QuidelOrtho Corp (QDEL) 2006 Q2 法說會逐字稿

Welcome to the Quidel second quarter 2006 financial results conference call. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded today, August 2nd, 2006. I would now like to turn the conference over to Mr. Don Markley. Please go ahead, sir.

Thank you. This is Don Markley with Lippert Heilshorn & Associates. Thank you for participating in today's call. Joining me from Quidel are Caren Mason, President and Chief Executive Officer, and Paul Landers, Senior Vice President and Chief Financial Officer.

Earlier this afternoon, Quidel released financial results for its second quarter and six months ended June 30th, 2006. 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 in Los Angeles at 310-691-7100 and speak with Cheryl Park.

Today's call will begin with prepared remarks by management and then we'll take your questions. Please note that this conference call will include forward-looking statements within the meaning of federal securities laws. It is possible that actual results could differ materially 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 10-- on Form 10-Q as filed with the SEC.

Furthermore, this conference call contains time-sensitive information and is accurate only as of the date of the live broadcast, August 2nd, 2006. 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 Paul Landers. Paul?

Thanks, Don. I am very pleased to report our financial results for the second quarter of 2006 as we saw gains in several key performance metrics.

Starting with the top line, second quarter total revenues increased 11% to $16.5 million from $14.8 million in the second quarter of 2005. Worldwide product sales were up a strong 21%.

You will note that royalty income declined from $1.4 million in the second quarter of 2005 to $270,000 this year. The decrease was primarily related to development contract revenue earned from achieving certain milestones under a joint development agreement with another company that was terminated during the second quarter of 2005.

In the United States, product sales of $13.6 million were up 23% from the prior year second quarter. This increase was driven by sales of our core product lines of QuickVue tests for pregnancy, Strep A and influenza, which totaled $10.7 million, up an aggregate 33% from last year's second quarter.

International product sales of $2.6 million increased 11% compared with the second quarter of 2005, primarily due to increased shipments of our Strep A products. On a worldwide basis, sales of our core products of pregnancy, Strep A and influenza were $12.2 million, representing 75% of net product sales. More specifically, comparing Q2 2006 with Q2 2005, Strep A, pregnancy and flu test sales were up 36% in the aggregate.

Our gross margin in the second quarter was 46%, 5 percentage points lower than in the comparable quarter in 2005. The decline was primarily due to significant strategic investments made to support our QVB programs and a full quarter-- and full quarter royalty payments under a May 2005 patent litigation settlement and net cross-license agreement. QVB strategic investments that impacted gross margins were primarily for machinery and equipment, additional engineers and other professionals in the areas of automation and quality control.

Operating expenses for the second quarter of 2005 were $12.0 million, including approximately $800,000 in stock-based compensation expense. This compares with operating expenses of $10.2 million for the second quarter of 2005. The increase in operating expenses primarily relates to the non-cash stock compensation expense and amortization of acquired intangibles assets, as well as the timing of planning R&D activities, clinical trials and marketing programs, partially offset by lower legal fees associated with the settlement of patent litigation.

The net loss for the quarter was $4.0 million or $0.12 per share. This compares with a net loss of $1.7 million or $0.05 per share for the second quarter of 2005. The adjusted net loss for the second quarter of 2006 was $3.1 million or $0.09 per share, compared with an adjusted net loss for the second quarter of 2005 of $1.1 million or $0.04 per share.

The adjusted net loss reflects the effect of certain non-recurring, non-cash items including stock comp expense per our adoption of FAS-123R and discontinued operations encompassing the company's urinalysis and ultrasonometer businesses. A reconciliation of the GAAP and non-GAAP net loss is provided in today's press release.

Our balance sheet continues to be very solid. Days sales outstanding for the second quarter were 45 days. The quality of our accounts receivable as expressed as a percentage of receivables greater than 60 days out, is excellent. Inventory turns for the 2006 second quarter were 4.9 times or approximately every 74 days.

Capital expenditures during this second quarter were approximately $1.8 million. Our cash and cash equivalents as of June 30th, 2006, totaled $39.1 million compared with $34.9 million as of December 31, 2005.

During the second quarter we initiated repurchases of our common stock under our $25 million buy-back program announced back in June 2005. As of June 30, 2006, we had repurchased 285,000 shares at an average price of $9.80 per share. We continued to repurchase shares at the beginning of the third quarter and as of July 13th, 2006, we had bought back approximately $9.9 million, cumulatively, of our shares under the repurchase program.

And now I will turn the call over to Caren for a review of the key strategic accomplishments and developments in the quarter. Caren?

Thank you, Paul. First, I want to highlight the 23% growth in domestic product sales year-over-year. I believe this very strong growth clearly indicates the success we've had in the strategic positioning of our products through clinical and economic proof programs we refer to as Quidel Value Build or QVB.

Demand increased for each of our core products during the quarter and data from earlier this year indicates that our flu test reached an approximate 69% share of the point-of-care market for the trailing 12 months ended March 31st, 2006. In addition, we believe there remains a considerable market growth opportunity in rapid point-of-care flu testing as there is growing awareness and attention on the need for more widespread flu testing.

For example, in July, the "New England Journal of Medicine" published a study that included very compelling findings regarding the proper diagnosis of influenza in children. According to this study, most influenza infections were not correctly diagnosed clinically and in the outpatient setting. Only one out of five children with laboratory-confirmed influenza infections had a discharge diagnosis of influenza.

The study further noted that the increased use of rapid influenza testing may increase awareness of influenza, increase the appropriate use of anti-virals, improve infection control and increase the use of influenza vaccine. This study was widely reported in media across the country and we were pleased to see that reports included the QuickVue influenza test when suggesting a solution.

While we cannot forecast the timing or magnitude of the flu season, there are several elements in place that we think show promise for the second half of the year including inventory-level favorability, a commanding market share for our product and growing medical community support for testing.

During the quarter we also continued our focus on and investment in our recently introduced immunochemical fecal occult blood test for the early detection of colon cancer. We are in the process of converting the market from the traditional guaiac test to a superior immunochemical test. This requires a significant investment in clinical research and marketing, not only to raise awareness of the benefits of the immunochemical test, but also to provide convincing evidence of the need to switch.

I am pleased to note that we are not alone in this effort. A recent editorial published by the American Academy of Family Physicians urged doctors to improve their colon cancer screening procedures. Quoting briefly from the editorial, "At-home fecal occult blood test is far from a perfect test. Of concern, 12 of 21 patients with cancer tested negative on an at-home fecal occult blood test. Fecal immunochemical testing is likely to gradually replace guaiac-based testing as the preferred technology for stool testing. The performance characteristics of this test, including patient return rates, are superior to guaiac-based strategies."

Although the migration to an immunochemical test is likely to continue to be a gradual process, we believe our investment in this regard is well placed in light of the considerable market potential, with an estimated 50 million fecal occult blood tests performed in the U.S. each year.

I have talked in recent calls about our RSV diagnostic test and we believe we are on track for the introduction of this test in the third quarter, pending FDA approval. Our marketing and clinical support for our RSV test has been and will continue to be significant as we think it can be an important companion product for our flu test.

On the research and development front, we continue to evaluate a number of leading technologies and product licensing opportunities as we look to expand our selection of platforms from which to develop qualitative and quantitative single and panel assays for an assortment of applications.

In addition, we made capital expenditures during the first six months of 2006 in support of the ongoing assessment of manufacturing feasibility for our proprietary LTF immunoassay technology. We anticipate reaching a determination as to the degree of continued investment in our LTF immunoassay technology before the end of this fiscal year. We have also strengthened our efforts and investment to improve application of our non-immunoassay-based LTF applications.

In summary, for the remainder of 2006, we anticipate continued year-over-year revenue growth in our core product lines, as well as revenue growth from new product launches. We believe gross margins will be positively impacted by increased sales volumes, a more-favorable product and geographical mix and increases in average selling prices.

Gross margin contribution offsets will continue through investment in strategic operational infrastructure and the annualized net impact of the change in our royalty component. We anticipate continued investment spending in marketing and clinical trials as we launch new products and further validate the clinical efficacy and economic efficiency of our existing products. We expect research and development expense to continue to increase as we expand our capabilities to accelerate innovation and invest in research and development of new technologies.

Our continuing commitment and focus is on growing our primary position as a leader in the rapid testing market at the point of care.

Operator, we are now ready to open up the call for questions.

[OPERATOR INSTRUCTIONS] Our first question comes from Nate Cornell with Pacific Growth Equities.

Hi, good afternoon. My first question is, Paul, I guess, how much of the $800,000 in-- in non-cash stock comp is reflected in R&D versus in G&A?

Approximately $300,000 of that would be in the R&D pool and are you looking-- probably the best way to look at it is a third would go to the R&D pool, a third would go to the sales and marketing and probably the residual, a little bit closer-- a third or a little bit more going to the G&A.

Okay. Okay. And do you guys expect to have any clinical data from your IFOB studies in Q3?

No. Our immunochemical fecal occult blood studies are going to be expansive in terms of the type of data that we're going after and the quality of the institutions that we're working with. We expect it'll be four to six months before we have what we believe will be the necessary data to support not only the clinical adoption but the economic validation for appropriate reimbursement by private payers.

Okay. And can you comment at all on the data that you've seen so far?

Well, we're already receiving data from a number of sources and medical societies. I quoted just one in my prepared remarks that definitely believes through either their own research or use, as well as published studies that immunochemical fecal testing is a superior technology to guaiac-based testing.

Right, but I mean have you seen any-- I mean can you comment on the data from your own clinical trials? Do you have data at hand right now that you can talk about?

No. We are working to make sure that the data that we are undertaking can be published by premier medical journals that require there be no comment prior to that publication date.

Okay. And last question, what-- how do your Japanese inventories look? I know that your domestic inventories are low. How does Japan look in international?

We have reached agreement with our Japanese distribution partner and we are pleased with their commitment to us for the remainder of '06 as well into flu season of '07. So their confidence is our confidence.

Okay. Thank you.

Our next question comes from the line of Zarak Khurshid with Caris & Company.

Hey, guys. Zarak here from Caris & Company.

Hi, Zarak.

Hi. The top line looks pretty good. I just wanted to touch on the gross margin weakness here. Could you just comment quickly kind of on the nature of the operational infrastructure investments and kind of what-- what is the one-time nature of these charges? And if you could quantify any of this, that would be really helpful. Thanks.

Well, there are definitely fixed costs associated with the improvement we believe we want to make as we move toward more automation and which requires the hiring of engineers to support that expertise. So in terms of looking at gross margin, you really need to look at it more on an annual basis as we smooth out our product mix requirements over the year's time and then we're back into the 50s and comfortable there.

So in-- in Q2 we tend to have our mix less toward our higher margin products and more toward our lower margin products, so you take that plus continuing investments and you see a bit of a dip this quarter.

Okay. So, yes, Paul could you just quickly break out the contribution in the quarter of flu, Strep A and pregnancy individually and, if possible, the year-over-year growth in each of those?

I'd be happy to, Zarak. The pregnancy consolidated revenue was $4.9 million and that represented a 4% increase over the prior year. Strep A was $6.2 million and that was a 55% increase over the prior year. And flu represented $1.1 million and that happened to represent over a 300% increase, but albeit it's over a small base.

Sure. Okay, so-- so no price cutting in the quarter?

No.

Absolutely none.

No, no, no, no.

Okay. All right. So I mean I'm just trying to get a sense for the gross margin. So would you say overall gross margins '06 over '05 are going to be down because of these associated investments?

Zarak, I think Caren tried to do as best that she could to give that outlook to you with respect to heading into the strength of our fiscal year and the support that we'll get from the higher gross margin contribution of those products and everything, but absent that, we don't provide financial guidance and I'm not comfortable in providing any more detail.

Okay. I think that's-- that's enough on that subject. With respect to the Church & Dwight arrangement, has-- has anything developed there? Could you shed some light on that?

Our agreement with Church & Dwight requires that all our activities remain confidential. They will make announcements to serve their consumer and over-the-counter customer base as we complete projects, so there's really no comment from this side on our OTC endeavor with Church & Dwight.

Okay, fair enough. And then with the immuno fecal occult business, what fraction of the current market is guaiac versus immunochemical and with your competition, why haven't earlier introductions of immunochemical-based tests been able to convert the market?

My belief is that guaiac is still in excess of 95% of the total purchase of fecal occult blood tests. In terms of the ability to get immunochemical purchase over and above guaiac, even with reimbursements from Medicare being at such an attractive level, is because it's a standard of care change from a digital rectal exam, most often, or a take-home stool sample that is potentially a three day and a difficult and uncomfortable situation for the patient versus the immunochemical, which is potentially a one, two or three day, depending upon the manufacturer's recommendations as to the use of the immunochemical test at home.

The challenge really remains around changing that standard of care and working with physicians and medical societies to support the proof data that the immunochemical test is worth changing the way medicine is practiced in the family physician and the gynecologists office, especially. So the kind of work that we are undertaking should provide the data -- we have some confidence around that -- that will begin to move the needle more aggressively than it has been moved in the past and that we are the company, through the work we've done in flu and continue to do in RSV and are now doing in immunochemical, that supports the physicians' and the medical societies' desire to move to better medicine.

Sounds good and with RSV are we waiting for an approval sometime soon?

Yes, we are.

Okay. I mean, that was submitted quite a while ago. Is the timing here consistent with prior submissions and-- any color there?

Timing is consistent with expectations.

Okay, great. Thanks for taking the call.

Thanks, Zarak.

Our next question comes from the line of Andrew MacPherson with Infinium.

Hi, guys.

Hi, Andrew.

Hi. A quick question on layered thin film. I know the R&D has been, I guess what you would call a protracted process over a couple of years. I guess the near-term question would be is the candidiasis test still intended to be launched on layered thin film and what's your internal process of going through, evaluating LTF across some of the larger product categories?

Okay. Our yeast test, which is an enzyme-based test, at this time we have not decided as to what format we will introduce a yeast test. In terms of the continuation of our work with LTF, as I said in my prepared remarks, we are going through a determination now of the continued investment status for the immunoassay platform and we have continued and will continue investment in the alternate applications of our original LTF technology.

Got you. Okay. And for IFOBT, obviously, Medicare reimbursement came through last year or was it '04, the product market as a whole has been on a fairly dramatic ramp, albeit on a very small dollar base. Have the trends from 2005 for the market as a whole been continuing through or are you starting to hit questions among providers as to should we be transitioning over or not?

No, I think we're getting a lot of interest in-- especially in acute care, we're working diligently to provide acute care with the data that they need to adopt the test. We are doing beta testing with large institutions to support validation so that other large providers will also move into immunochemical from guaiac testing.

So we don't see a slowdown at all. There is, I think, a lot of drum beating going on in the marketplace, but the definitive clinicals to support the adoption that the societies-- both the American College of Obstetrics and Gynecology and the American Academy of Family Physicians are editorializing on this topic as we speak and have for the last four or five months and so we believe all of this activity will continue the upward trends quite aggressively for now and in the future.

I know the American Gastroenterology Society is currently reviewing and/or revising their guidelines for colorectal cancer screening. Have you gotten any indications whether they're looking to drop DRE as a standard of care and start moving into IFOBT more aggressively?

I would imagine that their review is probably of a similar sense that ACOG and AAFP have undergone, but I can't predict where they're going to go with it until they make their statement.

Okay. And the one last question on IFOBT, have you investigated Asian markets in particular, because it is more of a standard of care and a more established product category overseas rather than in the U.S.?

Definitely. As with all of our products, our international marketing and sales is aggressively reviewing those countries with which we believe IFOBT will have the appropriate reimbursement and adoption. So the answer is yes.

Okay, thank you.

Our next question comes from the line of Steve Crowley with Craig-Hallum Capital Group.

Hi, there. This is Greg Stalsberg in for Steve Crowley. A couple of quick questions. On the RSV test, what do you guys see as being your competitive differentiators for that product?

On the RSV test, until we have full FDA approval, I can't speak to it per requirements of the FDA because it would be considered promotion. What we've said in the prepared remarks and in the past is that we like the results of our clinical trial and we feel good about what we'll be able to talk about once approval is given-- received.

Okay. That makes sense. As far as flu in the Southern Hemisphere, can you talk a little bit about that specific market opportunity and your progress and penetration there?

Yes. Our Australian distributors were in town with us this week. Definitely Australia is working through in the physician office the requirement to get reimbursement to support the adoption of flu testing. The good new for us is that we've gotten quite a bit of notoriety as the result of the clinical trials that we have conducted there so successfully in the past flu season. We also have a number of the research and principal investigators associated with those studies who are writing papers and presenting posters, both stateside as well as throughout Australia and New South Wales.

And so bottom line for us is we feel confident that the Southern Hemisphere will, within the foreseeable future, be adopting rapid diagnostic flu testing aggressively.

Okay, great. And do you have any idea-- guess at all on which this can be a meaningful contributor towards revenues?

Well, in terms of total opportunity it would still be, relative to the-- the full amount of flu testing we do today, it would probably still be a small percentage because of the population requirements and the testing requirements there. But I think we're definitely enthusiastic, I would say, in terms of its contribution but really wouldn't be commenting specifically on either dollars, units or percentages.

Okay, great. And I know you guys don't give guidance, but in terms of visibility, can you comment on where you guys are at today versus where you guys were at a year ago?

Sure. If we're going to talk purely on state of the business, we have met all of our strategic objectives. We are ahead of our internal objectives, both in terms of numbers as well as our operating plan requirements for how we're building this business. So I think bottom line is we're really confident, comfortable and celebratory about the progress that we've made as one of the leading point-of-care rapid diagnostics companies in the world today.

Okay, great. Thanks.

Thank you.

Our next question comes from the line of Brian Freckmann with Crown Capital.

Hey, guys, how are you?

Hey, Brian.

I think almost everything has been asked. I think just a quick followup back to layered thin film. Are you guys-- I guess the question is where you guys are now, going forward, and does that mean there are certain procedures you guys won't use layered thin film, so like Strep A, flu and-- I mean, are there things you're still looking to use it for and things you've already sort of eliminated or how should I look at that?

I think that you're on the right track in that the decisions are being made over our work with LTF as to which markets and which applications and which version of LTF should be matched to each. So the answer to your question is yes, that's what we are finalizing before the end of this fiscal year.

Now are any already out of the running or--?

No.

No? So everything is still in the running?

Everything's still in play.

Okay. Well, that's it. Thanks, guys.

You're welcome.

Our next question comes from the line of Steve Friedman with Wachovia Securities.

Hi, Caren. Hi, Paul.

Hi, Steve.

I wonder if either-- either of you could expand just a bit on the quarter of royalty payments which impacted the margins in connection-- the full quarter in connection with the May patent-- May of '05 patent litigation. Weren't there full quarters prior to this or-- and could you break that out just a bit?

Steve, let me try to bring some clarity to that. The settlement occurred May of 2005. So that the settlement and the application of the royalty obligation was for only two of the three months of the 2005 second quarter. This quarter and since May of 2005 we had to absorb that over the entire period. That obligation, as you may know, is an 8.5% royalty on lateral-flow products, which account for upwards of 90% of our product revenues.

All right. Then going to the decline in royalty income from the $1.4 to $270,000, could you go over that again? I missed that or didn't hear it.

Yes.

And I'll just comment briefly on that. The relationship that we had with a partner where payments were made for work accomplished ended last year, but we had the ability to book the progressive payments in Q2, I believe. Mike, is that correct? Right. So that relationship ended and so did those payments.

All right. One last question. In relation to the question that was asked you, Paul, about gross margins and because of guidance you preferred not to comment, I understand that. Am I correct, though, in assuming that you do expect a gross margin substantially closer to the 50, 51 or 54-- at least above the 50% for the second half of the year?

I think that what-- what I would refer you to is our historical performance where we are now into the strength of our fiscal year, Steve, as you know, with the onset and expectation of a cold and flu season upon us and everything. I think we've commented in the past that flu represents a highly profitable gross margin contribution to the company and given the favorability of geographic mix and product mix, we believe that we will be very favorable to the economic model of this company in the second half of this year.

All right. You may have covered this, too, in a prior question. The inventory levels on your distributors for the flu, are they are in a fairly low or empty situation at this point?

As I referred to in my prepared remarks, Steve, we consider it a favorable situation, absolutely.

Okay. One final question. Is there any-- any consideration of resuming guidance at some point in the future?

I have, as you can imagine, advice on all sides with regard to guidance and resuming--

I'm sorry. I didn't hear you, Caren.

I get advice all the time on that subject.

Okay.

And at this point we don't foresee reestablishing guidance in the near term, but it's not forever off the table.

All right. Thank you very much.

You're welcome. Thank you.

Our next question comes from the line of Nate Cornell with Pacific Growth Equities.

I just wanted-- Paul, I just wanted to revisit the tax rate conversation. So I think you've said before that you don't expect to pay any taxes in '06. And what are you looking at, I mean, going into '07? Can you give us an idea of what kind of effective tax rate we might encounter?

I think I would prefer to hold on that, Nate. There's-- there's a lot in play with respect to NOLs and how we end the year and, obviously, being a forward-looking statement and everything like that, I would prefer to-- the strength of our NOLs and the footnotes in our Q for you to make that assessment.

Okay. And just to confirm, though, I mean, for the balance of '06 you don't foresee paying any taxes?

We-- we expect that any income tax provision will be offset by an income tax benefit from the previously reserved deferred tax asset position of the company.

Okay. Thanks for taking my question.

Thank you.

Our next question comes from Zarak Khurshid with Caris & Company.

Hey, guys. I hate to beat a dead horse, but so, Paul, if you paid the full royalty in Q2 of '05, what would the margins have been then?

Well, I don't have the full detail, because obviously it would be the revenues associated in that month and everything, but for the most part I think we're talking about 2% to 2.5%.

Okay, great. And then so overall, do you think we're on track for flu growth in '06 comparable to the growth rate we saw in '05?

Definitely we are feeling good about flu growth in '06. I'm not sure we can comment on comparable rates of growth, but definitely feeling good about getting into the flu season and what our distributors are telling us and what our preferred partnership should provide.

Very good. Thanks, again.

Really good about it. Thank you.

Our next question comes from the line of Steve Crowley with Craig-Hallum Capital Group.

Good afternoon. I've been able to join you now. I did want to follow up. The portion of the Q&A that I've heard you've been able to talk to us qualitatively about your feelings going into cold and flu season. The kind of things you're able to see from your distributors, are they forecasts for shipment schedules? What kind of granularity and visibility do you get from distributors and do you get standing orders that you ship against for a period of time?

Well, I think the granularity we get is very good, because the partnerships that we build with our distributors in both the acute care and physician office environment requires that they provide us with the appropriate forecasts so we're manufacturing to achieve those forecasts. And so, yes, we-- we're very aware of what our partnerships call for contractually as well as what the forecast process provides for us from the manufacturing and production capability.

So when we say we're feeling good, it's with what we feel is some clear indication from these strong alliances.

Now typically your flu business starts to initially ship in the third quarter. I would assume that the implications of very low inventory positions or favorable inventory positions would be potentially in both the timing and the magnitude of the initial shipments. Is that fair and reasonable logic on my part?

I think it's fair to say that-- that distributors do like to be prepared for earlier flu seasons since predictability is difficult in terms of are we going-- are doctors going to start ordering so they've got tests on the shelves as children, especially, come after the school year begins into the offices with upper respiratory conditions that need to be diagnosed. So the answer to the question is, yes, that most physicians, most acute care facilities, like to have flu tests on the shelves beginning in the September-October timeframe.

And a followup on distribution and it relates to your distributor relationship in Japan. My impression is that there's been some potentially favorable change in terms of your sales coverage in that market. If I understand it correctly, your distributor, Sumitomo, is now part of DS Pharma and what are the implications in terms of feet on the street that you'll have in the Japanese market and what are those sales people selling versus a couple of years ago in terms of number of products or types of products?

Well, I think that because this is the first year of that merger we can't be definitive about what productivity is going to mean and what increased sales can mean in-- with more feet on the street. Obviously, in these situations there's the training quotient and there's everything related to who's got what products in their bag and traditional pharma versus diagnostics.

However, the good news is that, yes, there are-- there are commitments made by our partnership that there will be more representation, especially in acute care in Japan, through the pharma relationship. No doubt about that.

And am I correct in my understanding that they're relatively new with the strep product in addition to the flu product and there's some nice potential there?

I think the strep product in Japan has definitely taken hold. It's got an appropriate reimbursement level. Physician offices are more favorable towards strep and there definitely has been an uptake in our Japanese demand for our strep products. That is correct.

Thank you.

Our next question comes from the line of Andrew MacPherson with Infinium.

Hi, guys. One quick followup on the royalty payment. When did the [inaudible] royalties phase out?

Q1 of 2005.

Those phased out entirely by the end of that quarter?

That's correct, Andrew.

Got you, perfect. Okay, that's what I thought. Thank you.

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

I'd like to thank everyone for joining us on the call. Appreciate your interest in Quidel and look forward to talking with you again next quarter.

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