QuidelOrtho Corp (QDEL) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Quidel Corporation third-quarter 2009 conference call. (Operator Instructions). I'd now like to turn the call over to Mr. John Radak. Please go ahead, sir.

Good morning. This is John Radak, Chief Financial Officer at Quidel. Thank you for participating in today's call. Joining me today is our President and Chief Executive Officer, Doug Bryant.

Last Friday, Quidel released financial results for its three months ended September 30, 2009. If you have not received this news release, or if you would like to be added to our Company's distribution list, please call Andrew Levy at Porter Novelli Life Sciences at area code 619-849-5376.

Please note that this conference call will include forward-looking statements within the meaning of federal securities laws. It is possible that actual results and performance 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 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 19, 2009. Quidel undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call, except as required by law.

Before we begin, and since we have received some inquiries, let me first address our change this quarter in approaching our announcement of quarterly earnings. As many of you know, our past practice has been to release our financial results after the market closes and hold our previously-scheduled conference call shortly thereafter.

However, due to the unprecedented results for the quarter, management and our audit committee determined it was in the best interest of our shareholders to release these results as soon as practicable after the conclusion of our financial disclosure approval process. That process was accelerated somewhat and concluded last Friday morning at our audit committee meeting.

Accordingly, we released results promptly last Friday and scheduled this conference call as soon as possible thereafter to allow for notice to participate. We appreciate your understanding of our approach this quarter under the circumstances.

For today's call, I will report on the financial results for the quarter and year to date, and Doug will provide some color on our longer-term flu growth prospects, give an update on our new product pipeline, and finally, provide an outlook for the remainder of 2009 and this year's flu season. We will then open the call to your questions.

We had a very significant benefit during the quarter from our influenza test sales, driven by a considerable increase in influenza-like illness beginning in mid-August. The total global revenues for the quarter were $56.2 million, an increase of 76% compared to the third quarter of 2008.

Domestic revenues were $45.6 million, an increase of 60% period over period, while international revenues came in at $10.6 million, an increase of 221% from the third quarter of 2008. International revenues accounted for 19% of total revenues in the third quarter of 2009, compared to 10% in the third quarter of 2008.

Global infectious-disease revenues were $47 million versus $24.6 million in the third quarter of last year, an increase of 91%, driven by a significant increase in influenza sales. The emergence of the 2009 H1N1 virus and an increase in the number of physicians using rapid-flu test to aid in the diagnosis of influenza are the key contributing factors.

In the domestic market, as of the CDC's October 10 flu report for week 40, the percentage of patient visits for ILI has climbed dramatically to 6.1%, almost 3 times the national baseline of 2.3%. On a regional level, the percentage of outpatient visits for ILI ranged from 1.8% to 12.9% during week 40, and increased in nine of the 10 surveillance regions compared to the previous week.

All 10 regions reported a proportion of outpatient visits for ILI above their region-specific baseline levels. In addition, 41 states reported widespread flu activity, up from 37 states in the prior week.

In addition to our flu sales, strep sales were also a positive contributor to the growth rate in the quarter.

Global revenues of our reproductive and women's health category increased 38% in third quarter of 2009 to $5.5 million. Revenues from other products were up 11% to $3.6 million, resulting from strong sales of our autoimmune and complement product lines, as well as from sales of our veterinary products.

Earlier in 2009, we implemented a process to better manage the quantities of inventory in the domestic distribution channel. As of the end of the third quarter, we estimate that domestic distributor inventory levels for our strep and pregnancy products continued to be below normal levels, and that the third quarter sales were reflective of actual end-user demand.

With regard to influenza tests, we estimate that the majority of our domestic distributor inventories are at roughly three-week supply of current end-user demand. We have also surveyed -- recently surveyed physicians and, based upon their feedback, believe their tests on hand to be relatively low as well, with 75% of them expecting to reorder in the near term.

Since early August, we have seen week-over-week increases in distributor out-sales with a corresponding growth in order volume. We continue to manufacture at very high levels and believe we are well positioned to respond to demand from end-users, which at this point continues to increase.

Gross margin in the third quarter of 2009 increased to 69%, as compared to 62% in the prior year, primarily due to a more favorable product mix in 2009. Operating expenses were $14.2 million, compared to $12.4 million in the prior year. This increase was due to higher variable compensation costs, increased marketing programs aimed at flu awareness, and the costs associated with our new credit facility.

For our nine-month results, revenues increased 3% to $97.7 million, from $94.6 million in 2008. Our net income was $12.8 million, or $0.42 per diluted share, as compared to net income of $12.8 million, or $0.39 per diluted share, in the same period of the prior year.

Included in our 2009 year-to-date results are restructuring charges of $2 million, or $0.04 per share.

Stock-based compensation expense was $2.5 million for the nine-month period, versus $3 million for the same period of 2008.

We continue to have a very strong cash position. During 2009, Quidel has repurchased approximately 2.1 million shares of its common stock for $18.9 million, under the Company's previously-announced share repurchase program. A total of $8.1 million remains available for stock repurchase under the current Board-authorized program.

Even after the effect of the share repurchases, cash, cash equivalents, and marketable securities, as of September 30, 2009, were $65.3 million, an increase of $7.4 million from the end of 2008.

I will now turn the call over to Doug.

Thank you, John. Before I address the longer-term strategic initiatives we have underway, I wanted to briefly comment on the third-quarter results and our accomplishments since our last conference call.

Obviously, it was a great quarter for us, and the financial results speak for themselves. However, results like these don't just happen. We've successfully executed on several of the tactical objectives we set out for ourselves in the second quarter, and I would like to mention just a few of those.

First, we manufactured 9 million flu tests since restarting our flu production line at the end of April of this year. We eliminated the excess inventory in the domestic distribution channel. We discontinued the practice of providing financial incentives to end-users and to our distribution partners to buy large quantities of flu tests in anticipation of the start of the flu season.

We implemented a new process to monitor domestic orders to help ensure that our distributors do not overstock the flu tests. We launched an Internet-based flu awareness promotion program targeted at physicians and patients, and we signed a joint development and commercialization agreement with BioHelix to develop molecular diagnostic tests, an initiative I'll talk about in further detail in a moment.

Now I'll talk about our long-term flu growth prospects. During the quarter, we all read articles in the press that questioned either the accuracy or the utility of rapid-flu tests as an aid to physicians in diagnosing and treating patients who present with ILI. Despite these reports, physician usage of these tests has increased dramatically, and as a result, our sales of both QuickVue Influenza A+B and A/B are robust and ongoing.

There are a number of factors that we believe have contributed to the use of our rapid-flu tests. Studies published in peer-reviewed journals demonstrate that the clinical sensitivity of unaided diagnosis without a test is quite low. In one prospective study, the sensitivity of unaided clinical diagnosis of flu in 2,288 patients was 38% and the positive predictive value was 32%.

In another study, the positive predictive value of an influenza diagnosis increased from 32% to 92% with a positive rapid antigen test. These studies have been in circulation for a while.

What I think may be happening now is that with huge numbers of patients presenting with ILI, physicians are increasingly recognizing the difficulty of diagnosing flu without a test and the value of using a 10-minute test, even when the test is likely less than 100%.

The difficulty in diagnosing influenza by clinical science and symptoms alone during this pandemic year is further compounded by the absence of fever in a significant portion, perhaps as many as 25%, of patients infected with influenza, and indeed the number of physicians testing for flu who had never had never used rapid-flu tests in previous seasons is in the thousands through September.

We are not sure if this number will continue to increase over the next three to six months with the continuation of the flu season, but we can say that, as we finished the 2008-2009 season, we believed that market penetration, the number of ILI cases that resulted in a rapid-flu test, was about 30%. We now believe that the percentage -- penetration will clearly be much higher by the end of the coming traditional influenza season.

How much higher? We really don't have a better feel and we won't until we exit the first quarter of 2010.

For Quidel, the dramatic increase in flu sales in Q3, perhaps extending into Q4 and into Q1 2010, will be important for us, particularly for earnings and cash generation. It certainly allows us to fund some of our growth initiatives earlier and perhaps more aggressively.

And while we clearly would not anticipate a pandemic every season, nor the volume of testing we are currently seeing, what this season has done is to accelerate penetration and growth of the influenza testing market, a market in which we are the clear market leader, both in terms of share and brand image. This is very important to our longer-term future.

You can imagine that, in what might be a typical flu season for 2010, 2011, and years beyond, with the potential accelerated market penetration following this year, the typical market may have increased from 8 million tests today to 12 million tests if the penetration is 45%, and to 16 million tests if the penetration is 60%, or double what it is today.

In addition, consider that, with the public's increased awareness that flu can be a serious health risk, the 30 million people who visit their physicians with ILI symptoms in a typical year may increase as well, as 60 million people or so per year usually report having had flu-like symptoms, according to the CDC.

Next, I'll talk about new product introductions into our pipeline. On Friday, we announced that our specialty products group has launched a new product for the detection of the C5a peptide, a mediator in several inflammatory diseases. While this is a niche product targeted to the research use-only market, our specialty products team continues to work on new-product development initiatives, in particular, bone health and complement system markers, and to look for opportunities to turn RUO products into lateral flow assays for the clinical rapid-testing market.

And on October 6, we announced that we had signed a joint development and commercialization agreement with BioHelix. BioHelix's isothermal amplification technology, HDA, is the core of a novel, cost-effective, instrument-free platform that presents a unique opportunity for us to develop molecular diagnostic assays.

We are very excited about this agreement and are working diligently with them to develop project plans for the co-development of a number of assays. We expect to describe our assay pipeline in more detail in future quarterly earnings conference calls.

In terms of other new products under development, let me provide a quick update on the near-term programs we've discussed before. We submitted our 510(k) to the FDA on our second-generation fecal immunochemical test for colorectal cancer screening, and we are working through the FDA's process. We expect to launch as soon as possible after we receive 510(k) clearance.

We began clinical studies on our flu-RSV combo test and expect those to run through the flu-RSV season. So we're still tracking towards a launch for the 2010-2011 flu season. And we continue to be on track to relaunch our mononucleosis test in the first quarter of 2010.

Now an outlook for Q4 and the remainder of the flu season. The outlook for the business for the remainder of 2009 is very positive. Let me highlight just a few important points.

Patient visits for influenza-like illness continue to increase in the domestic market, and we are seeing significant weekly orders for our influenza tests. We expect to see elevated levels of ILI during -- driving flu test sales in Q4, and reorder rates by physicians have remained steady. We anticipate continued strength in the international flu markets in Q4 as well.

Our strep and pregnancy sales will continue to be tied to end-user demand.

We are frequently asked about the outlook for 2010, but the unpredictable course of pandemic influenza and the uncertainty about its impact on seasonal influenza, particularly on influenza B and H3N2 influenza A prevalence during the forthcoming winter, makes forecasting almost impossible, even for professional epidemiologists.

Nevertheless, we've seen a second peak in some other countries who also experienced the pandemic, and it's certainly quite possible that we will see something similar in Q1 in the United States. And possibly with higher physician penetration, as I explained earlier.

Assuming this to be the case, we will continue to manufacture at least through the end of this year.

In summary, we are highly confident that we will achieve meaningful double-digit revenue growth in the fourth quarter of 2009, and are positioned well for growth over the longer term.

That concludes our formal comments today. Operator, we are now ready to open the call for questions.

(Operator Instructions). Ashim Anand, Natixis Securities.

Congrats, guys, on a wonderful quarter and the BioHelix deal. First question is if you can give us some idea on your market share as -- especially as you did so well this quarter, if you have any idea of what your market share would be in the U.S..

It's really impossible to tell at this point. We've gained, as I said, thousands of brand-new customers, but so must have our competitors.

We did not do end-user promotions, which would incentivize customers to stockpile, but our competitors actually did. And we won't know the impact of that until the end of Q1. The end of the flu season.

In terms of existing customers, especially the very large ones, we retained a very high percentage but did lose a small number due to price, more than offset by takeaways from our competitors. And again, we will have to see how it shakes out after Q1.

In terms of BioHelix, if you can tell us on the technology that's based on HDA, Helicase-Dependent Amplification, does BioHelix actually own the whole IP of it, or, you know, there is some contingent owned by other companies? Hello?

BioHelix has exclusive rights regarding all IP.

In terms of their system, how does it look presently and how would it change? I know this is still in works. If you can give us an idea how it would change in terms of how you would like it to be when you launch your products on it.

Are you asking about the form factor of the device itself?

Yes, the present analyzer they have, or what they call iso-amp molecular analyzer. What -- how would -- the first -- you would kind of design a new system completely? Or there would be changes to that system in terms of the products you launch?

So there are some uses for the device as it exists today and there are changes that we have discussed with them preliminarily as well. So we see the platform as evolving from where it is today, but clearly there's an advantage to having something that works for at least a certain subset of the assays that we are interested in.

Okay. And lastly, if you can give us some financial details, you know, if you would make that public at this point, in terms of BioHelix.

We can't describe specifically the details, but we can say that we're both funding the development as well as a co-development partner. In other words, we have headcount that will be helping out as well.

Steven Crowley, Craig-Hallum Capital Group.

A couple of questions for you. It sounded like you had a good quarter internationally, and there is some optimism for the fourth quarter. Can you give us a little feel for maybe where you saw the strength, and whether or not that business is coming in big lumps or kind of on a regular rate basis to you?

We have had really good international participation, as you suggest, Steve. Japan, in particular, is up significantly. Mexico continues, also, to be at a peak in terms of sales.

Other countries perhaps worth mentioning, we've shipped product to Taiwan and Thailand, in particular. And then, I would have to say fairly widespread participation internationally, with an increase in the number of countries that are actually purchasing product.

So your confidence in Q4 is really not predicated on a large tender or a large piece. It's more a combination of a bunch of things.

No, it's a continuation of what we're seeing right now, Steve.

And in terms of the competitive landscape here domestically, you gave us some color. Are your competitors, from what you can gather -- do they have availability of product for customers or are you in an advantaged position in terms of availability of product?

I don't really want to speak specifically, Steve, to what our competitors may or may not be doing. I can just say that we are positioned very well in terms of our manufacturing capacity, and as we mentioned earlier, we have the ability to make a bit more if we need to.

And then, in terms of a strength in your non -- I guess your non-influenza products, you mentioned that strep was a contributor to growth this quarter. Are you seeing a phenomenon where you are getting any pullthrough -- positive pullthrough of those products from the strength you're seeing in influenza?

We are definitely seeing pullthrough with strep. It's quite typical, whether the patient presents to the hospital or to the physician, that the physician will request both the flu and a strep test.

In addition, our sales of RSV continue to grow, although off a smaller base.

Then just a couple of questions for John, then I'll jump back in the queue. In terms of the expenses, John, there was a pretty significant bump in G&A expense in Q3 off of Q2 levels. Is that a new higher level or was there something quirky to the jump that we should be aware of?

And then in terms of R&D, Doug, it sounds like you want to be more aggressive there. How does that translate into a bump in R&D expense as we look forward here maybe in the fourth quarter?

Steve, on the G&A expense, the increase -- the sequential increase from Q3 -- from Q2 to Q3 was driven primarily by variable compensation.

On the G&A side, it's still variable comp? Is that related to some of the new hires?

Some of it will be new-hire related, but it's for a more broadly-based compensation program.

Should we think about that as a kind of a new run rate for G&A?

Well, it -- it might not be that high.

And then in terms of R&D, and thanks for taking my questions, guys.

Sure. In terms of R&D, we will have a small use of cash in Q4 due to the BioHelix agreement, but it will not be significant. And as we ramp up with some headcount, we could see an increase in Q4 as well. But again, that will not be significant either.

So your comments about accelerating some of your investments don't sound like they will impact things to a significant degree over the very short term here, certainly not the fourth quarter.

We will have an impact in fourth quarter, but it won't be material. And we clearly want to look at other things that we would add from a technology perspective, and certainly having the cash now allows us to do that more easily.

Zarak Khurshid, Caris & Company.

Congrats on the great numbers. You talked a little bit about Mexico being at a peak. I was just curious to what extent is that business sustainable? I think they had pretty decent orders in the spring, but could you talk about what are the drivers there and, again, how sustainable that business is.

They've re-ordered since the spring, and we were awarded the tender there.

Is that sustainable longer term? You know, that's very difficult to predict. It certainly wouldn't seem that it would be sustainable at this volume.

Right.

But what we like about the international business is that more and more countries that had never actually done testing before at all are now testing. So it becomes a new market for us, even in a typical season.

And then, we understand that Japan has been a little bit difficult of a geography in recent past. Perhaps a little more cost-conscious than other areas. So, with the strength there, can you describe kind of, I guess, what's driving the business there? Is there something else that has changed to make selling there easier?

No, nothing really has changed from a commercialization perspective. The change recently is due exclusively to increased demand because of just more flu.

And then, it sounds like penetration will indeed be higher by the time we get to the end of the season. What types of things are you doing specifically to ensure that these new users, say, stick next year?

I mentioned earlier that we did invest in an Internet-based promotion program with a couple of different Internet service providers. In addition, we would look to agreements with both hospitals and with some physician groups that would be more longstanding.

Okay. And then, in terms of pricing, were there any changes there? And then, out of curiosity, I guess where are we on kind of the capacity curve? Any constraints on the manufacturing?

In terms of pricing, our pricing actually is absolutely steady. In fact, this particular season, if you will, we haven't done any end-user promotion whatsoever. In previous years, we may have done a buy X number of kits, get a kit free in order to promote stocking, particularly at the physician level and the hospital level in Q3. And we've not done that.

So we don't actually have a significant impact at all on price.

In terms of capacity, as we pointed out, we're going to continue to manufacture at a high rate through the end of Q4. And we do have additional capacity if we need it.

Fantastic. And then last question, and I'll jump back in the queue. The BioHelix deal, was that driven by the new biz dev team that you brought in or is that something that was in the works previously?

I think it's a combination of both. We had clearly had a relationship with the folks from BioHelix before and had been in ongoing discussions.

I think what the team today brought on board, those folks helped us do a better technology assessment to better understand what the relationship needed to look like. And as a result, I think the team did a pretty good job of getting the deal put together fairly quickly.

Congratulations. Thanks.

Brian Jeep, Sidoti & Company.

Most of my questions have been asked or answered, but just a couple of quick ones. I know you are not giving specific guidance for the fourth quarter, but can you give us a sense of your thoughts? Will it be up or down from the third quarter? Can you give us that, at least?

What we did say is it would be meaningful double-digit versus prior year.

Okay. No relationship to the third quarter, though?

No, we didn't comment about sequential relationship, no.

And we talked about, or you talked about capacity a little bit, but any stock outs in the third quarter or were you able to meet every order that came in?

Yes, every order shipped.

Finally, on the cash side, you've got a pretty nice cash position now, and I know you talked about the BioHelix, that costing a little bit more next quarter. But you didn't repurchase any shares this quarter and I wondered if -- what your thoughts were on repurchases or what you might do with the cash?

We still have -- what is it, $8 million left on the re-purchase program (multiple speakers). So that's still open to us, should we choose to do that. What would you add, John?

I think, just from utilization of the cash on the balance sheet, obviously our first desire is to grow the business, and we've got some good talent on board now in terms of the biz dev team and we are looking at a number of different opportunities.

Terrific. Thank you very much.

Jeff Frelick, ThinkEquity LLC.

Good morning, Doug. Any change to the percent mix for sales to hospitals versus physician offices?

No, not significant. You will have seen in the news, probably, there were a number of hospitals who were inundated with patients, and the volumes in those places has increased dramatically.

And in addition, you've got, as I said, more physicians testing, and that propped up the sales on the physician office lab side. But overall, I would say the mix is about the same.

Okay. And then, do you have a sense of where product shipments were sent on a geographical basis or do you guys ship right into large distribution centers?

No, we know where it's shipped.

Are you seeing any shift with regional activity? As you look at the CDC regional activity, and what kind of moves from regional to widespread and widespread back to regional. Does the order pattern kind of mimic that?

It does.

And then, I know you got asked a couple of questions just on 4Q. Maybe just a different way is, if I looked at reordering rates for late 3Q versus early 4Q, is the trend similar, improving? How should we think of that?

It actually has been improving week over week.

Great. Thank you. I will jump back in the queue.

Ross Taylor, CL King & Associates.

Most of my questions have been answered. But maybe two or three left. I don't know if you can talk at all about how your flu demand progressed during the quarter, given that there was some underlying demand -- or underlying flu in July and August, and then it started to ramp up. But was your flu demand pretty steady or did it ramp up with the ILI rates?

It accelerated, Ross. You look at July August, and we mentioned that before, that in those two months, where flu is typically not ordered, the tests are not ordered at all, you saw actually that among our customers who ordered product, 15% of them had never ordered before.

So there was that initial stocking, but as we've commented before, that stocking appeared to be at pretty average levels. I would take that -- was due to a number of factors, one of which was that we didn't have a buy-in. We didn't have an end-user promotion.

And then, what we saw going into September was a dramatic acceleration of that.

That helps. Last question. Maybe this would help with gauging future demand, but how frequently do physicians typically order the flu product? Is it once a week, or more or less often than that?

History would tell us that it was monthly. But in this particular case, we saw a large number of physicians reordering more frequently. And, we also track, as best we can, actual reorder rates, and those have remained high and steady.

Scott Gleason, Stephens Inc..

Congratulations on the great job you guys have done, managing this whole process. I guess first, Doug, when we look at kind of the customer creation aspect that you kind of referenced in your comments, can you maybe talk a little bit about on a percentage basis, how many -- on a percentage -- how many new physician practices you have that are kind of first-time customers versus previous years?

And then I guess, also, when we think about kind of internationally, can you talk maybe a little bit about what percent of revenues were from countries that historically have kind of not [heard] from Quidel?

Sure. So, I'm hesitating a little, Scott. I can tell you that the new customer numbers is in the thousands. But we haven't had an opportunity to analyze it in detail, so I can't tell you as a percentage, for example, how much they represented of the total.

I can say that the new customers, when they first ordered, ordered actually slightly less than average. But what I don't know is exactly how much they ordered in September as the follow-up; in other words, the reorder, what they ordered. So we're still digging through the data and we'll be able to answer that probably in the next -- certainly on the next call.

Okay. Great. And then, I guess when we think about cash on hand, you know somebody asked about stock buybacks, share repurchases. I think one perception, Doug, was that a lot of people thought you guys were going to maybe do an acquisition on the molecular side? Can you maybe talk about your strategy there in a little more detail? If BioHelix is kind of the platform that you've kind of leveraged yourself towards, or if you are also looking at other alternatives beyond that?

We continue to look at other alternatives, of course. In this particular instance, it made more sense to do the deal the way we did it. I will say that, internally, we continue to assess technologies, and actually do R&D work internally to assess those technologies, and thus far we hadn't found anything that met our criteria in terms of acquisition.

Okay, great. And then, I guess, last question for John. Obviously, you guys have been manufacturing to the hilt. At some point, that creates potential questions about fixed-cost absorption when we look at additional manufacturing levels in future periods. Can you maybe walk us through what you guys are thinking there and the impact kind of on the margin structure going forward?

Sure. In terms of manufacturing flu tests, because of the ASP difference, obviously, between flu and some of our other tests, we can manufacture lots of -- we have lots of capacity to make flu tests. And that's the business -- that's the part of the business, obviously, that's growing the fastest.

We are looking at opportunities to -- in terms of our new product development programs, to make some capital investments, but those would be related to new product launches.

Okay, thanks for taking my questions.

Brian Weinstein, William Blair & Company.

Not much left to pick from here. But I think you said the majority of distributors are at a three-week level of inventory. What is typical that you would see in the peak of a normal season and what is the ideal level that you guys would like to see that at?

We are actually at ideal levels now. Historically, you'll remember that we had too much in the channel. So that's when John and his finance team put in place measures to ensure that we didn't overstock our distributors. So, this has been good for us and good for them.

We are holding product at the pouched level, which is at its greatest dating, and I might think that our distribution partners are pretty confident that we can deliver when we need to. So, they don't have to hold a lot of inventory, either, and take that risk. So I think three weeks for us, given the season, is about right.

Someone might've tried to ask this one way. I'll try to ask it a different way. With the new customer pick-ups, did you see them more in the hospital side or in the physician office side?

At the end of the day, a physician has to order the test, so whether that test is sent to the hospital or whether the physician does it in his office, I guess, is not -- is not so important.

I would say that a very high percentage of hospitals already do some form of rapid testing already. So you wouldn't see an increase in sheer numbers, but there what we saw was an increase in volume. Does that make sense?

Yes. That makes sense. Did you see any effect from the various molecular offerings that are out there in terms of maybe somebody using a molecular as a first-line as opposed to a reflex test? Did you see any of that in the quarter that might have affected the business in any way?

We've heard anecdotally that there would be a hospital or so that would have been considering that, but remember that most hospitals are not running molecular tests. They don't have the equipment and they don't have the staff to properly run highly complex molecular diagnostic assays.

So I think it's entirely possible that there would be some hospitals that might consider that, but the numbers wouldn't be large. The universe of those customers is not very large.

Steven Crowley, Craig-Hallum Capital Group.

Yes, just a couple of follow-ups. One for you, John. In terms of some balance-sheet items, would it be possible or could you give us receivables and inventory at the end of the period, or at least ballpark levels for those numbers?

Sure. Inventory at the end of the quarter was $12.9 million, and the AR balance was $25.4 million.

Great. And then, one follow-up for you, Doug. Even though it hasn't shown up in the CDC data, we've started to see some more local news stories talking about the emergence of seasonal flu or at least some evidence that it's out there. You guys typically have a little earlier and better vantage point on influenza. What are you seeing related to seasonal flu here?

We are seeing very little at this stage, Steve. Very little seasonal influenza being reported.

And do you have any thoughts whatsoever on the implications for seasonal flu of the big incidence of H1N1 here, or -- no crystal ball?

As I tried to state earlier, I think it's almost impossible to predict. And again, we do see cases of second peaks in other countries,. Whether that will happen here or not, we don't know.

And then, of course, we haven't seen seasonal flu so much anywhere, including the United States.

Great. Thanks for the color.

There are no further questions. At this time, I would like to turn the call back over to Doug for closing remarks.

This concludes the call for today. John and I thank you again for your time this afternoon and for your continued support. Take care, everybody.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and, everyone, have a wonderful day.