QuidelOrtho Corp (QDEL) 2004 Q4 法說會逐字稿

Welcome to the Quidel 2004 fourth-quarter and year-end financial results conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a Q&A session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded, February 16, 2005.

I would now like to turn the call over to Ms. Ina McGuinness. Please go ahead, m'am.

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

Earlier this afternoon, Quidel released financial results for the fourth quarter and year ended December 31, 2004. If you have not received this news release or if you would like to be added to the Company's distribution list, please call Lippert/Heilshorn and Associates in Los Angeles at 310-691-7100 and speak with Eleanor Tang.

Today's call will begin with prepared remarks by management, and then we will open up the call to your questions. Please note that the call will include forward-looking statements within the meaning of federal securities laws. It is possible that actual results could differ from these stated expectations. For discussion of risk 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 the date of the live broadcast, February 16, 2005. Quidel undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. Today's conference call is hosted by Caren Mason, President and Chief Executive Officer, and Paul Landers, Senior Vice President and Chief Financial Officer. I will now turn the call over to Caren Mason. Caren?

Thank you, Ina. And my thanks to everyone for joining us to discuss our fourth-quarter results. We had an active and rewarding quarter, as reflected in our strong financial performance and the operational progress we made including the discontinuance of two businesses that were not a core focus of the Company, the formation of the Quidel Specialty Products Group and substantial progress on the technologies front including LTF. We have a lot to cover today, so let me first provide you with highlights of our quarterly sales performance and report to you on our core products.

Fourth-quarter revenues of $31.9 million reflect strength in the Company's product line and a significant increase in domestic market share for leading QuickVue influenza test. Total U.S. revenues increased 6 percent over the prior year and represented 68 percent of total revenue. A 17-percent decline in international revenues is reflective of continued sell-through of previously recorded influenza test inventories from the fourth quarter of 2003 and an associated tightening of the Company's distribution policy to include only those distributors with demonstrated strength in their markets.

Our aggressive U.S. communications strategy for the QuickVue influenza test certainly reaped benefits, as our focus on early market awareness through targeted advertising and public relations to healthcare professionals and to the general public helped drive solid market share gains. Market share data, as compiled by Healthcare Products Information Services, indicate that our share of the U.S. professional point-of-care influenza testing market was 60 percent for 2004, up sharply from 49 percent in 2003. This is a remarkable achievement and is attributable to success with our traditional QuickVue influenza test as well as with our QuickVue influenza A+B test, which we introduced to the domestic market during the second half of 2004.

Our 60-percent market share reflects both the Physician Office Lab and the Acute Care segments. Our share in the Physician Office Lab segment increased to 90 percent in 2004, up 7 percentage points over 2003. In Acute Care, where our newly introduced QuickVue test differentiates influenza A from B, our share increased by 4 percentage points to a 17-percent share of the market. Keep in mind that because of the timing in the launch, this share data does not reflect full year's activity for the new test.

In the Treatment Center category, which includes test usage in urgent care facilities and some emergency room venues, the QuickVue influenza test holds a commanding 90-percent market share position. As we did last year, we will complete a post-season assessment of physician office adoption rates some time after the season concludes. In comparing the fourth quarter of 2004 to 2003, it is important to remember that last year, the flu season began early and ended abruptly in the U.S. with flu incidence peaking in December. This season, the flu season has followed a more customary pattern in incidence and should peak as expected in February of this year.

I would like to emphasize that although we had great success with QuickVue influenza test sales during the fourth quarter, we continue to sell product during the current first quarter to our U.S. distribution partners and they in turn continue to sell product to end-users. This is consistent with historical patterns, excluding last season's situation.

During the fourth quarter, we were successful in leveraging the opportunity of influenza vaccine shortage by promoting our flu test as another line of defense in early diagnosis of the flu and as a way to provide assurance to anxious patients. We believe our progress in penetrating the Physician Office Lab and Acute Care segments this season will help ensure future domestic leadership for our line of QuickVue influenza test.

Our successful broadcast media campaign started more then 10 million impressions during the fourth quarter. And we augmented our communication plans with advertisements in national newspapers, Web banner ads on WebMD and Yahoo! Health as well as direct-mail campaigns to targeted healthcare professionals. Additionally, our flutest.com website received over a .5 million hits in Q4 2004. Interest in this website has continued into the first quarter.

Looking at our two other core product families, based on trailing 12-month domestic data for the period ended December 31, 2004 as compiled by Healthcare Products Information Services, we find that Quidel's pregnancy test market share held largely steady at 49 percent compared with 50 percent in 2003. Our 49 percent share at year-end is consistent with third quarter '04 and second quarter '04 data. This is the most noteworthy achievement when taking in the context of a highly competitive market that has had an influx of low-cost and lower quality competitors over the course of the past year. Quidel's ability to maintain such a high market share under these pressures speaks to the quality and brand awareness our product commands.

Our QuickVue brand's Strep A test held its substantial industry lead with a 43-percent market share in 2004 -- the same dominant market share we garnered for 2003.

Let me turn now to work undertaken over the past several months with the Quidel management team to focus on the development of a strategic, operational and business framework. I am pleased to report to you that the resulting framework under which the Company will operate going forward is one that plays to Quidel's strength and the emerging trends of the point-of-care testing market. Importantly, it also supports our mission of maintaining and/or expanding market leadership under the banner we described as Research to Rapids. To this end, we will focus only on acquiring and developing products that address high-growth markets as well as markets where Quidel already owns a leadership position or has a core competency. Under the new Company framework, Quidel will focus on ensuring continued market leadership and providing points of differentiation by specializing in the diagnosis and monitoring of selected disease states.

Providing disease state management in targeted areas of clinical focus allows us to provide solutions that address the full spectrum of care in the markets of infectious diseases, reproductive health, bone health, and oncology. I believe that in time, this strategy will allow us to eliminate seasonal reliance on a few key products, promote unequivocal leadership in targeted disease states and deliver a sustainable business model with compelling cash flow attributes.

After a careful review of each of our markets against our new operating framework, we made the decision to discontinue our urinalysis business. Growth in the year urinalysis market is flat to slightly positive. And the market continues to migrate to instrument sales and instrument read, whereas our major product offering is read visually. Further, this is the market that is dominated by two entrenched competitors that have product bundling abilities we cannot match. The discontinuation of the urinalysis business will positively impact our financial results, as it allows us to focus resources on developing new products while eliminating an unprofitable business segment.

In addition, we will discontinue our QUS-2 ultrasonometer business, as with our urinalysis business, we have determined that the cost to compete effectively in this business cannot be justified by the potential returns on investment. Factors in this decision included a lack of acceptance of ultrasound testing as a diagnostic modality for osteoporosis, significant reimbursement challenges, a changing regulatory environment in Europe, and entrenched competitors offering feature-rich, lower-priced products. Quidel will retain certain attractive intellectual property from the instrument, as we believe the unique applications of QUS mapping software and transducer technology as value to those companies currently marketing bone density screening technology.

Today, we also announced the creation of an expanded Specialty Products Group, or SPG, which will work to develop new and novel markers that seek to leverage Quidel's existing leadership and best-in-class technology. Development of such markers will allow for quick and cost effective entry into new markets that address favorable demographics and growth rates. The SPG is housed in our Santa Clara, California facility. Opportunistic near-term development will focus on the areas of bone health and oncology. These are product categories where Quidel already enjoys a major position with successful clinical and research products in use worldwide in reference laboratories and in research applications at leading universities and biotechnology companies. SPG's goal was to deliver first to market products that round out our chosen disease state categories and provide a specialized value-added benefit of lowering overall testing cost and improving the quality of healthcare today.

In oncology, a marker of particular interest to us is YKL-40, which is being investigated as a new marker for certain cancers. Field tests of YKL-40 in serum and human cell cultures are encouraging. Elevated serum YKL-40 is implicated in all cancer studies to-date, including cancer of the colon, lung, prostate, ovary, and breast. Early studies also suggest YKL-40 could be useful in other disease states where high levels of tissue remodeling may be occurring. Within the SPG resides our core competency in bone health and biochemical markers for bone metabolism. Based upon our extensive skill set, intellectual property and our positive demographics, the SPG has targeted bone health as the key area for expansion. Quidel's SPG currently manufactures and markets nine different assays for various aspects of bone health. And Quidel owns 15 patents on oncology metabolism alone.

Turning to LTF, Tom Foley, our Chief Technology Office, has completed his assessment of our proprietary LTF immunoassay platform, which offers broad analyte menu capabilities. I am pleased to report that the immunoassay platform of LTF has delivered the required analytical sensitivity and has demonstrated its utility for both hormones and infectious agents as scheduled. We have embarked on studies designed to address full-scale manufacturability, and formal product development is expected to commence thereafter. Meanwhile, we have filed a provisional patent application covering the unique technology comprising the LTF immunoassay platform.

I will turn now to a status report on our ongoing intellectual property litigation with Inverness Medical and certain other affiliates, which I will refer to collectively as Inverness. Our policy on litigation communication remains unchanged. We will limit litigation discussion to comments that pertain to factual explanations of the status of legal proceedings. And the substance of our comments will be contained in our filings with the Securities and Exchange Commission. By maintaining this policy, we can assure that the descriptions in the case are complete, are not taken out of context and are available to all interested parties at the same time.

You will recall that we're currently involved in intellectual property litigation with Inverness in the United States and in Germany. In our case in San Diego, the court has been conducting a Markman hearing to construe the claims that the parties intend to rely upon and their respective preliminary injunction motion. To-date, the court has issued rulings on claim construction related to two of the patents at issue. And the hearing is scheduled to continue at the end of March.

In Germany, Inverness has alleged that certain of Quidel's products sold in that country infringed two European patents controlled by them. However, the European Patent Office has now revoked one of those patents, which decision may be appealed. And the Federal Patent Court in Munich has made a preliminary determination that the independent claim of the other patent is invalid. With respect to the second patent, the proceeding is continuing and is scheduled to resume in June of this year. As a result of these developments, Inverness' infringement action against us in Germany has been delayed.

On March 4th, the German District Court in Mannheim is scheduled to hear arguments in our case against Inverness related to our allegations that they infringed one of our European patents. For apparent reasons, we do not comment on the specifics of our litigation strategy. However, let me reiterate that Quidel will continue to assert its intellectual property rights against infringers and vigorously defend its products against accusations of infringement, while confidently continuing to operate its business and build for new opportunities and new markets.

As a final topic -- in order to support Quidel's value proposition as a company that markets the highest quality products in support of better medical outcomes, Quidel has been highlighting the Quidel value build, or QVB, through the development of new innovations and the communication of new solutions in the field of rapid diagnostic testing. The QVB includes significant work in understanding the need of the end-use customer, building products that meet those needs, providing proof studies to validate rapid diagnostic testing at the point-of-care, and leveraging the excellent work of those researchers and key opinion leaders studying Quidel test and technology to help enhance the health and well-being of people around the globe. Our strategy includes ensuring each of our product portfolios is backed by economic and clinical validation that show hospitals, acute care facilities and point-of-care clinicians that these tests deliver high-quality results and offer a significant return on investments.

All this we believe will strengthen and continue to foster the strong brand loyalty for the Quidel products. Paul will now review the financials in greater detail.

Thank you, Caren. As Caren mentioned, we reported fourth-quarter revenues of $31.9 million, which reflects strength in the Company's product lines domestically and a significant increase in U.S. market share for our influenza test product line. In the fourth quarter of 2003, total revenues were $32.4 million and benefited from an early flu season, primarily in the United States. Our core products are pregnancy, Strep A, and influenza together accounted for $26.5 million or 84 percent of net product sales versus $28 million or 87 percent of net product sales in the comparable quarter of 2003.

Comparing the fourth quarter of 2004 with the fourth quarter of 2003, gross margin of 59 percent is down slightly from 61 percent, primarily reflective of product mix. Operating expenses were $10.7 million compared with $9.9 million due to -- higher research and development cost, associated with the work on new technologies and ongoing work on the LTF platform; legal fees related to our ongoing intellectual property dispute; and increased professional fees related to implementation of Section 404 under the Sarbanes-Oxley Act, partially offset by savings attributable to the closure of our sales and support offices in Germany and Italy in the latter part of 2003.

Our bottom-line results for the 2004 fourth quarter were adversely impacted by discontinued operational cost. While our results for the 2003 fourth quarter were favorably impacted by the release of a valuation allowance on specific deferred tax assets, the results of our urinalysis and ultrasonometer businesses are reflected as discontinued operations for all periods presented. And their sales and operating expenses have been removed from those respective line items in the statement of operations.

Continuing the quarterly comparison of 2004 with 2003, earnings from continuing operations were $6.1 million or $0.19 per diluted share compared with $19.2 million or $0.61 per diluted share. Loss from discontinued operations net of tax was $6.7 million or $0.21 per share compared with the loss of $.4 million or $0.01 per share. The net loss was $.6 million or $0.02 per share versus $18.8 million or $0.59 per diluted share for the fourth quarter of 2003 and included a tax benefit of $13.3 million, up $0.42 per diluted share related to the release of a valuation allowance on specific deferred tax assets.

Quidel's balance sheet is strong and should continue to strengthen. Cash and cash equivalents as of December 31, 2004 totaled $36.3 million, up sharply from $25.6 million at December 31, 2003. Accounts Receivable day sales outstanding improved 24 percent to 48 days from last year's 63 days. Sequentially, we have consistently demonstrated improved DSO's throughout 2004. And the quality of our Accounts Receivable as expressed in percentage of receivables greater than 90 days is excellent. Inventory turns improved in 2004 to 5.4 turns or every 68 days as of December 31, 2004.

Before we take your questions, let me summarize our full-year financial results. Total revenues from continuing operations for the year were $78.7 million compared with total revenues of $92.5 million in 2003. Domestic product sales increased 2 percent and represented 72 percent of total product revenues versus 59 percent of total product revenues in 2003. International product sales were down 41 percent and represented 28 percent of net product revenues compared with 41 percent last year, which were the result of previously reported inventory levels from sales of influenza tests in 2003 and an associated tightening of the Company's distribution policy to include only those distributors with demonstrated strength in their markets.

Gross margin was 54 percent slightly down from 55 percent in 2003, primarily reflecting product mix and sales volumes partially offset by a full year's benefit of the Company's 2003 restructuring, which took place in the latter part of the year.

Earnings from continuing operations totaled $1.6 million or $0.05 per diluted share compared with $21.2 million or $0.70 per diluted share for 2003. Loss from discontinued operations net of tax for the year was $7.9 million or $0.25 per share compared with $1.5 million or $0.05 per share for 2003. Net loss was $6.3 million or $.20 per share compared with net income of $19.7 million or $0.65 per diluted share for 2003, which included a tax benefit of $13.3 million or $0.44 per diluted share related to the release of a valuation allowance on specific deferred tax assets.

And now Caren and I will be happy to take your questions. Operator?

(OPERATOR INSTRUCTIONS). Adam Chazan, Pacific Growth Equities.

A couple of quick questions for you -- if we can kind of work forward back. Can you talk a little bit about your understanding of the product in the channel? What can you read from your VMI programs as to what was sold in the fourth quarter, and what is actually left at distributors' warehouses?

We are obviously working with our distributors, as we start to really get a feel for the actual incidence of flu on the increase. As you know, there are 27 red states, as they are indicated, meaning that there is widespread flu or influenza in those states. We are experiencing new orders, especially in distribution centers that serve those states. So we believe that as the season progresses, we will continue to clear out the channel and take additional orders and manage this season effectively.

But because of our experience in not being able to be predictive in this season, we can't really indicate actual numbers that we would suggest would take place in terms of total revenue.

Okay. And just again, the mix in the business during the quarter -- while you provided the kind of big three -- flu as a percentage of that in Q4?

52 percent.

Okay. And then in looking at the discontinued business there -- curious if you can just again explain to us what the legal expenses were in the quarter? And just as you look out perhaps with legal or with litigation kind of restarting at the end of March, what's the anticipated spend? You had originally talked about an $8 million number in '04 -- curious where we ended up shaking out for the entire year. And what is the outlook for legal expenditures in '05?

Well, Adam, this is Paul. I can handle that. In the fourth quarter, we incurred $900,000 of litigation expense, which brings the total spending for litigation in calendar year 2004 to a little bit north of $5 million. And as you know, the pace of the case was much different than what we anticipated when we first announced the litigation battle. And forward-looking in projections, I think with financial guidance off the table is something that I would certainly not want to get into other than to say -- consistent with Caren's comments, we will pursue very vigorously this battle and believe in the outcome that will develop.

Okay. And then one last question and I will get back in the queue. But in regard to LTF -- so, you have achieved -- what is the level of sensitivity achieved? I remember you had to get something north of 90-percent sensitivity. Is that what we're talking about here?

Yes, we're talking about greater than 99-percent sensitivity in hCG.

Okay. And then for the other -- so if that's an example for hormones -- for infectious disease?

Yes, we are in the same ballpark in terms of expectations for this platform.

And then, the expectations in terms of time lines to port assays from the old lateral flow format to LTF -- do you have a feel for how long that might take? The original estimates were 12 to 18 months.

At this point, we are not going to comment on timing because we are in the throws of a manufacturability studies. We will be able to have better vision on that in the next quarter.

Ross DeMont, Midwood Capital.

Hi, just a couple of quick questions -- and I know your reluctant to make any forward-looking statements. But can you comment on -- the topline has sort of been consistently weaker. And I was sort of surprised to see your headline. But see -- quarter-after-quarter, the topline is weaker. Do you see that trend reversing course sometime in '05?

Well, in 2004, actually we progressed through the year to stronger, stronger by year-end. In that, we started the year in Q1 at 19.3 in revenue, suffered through Q2 and Q3 in the 13.8 and 13.6 million levels and are up now to 31.9.

But there is a seasonable element there, right?

Yes, there definitely is a seasonal element. But there is also -- in this year, less of a seasonal element in the prior year in the following way -- flu season peaked in 2003 in December. Normally for the past 21 seasons with the exception of last year, flu season peaked in February, the month of February of the flu season timeframe. So the difference for us is that we understood based on the fear factor around the vaccine shortage that there was an opportunity for flu test to pick up the slack, so to speak, by giving patients and practitioners assurance that there was a way to very quickly identify flu. Because they would be more unprotected in the population because they did not get the vaccine. If they know sooner, then they can be treated sooner with antivirals.

That appeal resonated not only through our advertising and communications but direct discussions with end-users and through our distributors' consensus and promotions. And so what would have normally been a more average December had really peaked as a result of our taking an opportunity to really move flu and our trajectory of flu tests to a higher level at the early part of the season.

Okay. And then on the cash flow font -- the press release noted a relatively significant increase in cash. Is that a function of -- and you mentioned also the reduction of DSO's. I mean is that a function of the topline coming off and international sales coming off where DSO's are longer? And therefore, you are basically squeezing cash out of working capital?

Ross, the key primary driver to that is the decision made by the Company back in 2003 to close its German and Italian offices and accordingly, bring Germany and Italy in parity with our distributor model around the rest of the globe. And once you remove all -- from the equation the impact that Italian receivables that stretched 270 days and approaching 300 days, as well as German DSO's that are up around 100 days. You bring that into domestic norms of 40 to 50 days, it certainly is an influencer. That has been a primary contributor beyond just the hammering away and assault of collections.

I guess that was my confusion. I mean you commented that you expect that the balance sheet to continue to improve. But the cash flow characteristics -- the underlying cash flow characteristics of the business haven't changed. You got a lot of money out of working capital here, and you got money by reducing the DSO's but --

In going forward, Ross, you will continue to see DSO's be driven down, and you will see the improvement of inventory turns as we effectuate improvements in our supply chain and other productivity improvements. This is something that will continue to be demonstrated in periods going forward.

Thank you. And final thought would be -- it sounds like you had some encouraging progress in Germany on your -- this IT litigation. If things go your direction here shortly in the U.S., would that change how you think about your commitment to LTF?

No, our commitment to LTF is based on creating the best platforms for the appropriate test. So no, LTF is specifically being designed and developed to match the appropriate infectious diseases and reproductive health tests to give good results in the marketplace. So, no.

Robert Swift, Cumulus (ph) Capital.

You talked about the flu season. What is the Company's policy for flu tests that are in the distribution channel that are not used? Because the flu season was actually quite modest in the end, and there may have been a scare. But the vaccine was not all used. I am just curious what happens if there is vaccine that wasn't -- pardon me, that the tests were not used, do you have to buy those back? Or are those eaten by the distributor?

Well, first of all, we have a 24-month expiration date on our tests. So we usually can stand two seasons if there is an end of season lull, so to speak. But more importantly, we have a no-return policy with all of our distributors. So we accept no returns associated with any seasonal concerns.

Herbert Ross, Private Investor.

Yes, this is Dr. Ross. I am a pediatrician in Michigan. First of all, I think this probably is the worst flu season we have had in Michigan in the last several years. But there is one problem. A lot of physicians are reluctant to use the test in their office. Number one because it has just been cleared by (indiscernible) this year. And number two, a lot of insurance companies don't cover it -- the cost of it. Now, I think it's getting better and better. But I think if you would somehow push -- I have been trying to push some -- push more the insurance companies to cover it. And also, a lot of the physicians are not aware that if you can get the test that you can treat the parents prophylactically or someone in the house that needs to be treated, so they don't come down with the flu. There's a lot of education that has to be done. But the most important thing is I think the insurance coverage for the test. And I wondered if you have any -- do anything to encourage that.

Yes. Dr. Ross, thank you very much for calling in and sharing your ideas and information with us. We would like very much for you to send us your email address. We are always looking to work with physicians in practice who help train us and teach us on the most important parts associated with using our tests, as well as the economic reimbursement and validation of the test.

What I can tell you is that we are through what I talked about in my original opening remarks -- we're building what we call QVB, Quidel Value Build. And our focus is to absolutely reach out to the payers and give them the economic validation and the clinical validation associated with early testing. And we are currently identifying partners in this pursuit.

We are doing clinical and economic studies that support quicker diagnosis, less testing, less lab testing, less time in the ER, triage in the clinical setting and what it can mean to less spread of the disease, etc. So yes, we definitely have an eye on it especially for next flu season -- validation around the economics, validation around reimbursement. We are actually hiring sales consultants to work directly with payers associated with this and working in Washington as well to impact reimbursement.

One other thing -- I know there is a new flu strain that is not included in the vaccine called California-A. And I have had -- and I think this is probably the reason the flu season is going to be worse than it has been in past years. I had tested at least five children that had the flu vaccine that came positive on the test. So I think you're going to have probably the best season in years.

Thank you, Dr. Ross, very much. We appreciate your call.

Richard Walters, Decathlon (ph).

About a year ago, you guys issued in your conference call -- very excited about a licensing agreement you had with a Fortune 500 company that has never been named, which is fine -- and also looking back at some Annual Reports, you have talked excitedly about the possibility of licensing out LTF. And of course, we have not heard anything since then. No news regarding that agreement with that Fortune 500 company. And nothing today mentioned about licensing deals for the LTF. And I'm just wondering what has happened with the deal you mentioned a year ago, and what is happened in the way of making this happen in the future.

On our research contract licenses and royalties line, we have moved to $2.6 million. And part of that are payments associated with that Fortune 500 company and continuing to co-develop at their direction specific testing for the OTC markets. And so, other than that, we really can't comment based on confidentiality. So I can simply tell you that we continue to talk to and work with potential collaborators in a number of areas around reproductive health and infectious disease for not only our LTF but also our lateral flow products.

That was my next question actually when you mentioned OTC. And that is -- obviously these tests now are done in the clinical setting. Is work being done to create a test that can be done or purchased OTC and performed in the home? Is that a realistic goal?

Yes, it is.

Adam Chazan, Pacific Growth Equities.

Paul, I was hoping you could detail a little bit about the discontinued operations loss. It strikes me as just a very large number -- curious as to what kind of revenues were for that product line across the product lines I should say for the year. And what is rolled up in that number? Are there any costs associated with that? How do you get to such a large -- 6, almost $7 million loss in the quarter?

Let me try to provide that clarity to you, Adam, and others on the call. We have for the year recognized the loss from discontinued operations net of taxes of $7.9 million. A breakdown of that would be $1.8 million from operational losses of the UA business, the urinalysis business, and $100,000 from operational losses associated with our QUS-2 ultrasonometer business. The remaining $6 million was an asset impairment of the write-off of assets associated with our UA business primarily and specifically to the revenue, I think, re-classed that came from the current period. We had a combined UA and QUS-T re-class of sales in the discontinued operations of approximately $1.8 million that was taken off the revenue line.

Okay. And no takers for either of these businesses? I am trying to remember what you paid for them when you bought UA from Dade (ph) way back when.

What I can provide to you is the fact that we have identified an interested buyer for the business of urinalysis. And we are in discussions and hopeful of concluding a deal in the near-term. And that's about as much as I would like to offer at this time. But it is something we certainly will in the future quarter report back to the investment community on.

Okay. And then Caren, this Research to Rapids initiative -- just from the standpoint of -- what is the game plan? In the press release, you mentioned going into research and other markets. How quickly do you think you can start to realize the strategy here? And how do we track its progress?

Well, first of all, we are already participating in this market. And we are marketing today and have a leadership position and significant core competency in the monitoring of osteoporosis and related aspects of bone health. We do sell a panel of bone markers. We have over 100 different markers and kits that we sell through the Specialty Products Group.

What we are doing is reemphasizing this group in terms of the ability for us to get really on support for moving these research markers in the university setting, in the research setting, in the pharmaceutical companies setting and move them to rapid testing at the point-of-care where it makes sense -- or moving them to quantitative testing where it makes sense. We have specialization, as you know, today in reproductive health and infectious disease to the point-of-care. We now see an opportunistic challenge that we can address rather quickly in terms of taking what we do well in osteoporosis and potentially in oncology with the YKL-40 markers specifically and moving that ahead.

Okay, and then you just -- YKL-40, where did it come from? How proprietary is it? How far along might we be in its kind of adoption as a research tool and translation to a product perhaps?

Well, we are currently working with researchers at universities to develop further evidence behind the utility of YKL-40 as an early prognostic marker in oncology. And as we develop additional proof sources for this product, we will investigate and develop clinical aspects on the marker on a variety of platforms. But I don't want to comment much further than that except to say that it is proprietary.

Matt Arens, Cox Investment Advisors.

Two questions if I could -- first question is -- I wanted to clarify after an earlier question about the severity of the flu season. And the caller indicated that we are seeing quite a light flu season. I was surprised that you didn't mention anything about that. Because my senses from looking at the CDC website that -- actually as the doctor indicated, the flu season has really picked up and has become quite a severe flu season here in the United States.

So I wanted to know if you could comment at all about -- I know in the last quarter, there was a lot of pre-stocking orders and those types of activities. I wanted to know if you would comment on what kind of orders you have seen for people restocking after they have used up their initial orders. And if you can give us a sense for whether you're seeing that activity, especially in the areas of the country that have been hard hit by the flu.

And then second, I wanted to now if you could update us at all -- and if you did already do this -- if you already updated this, I apologize. But if you could give us a sense for what the Japan flu season looks like. I know that was off to a very slow start. Has that picked up at all? Or has that remained quite quiet?

With regard to your assessment of the flu season in the United States and the dramatic pick-up over the last several weeks, we see it. We see it not only in terms of course of the CDC reports, which we monitor regularly, but we also follow it very carefully in that we place advertisements and video news releases and working with local television in the affected red states, which have widespread flu incidence. And in those states, we're seeing reorders. In that the -- what we have already provided in those flu states to those distributors is going off their shells to end-users, and we are resupplying them.

With regard to Japan, Japan continues to have a slow flu season. Although, in the most recent CDC report, there has been some pickup. We did provide, as we mentioned, last quarter, we did sell $6.9 million of A+B flu tests into the Japanese market. We are hoping that that product will begin to move soon.

A follow-up if I could -- is there a website that you could direct us to? The CDC's site for flu activity in United States is extremely helpful for people who follow your story. Is there a similar site for the Japanese market?

Not that I am aware of -- if we find one, we will let you now.

There is one.

Oh, there is one. What is it?

I don't know off the top of my head.

There is one. We are going to have to find what it is, Matt. And we will email that information out to you.

Steve Friedman, Wachovia Securities.

Just a quick question regarding the circumstances that might need to take place before you would feel comfortable in restarting and restating financial guidance.

Well, I think the key is creating a business model that is robust and one that has sustainable and demonstrable cash flow. We are confident that despite having guidance removed -- that our focus and our execution around our leading market products and some of the things that Caren talked about in terms of our Quidel Value Build and some of the excitement that we are sharing with the investment community around technologies and everything -- is the right way to build back some of the erosion that has occurred over the last year of shareholder value.

And Steve, we are certainly looking at all the key aspects of coming up with a confident and predictive way to bring guidance back on the table. But until we as a management team are comfortable in that, we are going to continue to keep that away -- but again, focusing on those key drivers to shareholder value, which I think was brought out in today's conference call.

Well, it seems like things have dramatically turned around. So I will respect whatever decision you make regarding restating the guidance. Thank you.

Ross DeMont, Midwood Capital.

Just a quick clarification -- you mentioned that -- I think it was in the last quarter, you'd shipped $6.9 million of A/B product into Japan. Can you get a sense of how much is still -- I don't know how much visibility you have into the channel -- but can you get a sense of how much is in there with the slow flu season? Are you not seeing reorders yet?

That is correct. We are not seeing reorders as of this time.

Okay. And if you contrast that inventory level in Japan -- in the flu season they are having to the inventory level in the U.S. I noticed you mentioned that in the red states obviously there is reordering. But if you take the U.S. market as a whole, was the channel sort of over-inventoried as of 12/31? Or was it appropriately inventory? Can you just give us some color?

We feel it was appropriately inventoried. And now, with this uptake and if in fact the doctor was correct that we have a more severe flu season than even we foresee at this time, we are in a position -- just to assure you -- to produce and manufacture appropriately to meet all demand.

Richard Walters, Decathlon (ph).

I'm not exactly 100 percent sure of my own question, so I may stumble over it. But having followed your Company for a while and LTF in particular, I was under the impression that manufacturing on LTF was more or less a given. You guys have spoken about the improved economics of manufacturing that platform, manufacturing tests on that platform and the improved margins that would bring. Maybe I am misreading the quarterly statement. But now, you're talking about testing whether you can manufacture these teats on LTF? Or you just need to get the equipment that you have certified?

Yes. What we are doing -- first of all, with our new CTO, we have the opportunity and have taken that opportunity to take a step back and look at a -- basically a zero-based review of LTF -- matched to the market, matched to the opportunity, matched to going forward. And what we decided is that the immunoassay platform absolutely had the greatest opportunity for us. And so that in terms of feasibility needed to be proven, which we reported it has been.

But the manufacturability piece -- there are a number of moving parts in terms of continually challenging ourselves that we are creating the most appropriate manufacturing process, equipment, in terms of economics as well as in terms of product features, which we continue to work with customers on -- in terms of voice of the customer reaction as to how the LTF products should look and how it should function. So we are continuing to strive -- and in this manufacturability portion, we will not push. We will do it right. We are very confident that we will achieve the manufacturability in the foreseeable future.

And one other question -- about a year ago, you announced that field trials on your strep test, I think on the enzyme or chemistry platform. I do not remember which platform -- on an LTF platform failed. And that you would continue studies on that platform as well as studies on the second platform. I was just wondering -- do you have any updates about how that has gone?

We at this time have suspended our activity in the development of the enzyme-based Robin Reed (ph) platform for strep. Okay?

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

Thank you. In closing, let me state that the changes I have outlined today in how we view our business and how we communicate its value to our key constituencies, provide us a new strategic directive for promoting Quidel's unique value proposition. Our highly capable and reinvigorated team of employees is energized to carry out our mission and to reap the benefits of executing on this strategy in the coming months and years. I trust that today's call has provided you with a picture of a company that is set on a path toward delivering to shareholders the benefits of a solid, strategic directive. We look forward to reporting to you on our progress and successes as we push forward on all fronts. Thank you and good afternoon.

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