions

Yes sir, your final question comes from Richard Willstatter (ph.) with Decathlon (ph.).

Well, I had a question -- the partnership that you talked about with the Fortune 500 company?

Yes.

Revenues from that partnership included in the guidance that you are giving of 23-25 cents a share.

I will let Paul speak to that Richard.

Great question. We have in the guidance provided -- hello --

That’s not me I don’t know who that is.

Sorry about that, but in the guidance provided of a $100 million to a $105 million in the associated EPS impact of those revenues. We have built in the profit associated with the milestone structure and the impact of the $1.5 million of payments that we have received.

Okay. Fair enough.

Okay. Operator. I think we are done now.

Yes sir, you may proceed with your closing comments.

Okay. Just an addition to what I had said and thanking you all. We will look forward to reporting our progress for the next quarter and beyond and again thank you for participating in today’s call.

Ladies and gentlemen that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.