QuidelOrtho Corp (QDEL) 2005 Q3 法說會逐字稿

Welcome to the Quidel 2005 third quarter financial results conference call. (Operator Instructions). I would now like to turn the conference over to Mr. Don Markley. Please go ahead, sir.

Good afternoon. This is Don Markley with Lippert/Heilshorn & Associates. Thank you for participating in today's call. Earlier this afternoon, Quidel released financial results for its third quarter and nine months ended September 30, 2005. If you have not received this news release or if you'd like to be added to the company distribution list, please call Lippert Heilshorn in Los Angeles at 310-691-7100 and speak with Cheryl Gurten (ph).

Today's call will begin with prepared remarks by management and then the call will be opened up to questions. Please note that this conference call will include forward-looking statements within the meaning of federal securities law. It is possible actual results could differ from these stated expectations. For a 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.

Furthermore this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, October 26, 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.

Thank you, Don, and my thanks to everyone joining us to discuss our quarterly financial and operating results. I'm very pleased with our results in the third quarter. In particular, I want to highlight that product revenue was up 58% overall and up 35% domestically. In addition, we were able to increase our margins and report a positive bottom line while making significant investments to build long-term value.

This marks the fourth full quarter since I joined the company so I want to step back and report on the progress we've achieved in the past year. At the outset, I must say that we are excited with our accomplishments to date, which are the results of a concerted and successful team effort. When we reported third quarter results a year ago, I presented a number of strategic imperatives, some of an immediate nature and others with a longer term impact. The management team has maintained focus on these imperatives and has made excellent progress.

Here are some specifics. Earlier in the year we streamlined our product portfolio by discontinuing underperforming urinalysis and ultrasonometer businesses. On the other hand, growth opportunities were created through the acquisition and development of additional rapid diagnostic tests. We announced the acquisition of an immunochemical fecal occult blood test in September. I should point out that more than 50 million fecal occult blood tests are sold annually in the United States through medical/surgical distributors. We expect to launch this product in November.

In addition, the clinical trial for our R.S.V. diagnostics test will begin in the United States in November and the market introduction of our new Candida test for the confirmation of yeast infection is anticipated for early 2006. We also planned for and drove further efficiencies by terminating distributor relationships in small, unprofitable overseas markets while focusing on forming preferred partnerships with key distributors. This allowed us to shift resources to Japan, Germany and Italy, where we believe evidence-based medicine and acceptance of rapid tests provide opportunities for sales and earning growth.

An example of how that strategy has already created value is the placement of $13.1 million worth of orders for flu tests from the company's partner in Japan, of which approximately $4.5 million was shipped in the third quarter. During the third quarter, our revenue growth for core product lines included sales of influenza tests up 269%; strep-A test sales up 47%; and pregnancy test sales up 26%. This marks the third consecutive quarter of double digit growth for these core product lines. In addition, according to the latest available information, market share has increased for all three product lines in 2005.

Quidel has initiated a preferred partner program for both manufacturing and distribution with the goal of creating strong relationships with companies that have the same vision we do for the future of high quality, rapid point-of-care diagnostics. Of course, building these types of relationships is a long-term effort but we've already seen significant results. One of our largest distributors, Physician Sales and Service, or PSS, has chosen Quidel as their manufacturer of the year. In presenting the award to us, they cited our ability to significantly grow revenue through PSS; our development of innovative products and programs; the quality of our account team; and our focus on pleasing our mutual customers. This is an outstanding achievement, especially considering the hundreds of leading medical products companies that do business with PSS.

In addition, Quidel recently announced strategic co-marketing agreements with Cambrex Bio Science Walkersville and Nordic Bioscience Diagnostics, which further expand our opportunities in bone health and osteoporosis, where we see significant unmet needs. This year we introduced the Quidel Value Build, or QVB, as an assurance protocol designed to provide proof to clinicians as to the clinical and economic efficacies of Quidel's leading rapid diagnostic test. Our commitment to QVB is making great progress and is already paying dividends.

Last quarter, I discussed the positive study results from the University of Rochester Medical Center, which reported that our QuickVue Influenza A+B test performed with greater analytical sensitivity than certain competitive tests 95% of the time. Another study at the Hokkaido University in Japan determined that our influenza rapid test has the ability to detect cultured avian influenza viruses. On October 21, we issued a press release that highlighted the results of our clinical study conducted in Australia during their 2005 flu season. I am tremendously pleased to see the clinical performance of the QuickVue Influenza A+B test validated in a controlled clinical study.

The test showed 96% sensitivity and 97% specificity for Influenza-A with an overall accuracy of 97%. The performance for Influenza-B was consistent with past performance at 73% sensitivity and 99% specificity with an overall accuracy of 94%. This study used nasal swabs collected from patients with flu-like illness in eight different physician office sites. As reported in the press release, we also know that our Influenza A+B test can detect avian influenza viruses such as H5N1 associated with the bird flu in China and Southeast Asia.

We have not conducted studies with patients infected with avian influenza viruses. We do not know how well the test will perform with samples from patients actually infected with avian influenza virus. We do believe that should a pandemic occur, every means available to combat the arrival and spread of the disease should be employed. Therefore, we are committed to working with public health agencies to help ascertain what role the QuickVue test might play in the event of a pandemic in the United States.

We believe there are possible roles including, number one, traveler surveillance; number two, frontline regional surveillance to help monitor populations in the United States as an aid in the state and national public health surveillance program; number three, distinguishing other new flu-like illnesses from actual influenza; number four, rapid identification of persons most in need of anti-viral medication; and number five, helping to manage fear that will inevitably develop by providing a rapid identification of the presence or absence of influenza.

I want to point out that none of these applications is intended to circumvent the very essential and critical role that our public health service laboratories and the CDC will have in isolating and determining the sub-type of the actual virus. For example, confirming that it is bird flu, monitoring its spread and educating and advising the public, health care professionals and government officials about what actions are to be taken.

This concludes my summary of the company's accomplishment highlights over the past year. And as you can see, we have made great progress on the strategic objectives set forth 12 months ago. These accomplishments and the impressive financial results indicate that we are moving in the right direction. I'm very confident we have the right plan, the best products and most importantly, great people who are committed to the success of Quidel. I will now turn the call over to Paul Landers, who will provide more details on the financial results. Paul?

Thanks, Caren. I'll reiterate what Caren has said about this being a very impressive quarter, as our results improved across the board. Working our way down the P&L statement, third quarter total revenues were up 47% to $20.0 million, from $13.6 million in the third quarter of 2004. Worldwide, product sales were up 58%. In the United States, product sales were up 35% from the prior year third quarter. This increase was driven by sales of our core products of pregnancy, Strep-A and influenza tests, which totaled $9.6 million, up 39% from last year's third quarter.

International product sales increased 130%, compared with the third quarter of 2004, and include initial shipments of approximately $4.5 million in the third quarter of our influenza product to our Japanese distributor, which intends to purchase a total of $13.1 million of flu tests prior to year end. On a worldwide basis, sales of our core products of pregnancy, Strep-A and influenza were $15.1 million, representing 77% of net product sales.

As Caren mentioned, our gross margin improved to 53% from 46% last year due to higher sales and a more favorable product mix. Operating expenses for the third quarter of 2005 decreased 18% to $9.4 million from $11.5 million last year, primarily due to a decline in legal fees associated with our previously disclosed litigation settlement. This decline was offset somewhat by planned increases in R&D and sales and marketing expenses associated with the support of the company's Quidel Value Build, or QVB program. The net income for the quarter was 0.7 million, or $0.02 per diluted share. This compares with a net loss of $3.6 million or $0.12 per share for the third quarter of 2004.

Turning now to our year-to-date results. For the first nine months of 2005, total revenues rose 23% to $57.5 million, from $46.8 million in the first nine months of 2004. Total product sales increased 23% to $54.6 million with strong contribution from all core product lines. In the United States, pregnancy test sales rose 35%, Strep-A test sales rose 53%, and sales of influenza tests rose 53%. On a year-to-date basis, international product sales declined 3%, driven by the initial shipments of our flu product into Japan, offset by the planned decline in international product sales as we terminated unprofitable distributor relationships in the smaller geographies and developed preferred partnerships in other key markets.

Gross margin for the first nine months of 2005 was 56%, compared with 50% for the first nine months of 2004, primarily as a result of higher product sales and a favorable product mix. Excluding the $17 million expense, paid under the terms of the patent litigation settlement in the first quarter of 2005, operating expenses for the first nine months of 2005 were $31.6 million, versus $30.9 million for the comparable period last year. The slight increase in operating expenses primarily is the result of higher research and development costs associated with work on new technologies and increased market research, promotion and advertising cost for key products and development of brand value.

The 2005 year-to-date net loss was $18.9 million, or $0.58 per share, compared with a net loss of $5.6 million or $0.18 per share, for the comparable prior year period.

Looking at our year-to-date performance on a non-GAAP basis, adjusted net earnings for the first nine months of 2005 were $1 million, or $0.03 per share on a fully diluted basis. This compares with an adjusted net loss of $4.4 million, or $0.14 per share for the first nine months of 2004. Included in the items in GAAP net loss but excluded from the adjusted net earnings or loss are the $17 million payment made as the part of the patent litigation settlement, a resulting increase in our tax provision due to the impact of the settlement on our assessment of deferred tax assets, and discontinued operations encompassing our urinalysis and ultrasonometer businesses. Our reconciliation of these items is provided in today's press release as part of the attached financial tables.

Before we take your questions, let me provide some balance sheet highlights. Day sales outstanding improved 11% to 49 days from last year's 55 days. The quality of our accounts receivable, as expressed as a percentage of receivables greater than 60 days out, remain excellent. Inventory turns as of September 2005 were 4.8 times, or approximately every 76 days, a 100% improvement from last year's third quarter. Capital expenditures during the third quarter were approximately $650,000. Our cash and cash equivalents as of September 30, 2005 totaled $24.3 million, down from $36.3 million as of December 31, 2004, which is largely driven by the impact of our $17 million litigation settlement payment in the first quarter of 2005.

In summary, I am very pleased with the results from the quarter and with the progress we've made throughout the year in achieving operational efficiencies while supporting impressive growth. We remain confident in our plan and our continued ability to deliver positive results. Operator, let's begin the questioning -- questions at this time.

(Operator Instructions). Your first question comes from Zurek Kurshid with Pacific Growth Equities.

Hey, guys. This is Erik here from Pacific Growth. Congratulations on a great quarter.

Thank you, Erik.

We appreciate that, Erik.

Hey, Paul, I didn't quite catch that, did you say $15.1 million and that includes all of the core products, strep, flu and pregnancy?

That's a correct statement. You heard me correct, Erik.

Sure. Just kind of expanding on the great Japanese orders. What other kind of visibility do you have in Q4 into the channel?

We know from our strong distributor relationships domestically that we have visibility into products SKUs around the domestic distribution warehouses and we believe that there's nothing unusual, and as we go into the strength of our upcoming season, with the onset of the cold and flu season, we think we're well poised to respond to demand.

Great, great. Just a couple more questions. As we look out into 2006, can you quantify some of these other opportunities in vaginosis and the fecal occult?

Actually, we're not providing guidance. What we are doing is giving indications of what we think the trends might be in the particular markets that will be served by amino assay fecal occult test or for women who may present with symptoms of bacterial vaginosis. So we know in both cases there are approximately 50 million tests for fecal occult blood measurement and there are approximately 10 million women that visit their doctors on an annual basis complaining of vaginal infections -- type situations that require a test. So other than that, we are confident in that both of these tests are going to be introduced around the high level of performance required with Quidel Value Build and with the economic efficiency necessary for physicians to adopt them successfully.

Great. Any thoughts on organic growth in those two markets?

Well, in the terms of bacterial vaginosis, I think there's a lot of opportunity for adoption of that test more than there has been in the past. There's a real opportunity for organic growth there in that microscopes and other visual methods are used for determination of diagnosis that can be very successfully replaced and enhanced with a bacterial vaginosis test.

In terms of amino assay fecal occult blood testing, there are a number of features of an iFOBT test that improve the current method of gliac(ph) testing. In our particular test, we know we have six times the sensitivity, we have a single time collection method and a number of other criteria and advantages under QVB, which we'll be talking about when we introduce the test next week.

Great. Just one last question regarding the preferred distributor relationships. Have you added any new distributors in those key markets?

Overseas, yes. We have added additional distributors. And in the United States we are working with the development of modules of preferred partnering that are moving along very aggressively and successfully.

Great. I'll get back in the queue. Thank you.

Thank you

Thanks, Erik.

Your next question comes from Steve Friedman (ph) from Wachovia Securities.

Hi, Caren and Paul.

Hi, Steve.

Just a brief question regarding financial guidance. There was an indication it would be suspended for some time and now that you do have four quarters and you do have litigation behind you, do you have any idea when you might reinstate financial guidance?

Steve, this is Paul. I'll try to handle that. Great question and it's something Caren and I are evaluating and once we have these preferred partnerships in place and we start to see more and more predictive outcomes from this, then we would certainly revisit that. But I don't want to make any commitment as to if and when that may occur but we'll certainly keep the investment community apprised of our progress and we'll report at a later date.

All right. In the -- I believe it was last quarter, you had -- or Caren, or both, had talked about getting our story out to a number of different people. To my knowledge, besides Pacific Growth, do we have some other sponsorship online or research capabilities coming online?

It's something that is very important to the company and to me personally and it's something that time will tell whether some of the dialogues that are in progress will materialize into coverage and everything. But we're very active on that front.

All right. One final question. I note that in the press release today there was no mention in the written press release of avian flu and Caren, your comments that you mentioned some things. Is there any particular reason -- I know on October 21 you had a press release regarding the studies in Australia on the Influenza-A and B and so forth and its relationship to picking up the -- I'm not sure I remember the number -- the virus for avian flu but any further commentary as to Quidel's participation in this area as far as prevention and detection and so forth?

Well, I covered our policy on avian flu in my prepared remarks. I will stay with that in terms of our focus and any particular question specific to how our test performs other than that, we could turn over to Dr. John Tamerius if you have any specific questions, who is here with me. He is our Vice President of Clinical and Regulatory Internal Affairs. But our position in terms of avian flu I think has been clearly stated both in the press release on October 21 and in my prepared remarks.

Okay, thank you.

Thanks, Steve.

(Operator Instructions). Your next question comes from Matt Irons (ph) with Top Investment Advisors.

Can you guys hear me okay?

Hey, Matt.

Hi, Matt.

Great. Thanks for taking my question here. I have a couple of them for you. First of all, as I speak with health care professionals, I continue to be surprised at the lack of awareness around point of care flu testing and just how many people I speak to that aren't even aware that there's a test out there. I know you guys have had an effort in increasing awareness. Can you talk to me about how you feel about the results that you've gotten in that effort to date and to what extent you'll be putting further compression on that effort?

Matt that's a major emphasis for us is to spread the word about the ability for Quidel's QuickVue A+B test to aid in the appropriate diagnosis and treatment of patients presenting with influenza-like illness. We have undertaken a number of efforts to spread the word. We have done, after last year's flu season, an extensive research study and found that approximately 48% of physicians who have adopted rapid influenza tests use our QuickVue test. With that, we've -- those who have not adopted, which are obviously more than 50% of practicing physicians mostly in the family practice, general practice, pediatric area.

And we think one of the hesitations was really comfort around sensitivity of the test. And we had known for years for physicians who successfully use our test that they felt performance was far better than our package insert indicated and we also heard from scientists and epidemiologists globally who are using our tests for all different kinds of reasons, including some surveillance efforts. So as a result of that, we worked diligently, even in the off-season, transporting our team to Australia to support an independent study of our tests. And we believe that with this new data and with the preferred partnership programs we're putting together with our distributors to really focus in this year, of all years, where we believe there will be a lot of fear around influenza-like illness symptoms.

We want to be sure that hospitals that have triage capability would use tests to quickly identify a flu patient, isolate them and move them into a treatment area, as well as in physician's offices, where we believe mothers and patients themselves, or mothers of patients and patients themselves would be much more comfortable knowing whether or not they needed an anti-viral to support a quicker symptomatic help. So I think you're absolutely right in that there's more that we can do and we're working diligently to do that, which is our spending really in Quidel Value Build.

Okay. Thank you. I continue to be surprised and disappointed that with all of the discussion of Tamiflu. I read a piece today that Roche has suspended sales in Canada. I've just been surprised that there isn't more discussion about utilizing a test and treat model there so the, the scarce resource of Tamiflu won't be wasted on people who it will not benefit. But I've heard next to no discussion in terms of a possible solution in the scarcity problem. How can you link yourself within that test and treat model and get people moving in that direction?

This is John Tamerius. Part of the answer is what Caren just shared with you. One very important part of the test and treat model is having a good, accurate test and we've demonstrated that recently in our clinical study. We are also making this information available to the public and to the government agencies and to the pharmaceutical companies so they know that we have a very well-performing test and that it is very likely well suited to this type of application. So we're very interested in participating in these kinds of discussions, and we're available.

And is this one area in particular where government intervention is probably so important, it seems like governments are acutely aware of the -- and vocal about their concerns about the lack of Tamiflu available. It would seem to me that this would be a particularly sensitive area to them where you could have direct impact on them really adopting this and making sure that the amount of Tamiflu they have isn't wasted. So are you really focusing on governments in this area in particular?

We certainly are interested in what our government is doing and what governments in other countries are doing. And we know that they're very, very concerned and very much aware of the potential risk that there will not be sufficient drug available. And as I'm sure you know, the government is working on a pandemic plan. And we expect that these considerations will be incorporated in there. We do not know what plans they might have for rapid tests and how they might pertain, but we're confident our government and those in other countries are aware of this possibility and are exploring potential utility of rapid tests and everything else that might be available to them to address this potentially very dangerous situation.

And in these discussions with governmental and health agencies, do you feel that you've been able to get a seat at the table and that you are -- being heard as a potential part of the solution? Or are they so focused on other areas that your message isn't really being heard by these decision makers?

It's very hard for us to answer that question. I think some of the answers are going to come forth when this plan is released and potentially it will be released as early as this Thursday, I read in a bulletin today. We know they are hearing us. What they expect to do with the information that we're conveying to them, we do not know.

Okay. Last question in this area on the avian flu. And first of all, I would like to say that I think you -- the company is - it's a real credit to the company, they have taken a responsible approach and certainly not hyped this, during this time when we've seen a lot of companies really come out and put out some, what I would view as irresponsible press releases, I think you guys have taken a more understated approach, which I think is a real credit to you and I think that is very appropriate, especially during this time of panic and concern and misunderstanding. So I wanted to mention that. But the last question in this area, as you look at -- you laid out five points where you may play a role in possible preparedness for avian flu. Do you see most of the decision making and purchases, especially, done on a state level or more along a national level with various countries or more through health agencies? Or how do you think, to the extent that you are utilized, how do you think the purchases will be made?

Matt, for us in trying to survey and understand what may occur it could be all of the above and most likely will be.

Okay. Last question for you. On the iFOBT test, that launch you said is going to take place next month. Can you give us a feel for what activities will take place around that launch? Is this something where you're going to be trying to aggressively create awareness of the test? As I've spoken with physicians, again I don't think there's a real good understanding of how you could differentiate with your particular product here and again, it's a challenge for a smaller company. How can you create awareness around your test?

Well, first and foremost, the publicity around colon cancer and the need for screening and the fact that so many patients that leave a doctor's office with a hemocult slide are not returning the test so that a proper diagnosis of blood in the stool can take place. And so there has to be better testing, more sensitive testing, easier-to-use testing and less sampling required in order for there to be more patient compliance.

Between November and March, which is the kickoff of colon cancer month, we have a very aggressive campaign to educate and motivate patients as well as to educate physicians around our tests, the specifics of our tests, why it needs our Quidel Value Build guidelines and why it's economically a very excellent answer in terms of the doctors being, a) wanting to purchase a test that they know will be returned to them for diagnosis and reimbursement; and b) that there's comfort behind the company that support it in terms of having excellent data to support its capability (ph). So we have a several-pronged approach over a four-month period. Also, we are aware that Beckman-Coulter, that is the manufacturer of the current hemocult gliad test has also introduced an amino assay fecal occult blood test and is also working to convert doctors to the new format. So there will be a lot of attention in this area over next several months, of which we will participate very aggressively.

Great That's very helpful. And if I could, I just noticed one question in the margin that I forgot to ask and this is another one related to avian flu. In terms of your ability to manufacture, if you would get orders, either from a national level or a health agency or something that would be a sizable order, do you have the manufacturing ability to turn products around in a timely fashion where you could take advantage of that? Or how restrained -- constrained would you be by your current manufacturing status?

We have been working for several months on the manufacturing plan associated with several scenarios and we are confident that we could meet the demand.

Great. I appreciate you taking my questions.

Thanks, Matt.

Your next question comes from Patrick Kent (ph) with Boston Company.

Hey, guys. Just a couple of quick follow-up questions. One, I think you've kind of touched on this, but I think the preferred partnering program, if I understand it correctly, is more on the distribution side. So I was just curious how much you've been able to advance maybe payer coverage of the test, which I think has been sort of a barrier to more adoption.

Well, just recently we know that Aetna has approved reimbursement for the flu test as well as Blue Cross of North Carolina. We are working with consultants nationally so that people in Washington as well as hiring individuals who will be supporting the very important payer initiatives associated with all of our tests. We believe that rapid diagnostic tests need to have the economic proof to support their use. And so we're investing a lot to get that accomplished in a number of studies this season, as well as with the employment of support with a lot of national groups on quality assurance and technology evaluation.

It would seem that there's maybe -- the Tamiflu potential sort of shortage. Does that sort of lead into that economic sort of proof argument?

Well, I think that in terms of the whole test and treat model and the economics behind it, that is not something that we are currently working on. We know that Roche does work in that regard and if they contacted us, we would certainly want to cooperate with them in helping build a model that would best protect the public.

Okay. Last question. Just on the -- you talked a while back and I think - I don't think you've had any announcement around this but I wanted to check, there was some talk of partnering with a consumer products company, and I thought we'd maybe see an announcement at some point. Unless I missed it, I don't think we ever really saw the conclusion of that. So I was curious as what's happening with that.

Well, I'm comfortable in telling you that many major consumer products companies have contacted us and have a strong interest in working with us. And we would, over the next several months, be making a decision as to whom to work with.

So that's -- were you further along with one company but now it's actually in talks with more of them? I guess I was - sort of thought that there was a -

I'm comfortable to tell you that we did disengage from a consumer products company we were working with.

Okay.

And since that time, we have been approached by several large, recognizable, consumer product companies who have decided that an area of great interest for them is over-the-counter rapid diagnostic tests to support a number of areas, including infectious disease.

Fair enough. Thanks a lot.

Your next question comes from Michael Feldman (ph) with H.S.T. Capital.

Hi, guys. A couple of real quick questions. First, on the -- can you just give a quick update on the L.T.F. status?

Yes, L.T.F.I., the amino assay project, over the past several months as I indicated in a previous conference call, we have been working to assure that we have appropriate voice of the customer validation on the design of the test as we moved ahead. We've made a decision recently to continue investing in this regard. And we will keep you apprised as we make progress and we have specific dates we can share with you that are firm.

Okay. And at this point you're not comfortable giving any dates in terms of likely time to start?

No. through the voice of the customer process, which we implemented in Q1 and Q2, we made a lot of changes in the design of the test. And so that brought us to, I think, a very important point. And that is that we want to design a test to meet those requirements so we've made some design changes. And with that comes other changes associated with development and with equipment.

Right. So basically in order to make important design changes, you were - you made the decision to push the L.T.F. back but it was sort of well worth the compromise?

That's how we feel, absolutely.

Yes, okay. And just on the flu market size. I wanted to -- you said that in the survey you conducted, that 48% of those physicians using rapid testing were using the -- for influenza were using the QuickVue product. Is it -- can I take away from that you have a 48% share of the rapid testing market?

Actually, as of the HIPPUS(ph) data which we follow, we had 71% of units for Q2 for the physician office lab market for A/B and A+B influenza tests. There are -- in the statistic I mentioned earlier is that there are 48% of -- of the survey we did, 48% of physicians said that they used a rapid influenza test and of the 48% of those physicians who used the test, 92% used our test.

Got it. Okay. And have you seen any - I mean I know you said that market share was increasing. Is that market share within rapid testing or market share within testing, period?

Rapid testing.

Got it. Okay, thanks a lot.

Thank you.

At this time, ladies and gentlemen, management has time for two more questions. Your next question comes from Stan Mann (ph) with Mann Family Investments.

Hi, good job --

Hi, Stan.

I have some kind of far out questions. On your modeling of the business down the road, without the time scale, what do you see as your objective on gross margin operating profit when you're running at where you want to build the company? It seems like your margins -- gross margin, your net margin, I know it's a turnaround, are low.

Well, with guidance off the table, we're not speaking specifically.

Not guidance, but modeling -- your modeling. What are you looking to grow it to -- 60, 65% gross margin or typical in the business and operating margin (inaudible - technical difficulties). That's what I'm looking for.

Right. I appreciate your interest but I can't comment on that.

What about commenting on your long-term growth goals? Certainly you must have some goals that you are trying to accomplish.

Well, we -- our goal is to be the number one manufacturer, developer and marketer of rapid diagnostic tests to the point of care in infectious disease and reproductive health and also to migrate our research use only products that we have in our specialty product groups for osteoporosis and oncology into rapid testing.

That's your mission statement. Do you have any numbers that you have in your modeling that you can share with us that isn't a guidance but just a general -- you came in and you're turning the company around. You must have some numeric goals, benchmarks. I'm not asking for guidance.

No, we understand that. Certainly companies of our size always want to see themselves doubling and tripling their top line and their bottom line. And obviously, that's what any company would say they would want to do. But in terms of giving you specifics, we're not in the position to do so.

Well that's great. I mean, you've given out no information at all, I mean, as far as your direction or future. And I find that

I think we have given out a lot of information, a lot of information on our direction and future. If guidance comes back on the table because we choose for it to do so, then I think we can fill in the blank in terms of the numbers that you're requesting.

Your next question comes from John Riley (ph) with A.C.K. Asset Partners.

Great quarter, Paul.

Hey John, thank you very much.

How are you? Just -- the question I have is regarding your sales and marketing expenditures. It looked a little bit low in the quarter and I know you're expecting to increase your expenditures for your QVB and other programs going forward. Could you tell us a little more about those and what we can expect?

Well I think that as Caren alluded to, as this first year that she has introduced with the management team the concept of the Quidel Value Build, we're going to be diligent in our efforts to invest in the needed promotional campaigns to support the growth of our products across the various families that we have. A lot of that is obviously focused on the opportunities surrounding the seasonality of some of our products. So as we position for the upcoming cold and flu season, you'll see the appropriate sales and marketing support that would drive some of the awareness issues Caren has mentioned in her prepared and comments today in response to some questions.

And, obviously, with all the surrounding noise and talk on avian flu and everything, we're certainly going to be focusing our spending in and wisely to accomplish our goals there. So you'll see in the upcoming couple of quarters some sales and marketing dollars spent in that regards. But not at all taking away from the overall focus that we have of providing growth to the bottom line and to the shareholders of the company.

Great. One just quick follow-up related to the Cambrex and the Nordic announcements and the opportunities. Can you tell us when we can expect to see products from those? And also if they'll be incremental marketing expense or if those companies will be bearing those expenses?

Those plans are in process right now. Those agreements were recently inked and we expect to report more with more definitive details in our next quarter.

Great. Look forward to hearing from you and great quarter, great turnaround.

Thank you so much. Thank you again for your time this afternoon. I hope the discussion today gives you a good sense not only for our results and how we're measuring success but also for our strategic objectives going forward. We're making significant progress on a number of fronts from creating growth opportunities through product development and marketing to improving profitability through strong controls and production efficiencies. We believe these efforts are positioning the company for sustained growth and greater shareholder value. Good afternoon.

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