QuidelOrtho Corp (QDEL) 2013 Q3 法說會逐字稿

Welcome to the Quidel Corporation third quarter 2013 earnings conference call. At this time, all participants are in a listen-only mode. Later, instructions will be given for the question-and-answer session.

(Operator Instructions)

I'd now like to turn the call over to Mr. Randy Steward, Quidel's Chief Financial Officer. Please go ahead.

Thank you, Operator.

Good afternoon, everyone, and thank you for joining today's call. With me today is our President and Chief Executive Officer, Doug Bryant; and Ruben Argueta, Director of Investor Relations. 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 significantly from these stated expectations. For a discussion of risk factors, please review Quidel's annual report on Form 10-K, registration statements, 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 today, October 23, 2013. 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. Today, Quidel released financial results for the three months and nine months ended September 30, 2013. If you have not received our news release or if you would like to be added to the Company's distribution list, please call Ruben at 858-646-8023.

For today's call, Doug will report on the highlights of the third quarter and provide an update on our product development pipeline, as well as our near-term drivers for growth. I will then briefly discuss our financial results and will open the call for your questions.

I will now turn the call over to Doug for his comments.

Thanks, Randy.

Good afternoon, everyone, and thanks for joining us today. For today's call, I'll focus my comments on three subjects. First, our revenue performance last quarter; second, the momentum we are seeing with Sofia and AmpliVue and the implications for the current quarter and beyond and, third, on where we are from a development perspective with Sofia and AmpliVue assays and with Savanna.

Revenues in the third quarter were $33.5 million, slightly favorable to last year's third quarter. In Q3, they were both accomplishments that we can point to that would suggest that we are gaining momentum and that did translate into sales in the quarter, as well as a couple factors that dampened our growth. For example, it appears based on third-party market research data that we've gained a couple share points of the Rapid influenza testing market and, in fact for the quarter, our sales of Rapid influenza test were 23% higher than Q3 2012, but lower than what we had expected due almost entirely to the timing of orders from our US distributors. I'll talk more about that when I discuss the momentum that we are seeing in Q4 in just a few minutes.

Equal in magnitude to the shortfall in influenza sales versus our expectations was the shortfall in QuickVue Group A Strep and QuickVue hCG sales for the quarter. Versus the same quarter last year, strep sales were $2 million unfavorable and hCG sales were nearly $1 million unfavorable.

Since for each of the QuickVue products, the number of customers who ordered products was almost precisely the same as it was last year, we have concluded that the shortfall was related to disease incidence and the timing of orders from our US distributors in the case of Strep, and to the timing of orders from our US distributors in the case of hCG. Again, while successful efforts in Q3 did not translate as directly as we had hoped into sales in the quarter, we are seeing momentum building early in Q4 and I would cite a number of examples as evidence of momentum.

In terms of Sofia placements, we can comfortably commit to saying based on our existing order rate that we are well on our way to our goal of 10,000 analyzers by 2015. In head to head competition, we estimate that we are winning over 70% of the time. This year's agreements have higher volume and price commitments. In fact, influenza test volumes per contract are twice what they were last year and in many cases the agreements now include one or more of the new products.

In week one of this quarter, we had shipped or had orders for over 20% of our influenza forecast for the entire quarter due mainly to orders for the Sofia product. Please recognize though that this was greatly assisted by the timing of orders from our US distributors which gets back to my comment earlier when I was discussing Q3 revenue. Adding to the momentum in the quarter is the number of successful AmpliVue evaluations that has been completed, which we hope will translate into appreciable sales in the quarter.

In terms of the status of product development, I won't go through each of the more than 20 programs that we are actively working. Instead, I will highlight general progress in three areas, Sofia, AmpliVue, and Savanna. The Sofia assay is responsible for most of the incremental sales modeled for 2015, influenza A+ B, RSV, Group A Strep, and hCG have been development and FDA cleared, and Sofia influenza is CLIA waived. CLIA waiver on the last three is important, as well, and we continue to make progress towards the goal of CLIA waiver on all Sofia products.

In terms of new assays, we are focused on introducing quantitative assays that would give us access to larger markets and we've made great technical progress in that regard. We're encouraged by recent technical achievements and remain confident that we will have as many as 10 assays in 2015 that can be run on greater than 10,000 instruments that we expect to have on the ground in 2015.

Regarding AmpliVue, the acquisition of BioHelix has greatly accelerated product development. We expect to launch more assays over the next couple quarters and believe that the additional assays will create a collateral benefit in top line acceleration. We're wrapping up clinical trials for two additional products and expect to submit packages to the FDA imminently. Behind that, two other assays will follow shortly.

Longer-term but equally important, particularly beyond 2015, is the development of Savanna, a robust, fully integrated cartridge-based platform that will perform both real time PCR assays as well as Helicase Dependent Amplification assays developed by the BioHelix team. Recently, we completed the first milestone of the Bill and Melinda Gates program, successfully demonstrating sample extraction and PCR amplification and quantitative detection of HIV on test beds. The next step is manufacturing our first fully integrated units, which we expect will enable us to show the platform at key trade shows in 2014.

In summary, Q3 was a good quarter for us. We've said before that 2013 was the year of truth for us in terms of both continued success with product development and the commercialization of our new products, and I have to say that I think we are in pretty good shape. We said that we would submit 10 assays to the FDA this year, through Q3 we have submitted seven applications. As I mentioned, two AmpliVue 510-k packages will be submitted shortly, which makes nine. As a result of the acquisition of AnDiaTec, as mentioned in our earnings press release, any number of 18 CE marked assays could be ready soon for submission in addition to the internally developed products that are nearing the clinical trial phase.

On the commercial side, we've been building size and skill for two years now and are three times larger than we were at that time. The number of unfills in the commercial team is few. Our people are trained and close rates are increasing as customer relationships evolve. As Randy will detail, we are nearly complete with the transition of our specialty product and Molecular manufacturing from California to Ohio, which will result in a meaningful and permanent cost reduction beginning in 2014.

Overall, it was a productive quarter. I remain excited about the people we have on our team and their ability to execute. I'm thrilled not only with what they've accomplished so far but with the can-do culture that now pervades our entire organization and that gives me even more confidence that we will succeed in building a broader-based diagnostic company with access to larger and faster growing markets just as we said we would.

And now Randy will report the third quarter financials and then we'll take your questions. Randy.

Thank you, Doug.

As Doug mentioned in his opening remarks, total revenues for the third quarter of 2013 were $33.5 million, compared to $33 million in the third quarter of 2012. Global infectious disease revenues were $22.5 million, as compared to revenues of $21.6 million in the prior year. Influenza product revenue was $10.5 million, as compared to $8.5 million in the third quarter of last year, a 23% increase.

Helping to drive this growth was an increase in Sofia influenza revenues which more than doubled as compared to the third quarter of last year. This increase was offset by a $2 million decrease in our Strep A visual lateral flow revenue.

Revenues for the women's health category were $8.2 million in the quarter, as compared to $8.7 million for the same period last year. This decrease was a result of lower pregnancy product revenue of approximately $1 million, partially offset by a 9% growth in our Thyretain product revenues.

Our gastrointestinal product category revenues were $1.5 million, compared to $1.6 million in the third quarter of 2012. Growth from AmpliVue revenues were offset by declines in two other products that were in a backorder status at quarter end and that issue has since been resolved. Gross margin in the third quarter of 2013 was relatively constant at 54.4%, as compared to 54.9% in the third quarter of 2012.

Higher influenza revenue created favorable product mix and margin expansion, but was somewhat offset by one-time costs associated with product and process improvements implemented for the Sofia assays, as well as additional depreciation incurred this year on the Sofia instruments. We continue to manage our costs closely and believe we have a disciplined organization that manages its cost within expectations.

As we have outlined over the last several quarters, we continue to invest in the business as we build for the future. Our operating expenses totaled $24.2 million versus $19.3 million for the same period last year, mostly driven by our continued investment in the Savanna Molecular platform, as well is in sales and marketing that support delivering quality products to our customers both today and into the future.

Research and development costs in the third quarter were $7.5 million compared to $5.1 million last year, the increase resulting mostly from continued investment in our molecular platform including Savanna as well as increased costs for clinical trials. We are reiterating our previous guidance on research and development spending for 2013 with an expected full-year spend in the $33 million to $34 million range before realizing the benefit of the Life Technologies collaboration agreement.

For 2014, we believe the business has defined several solid platforms to support and we will be reducing the total R&D spend as compared to 2013. The current plan for 2014 is to spend between $30 million and $32 million in research and development and assumes there is no benefit from the Life Technologies collaboration agreement.

Sales and marketing expenses increased in the current quarter to $8.7 million, as compared to $7.8 million last year. In the quarter, we added additional sales personnel in support of our POL distributors and customers. We now believe we have a fully operational commercial organization to support our existing products and future launches. We are estimating a full-year sales and marketing expense of $33 million to $34 million. Of course, these numbers could change based on the anticipated sales volume realized in the fourth quarter. Expenses for G&A were $5.8 million in the third quarter compared to $4.8 million for the same period last year.

In the quarter, we realized expenses of approximately $400,000 associated with the 2.3% medical device excise tax that went into effect in January of this year. We also incurred approximately $400,000 associated with our ERP upgrade and $200,000 associated with business development activities.

Effective July 1, we successfully went live with our new ERP system in San Diego. The last complete business upgrade was performed in 1999, so this was a major accomplishment for us and we believe this platform will support the growth of our business well into the future. Next month we plan on converting our Athens, Ohio, facility to the new ERP platform, as well. During the first nine months of the year we incurred approximately $1 million in G&A expenses to implement this system.

Earlier this year we announced internally a plan to move our manufacturing operations from Santa Clara, California, and relocate them to Athens, Ohio. Our Athens, Ohio, facility previously served as the headquarters for Diagnostic Hybrids, Inc., and most recently we expanded the facility to support the Company's research, development, and manufacturing of Molecular diagnostic products.

We anticipate the transfer to Athens to be completed by December of this year with an estimated total cost for relocation of $1.8 million. For the first nine months, we have incurred close down costs of $500,000. Upon completion, we anticipate annual savings of approximately $2 million beginning in 2014, the savings driven mostly by lower facility and personnel cost.

Stock-based compensation expense for the three months was $1.4 million and amortization of intangibles was $4.3 million. In the quarter, the amortization associated with the Alere royalty buyout agreement was $1.9 million and was recorded in cost of sales. As a reminder, the buyout agreement with Alere was for $28.8 million and was completed in the third quarter of 2011. We are amortizing this amount over an estimated life of 3.5 years and at a rate of approximately $8 million per year. The amortization will discontinue in February of 2015.

Our tax rate for the third quarter was 29% and includes some miscellaneous discrete items. For the full year, and excluding certain one-time discrete items recorded year to date, we believe the effective tax rate will be approximately 34%. Net loss for the quarter was $4.4 million or $0.13 per share, as compared to a net loss of $700,000, or $0.02 per share for the third quarter of 2012.

On a non-GAAP basis, excluding amortization of intangibles and stock compensation expense, net loss for the third quarter of 2013 was $600,000, or $0.02 per share, compared to net income of $2.6 million, or $0.08 per diluted share last year. Revenues for the nine-month period ended September 30 were $125.2 million compared to $101.8 million for the nine-month period in 2012.

Infectious disease revenues were $89.2 million versus $66.7 million last year, an increase of 34% driven by the growth from influenza products associated with the robust influenza season during the first quarter of the year. Somewhat offsetting this growth was a 17% decrease in Strep A revenues, while RSV revenues increased 24%. Our DHI product revenues grew by 6% driven by increased respiratory viropanel and general virology revenues.

The women's health segment was $25.1 million for the first nine months compared to $25.6 million in the same nine-month period last year. For the nine months of the year, our gastrointestinal segment was $4.8 million, equal to last year. Gross margin for the nine months was 61.4% compared to 57.1% over the first nine months of 2012. This improvement mostly driven by the increased influenza sales versus last year and the positive impact on product mix.

Research and development expense for the current nine-month period was $22.9 million. This increase versus last year was due to the development of molecular assays including clinical trial costs for these products and continued investment in Savanna. Included in the current R&D expense is a reimbursement of $1.4 million of cost from Life Technologies associated with our collaboration agreement.

Sales and marketing expenses for the nine-month period were $24.2 million, a 10% increase over last year. Since the first half of 2012, we have increased the size of our sales and marketing team in order to support new product growth and support our distribution partners. General and administrative expenses for the first nine months were $19.3 million, a $3.5 million increase over last year. The 2.3% medical device excise tax increased our year-over-year spend by $1.5 million. Also, as previously mentioned, we have incurred $1 million to date for our ERP implementation project and approximately $500,000 in restructuring relating to the relocation of our Santa Clara manufacturing operations.

Net income for the first nine months of 2013 was $6.3 million, or $0.18 per diluted share, as compared to net loss of $3.7 million, or $0.11 per share last year. On a non-GAAP basis, excluding amortization of intangibles and stock compensation expense and the one-time tax benefits, and excluding the benefit of the research and development tax credit in 2012, net income for the nine months was $14.1 million, or $0.40 per diluted share compared to net income of $6.6 million, or $0.19 per diluted share for the same period in 2012.

In the third quarter we continued to build inventory as planned for our Sofia and visual lateral flow products in preparation for the respiratory disease season. We also increased the inventory levels at DHI and SPG as we planned for the relocation of manufacturing from Santa Clara to Athens, Ohio.

In the quarter, the Company completed the acquisition of AnDiaTec for net cash of approximately $2.6 million up front, with the potential of earning an additional $4.7 million over the next three years based on R&D target milestone achievement. For the first nine months of the year, the Company generated $24.2 million in cash from operating activities and spent $29.8 million for investment activities.

These investment activities included approximately $11.4 million for the BioHelix and AnDiaTec businesses, as well as approximately $17 million in capital expenditures. As of September 30, Quidel had $10.2 million in cash and cash equivalents with no outstanding borrowings under its senior credit facility.

And, with that, we conclude our formal comments for today. Operator, we are now ready to open the call for questions. Thank you.

(Operator Instructions)

Jeff Frelick, Canaccord.

Did you guys see any acceleration of Sofia placements in the quarter following the recent approvals for hCG and RSV this quarter and then obviously strep late last quarter?

We did see an increase in Sofia placement rates driven primarily by the hospital sector and I wouldn't say that each one of those each one included strep, but several did.

And, Doug, was there not enough I guess maybe demand for some of the hospital orders with some of those assays to maybe offset some of the orders that didn't come through here in hCG and strep?

The orders that came through or were accumulating at the end of the quarter end up here first week in Q4. And those orders, net of what we normally would've shipped the first week were approximately equivalent to the shortfall for the quarter in hCG and strep. So, in other words, there were probably $3 million of orders that could have shipped the previous week and probably should have but did not.

Okay. And then can you give us a sense, and I'll hop back in queue, my last question there is expectation for Sofia hCG into the hospital market. Does it really satisfy some workflow and print-out forms and kind of what they have been traditionally with respect to hCG testing? Kind of what are your expectations there for Sofia hCG?

We have seen a pretty significant interest in hCG on Sofia. We haven't begun shipping product. We were building inventory, caught really by surprise with the timing of FDA clearance, and are we now shipping, Randy, or are we about to ship? Before the end of this quarter, we will begin shipping. So, we've obviously entered into agreements over a three-year period with a number of customers for hCG with both new customers as well as existing Sofia customers, but we won't begin shipping any of those orders until the end of this quarter.

Brian Weinstein with William Blair.

Question on the small acquisition you guys made. Can you guys talk a little bit why you made that? What is actually giving to you guys in terms of products and distribution capabilities? Will start with that.

This is a German-based Molecular diagnostic company that already has developed a number of assays, 18 of which are CE marked and some of those fill pretty significant gaps that we've been told by our scientific advisory board and others that exist here in the United States. So, if you think about assays that could go to any typical customer, they will tell you they would like to see. Several of those are on the list of these 18 CE marked assays that already exist. So, what it does is it gives us the opportunity to accelerate our product development of PCR assays, many of which would be available immediately after FDA clearance here, but also would be very useful as we develop product for the Savanna test cartridges.

Okay, thank you. And then on the AmpliVue product, we had talked about kind of a NexGen AmpliVue being out in the fall. Can you just talk about where that product sits at this point and comment relative to your target? I think you had said 1000 customers is where you thought you guys were hoping to get over a certain timeframe with that. Can you just qualitatively kind of give us a direction as to how you are trending towards that 1000? Thanks.

I will get Randy to tell you about the NexGen cartridge which we had targeted for around this time, but before that I will say that we are still well short of 1000 customers that we think we will ultimately get to. Having said that, we have numerous customers that are winding up evaluations and we should be launching two to four assays over the next couple quarters which will be will be helpful as well in terms of getting more customers on the platform.

One of the questions we've been routinely asked is the customers that have closed so far, are they doing reflex testing or are they exclusively just doing Molecular testing? I would say we do have some customers doing reflex testing but the overwhelming number our customers so far runs Molecular only. So, I would say it's still early days, Brian. We are pretty comfortable that we are working our way through getting on the hospitals accounts payable systems. We're wrapping up evaluations successfully and for the most part we've got customers that not only placed their first order but also reorder. So, we are comfortable but still well short of the 1000.

And on the cost reduction initiatives, we are going through validation now. We should have it ready for production by first of November. So, we will work out -- work through the existing inventory and then certainly by we are thinking Q1 time period we will have the new cartridge.

Okay next question, sorry -- Sorry about that, Randy. I didn't mean to cut you off there.

That's okay.

Then, my last question is on the additional filings. You talked a little bit about the quantitative product and we talked about TSH, PSA, vitamin D in the past. Can you kind of just give us some sort of an idea about when you think those products -- what the processes for those products? You've made some nice technical improvements along the way that you mentioned on the call, but should we look for those type of things to be filed early '14 on the market, end of '14? Just any kind of time frames that you can give us on that quantitative stuff would be very helpful. Thanks.

Sure, well in our model for 2015 we of course include those products. I'm looking at our strep plan now and for a couple of them we are assuming 2014 product introductions and a couple of them we planned for 2015 product introductions and I think we are still pretty much on track for those things. And then we also have a couple of things that have not actually -- that haven't started as well. But for the most part I would say there are technical risks at this stage I would view as being somewhat low. The question if any that we might have is just to the timing but for the most part right now I think we stand a pretty good chance of having a couple new assays in 2014 and then a couple more in 2015. We effectively have five more that we would like to have introduced by year-end 2015.

Nicholas Jansen with Raymond James & Associates.

Last year the flu season was quite strong and quite early, just maybe trying to help frame expectations I appreciate all the color with regards to the OpEx expense line, but how should we think about revenue at least maybe over the next couple of quarters, as you have the build of Sofia, but certainly the flu is really going to play a large role in that? So, if you're thinking about last year, should we expect down year-over-year, up? Any kind of direction would be helpful.

Sure. Despite best efforts to build a broader base diagnostic company, it is October and this is the time of year when we are asked to predict both the onset and the severity of the next influenza flu epidemic. And this is the time that I would normally say that although we are seeing some indication that there will be a flu season, it's very difficult to say more than that at this stage. And coincidentally this is also the time that I would remind those of you who attempt to model the season based on the southern hemisphere data that the published evidence shows little correlation between the influenza season in Australia and the immediate subsequent season here or in the northern hemisphere generally. That doesn't mean that there is never a correlation because occasionally there is, it's just not consistent.

Let me give you some examples. Recent evidence of emergent viruses coming from North America would suggest that cause-and-effect is actually the other way around. The 2009 Pandemic H1N1 was originated in the northern hemisphere of course and in reality Australia is still catching up with that. The H3N2 variant emerged in the US. That is the variant that jumped from humans to pigs actually three summers in a row now, and that hasn't gone human to human as far as I know. If it does, that will then have an impact on Australia, not the other way around. And of course, who knows what will happen with H7N9 which originated in the northern hemisphere as well.

Having said all that, we still try to predict certain stock and severity of the influenza season and in doing so arrive at a low, middle, and high estimate for each quarter. For the fourth quarter, our low estimate assumes no appreciable ordering by end users until the very end of the year, which has happened before and total Rapid influenza revenues for us of about $10 million. So, that would be our low case. Our mid case assumes typical Q4 influenza volumes, a slight increase in market size, and Sofia share gains due to existing instrument placement rates. So, nothing more than we are currently experiencing with Sofia. And that would give us flu revenues of somewhere around $16 million for the quarter. Our high estimate assumes Q4 2012 volumes, an increase in Sofia placement rate due to improved distribution performance mainly in the physician office segment which is a function of the integration of our two largest partners, McKesson and PSS, and the prevalence and flu revenues of approximately $30 million.

So, the acceleration of the variance between the three scenarios is driven not by the increase in flu prevalence alone, but simply takes into account that the market for Rapid influenza test has grown and our market share is higher. Based on quarter-to-date orders with the caveat that it is still very early, we would be tracking to the middle case, in other words we would be tracking to total flu revenues in the quarter of about $16 million.

And can you remind us what it was last year in 4Q?

Yes, it was $26.2 million global.

Very helpful, and then maybe just kind of switching gears, appreciate all the commentary on kind of the cost dynamics and what you're planning to say from some of these things are working on. How should we think about that in context of I think some of your analyst day commentary surrounding kind of the ultimate margin profile the Company in 2015 as you realize all of your top-line initiatives. Are these in conjunction with that commentary or are these additive or maybe just frame that for us? Thanks.

I would suggest that some of these things were certainly not contemplated because we suggested that simply by increasing our volumes at better gross margins that the fall through based on previous years would be north of 30% from an operating margin perspective. So, certainly we -- at that time when we had forecasted all this did not know we would be relocating our manufacturing from California to Ohio as an example. So, that would be one example.

There are other cost of things that we had forecasted, however. We certainly assumed when we acquired DHI that we would get better productivity and we have. We have had permanent cost reductions there which we have been very helpful and I would say we assumed some of those. So, I would say it is a bit of both, but it certainly is helpful, it's certainly an upside that should offset something that we had not forecasted the other way, is that make sense.

No, very helpful. I appreciate all the color, guys.

Bill Quirk with Piper Jaffray.

Doug, I want to go back to one of your earlier questions and that is regarding the 70% win rate for Sofia. Can you just elaborate? Is that 70% when you're going head-to-head against another reader or is that 70% relative to the just say a plain old [Rapid] for example?

I would say that we have evidence recently that we are winning going head to head with the reader three or four times, but that would be just recent experience. I would say greater than 70% overall means all competitors. So, any time our guys in there 30-, 60-, 90-day forecast assume a close, if it were head-to-head with -- obviously it's going to be head to head with somebody else because all those 30, 60, 90 days are new business. Then, we are tracking north of that, but that would mean not just head to head with other readers but head to head with other significant players in the Rapid space.

Perfect. I like the color. Secondly, going back to Brian's question on Molecular. I think if I try to take a step back, I guess my assessment here is that you're obviously very pleased with the product and how it performs once it gets in the hands of the customers, although clearly it sounds like it's taking a little longer than expected to get that into the customers hands. And so can you talk a little bit, Doug, about some of the changes, if any, that you guys are making to try to accelerate the process, try to get through different layers in the hospital and obviously get this into the hands of your customers? Thanks.

Well, the number one thing we did was, we put the right sales people in the right places. We conducted a lot of training around this. We think we have clear product advantages which our people are increasingly able to articulate. And I think the relationships that needed to be in place are evolving and are helpful. It's also helpful to us when customers chat between themselves, which we're seeing increasingly happen.

And the part that I was alluding to before is because we have been going direct in the space, other than the 700 or so customers that we had through -- that we're buying our DHI products, some of the smaller customers don't have any experience with ordering product directly from us and some of those things had to take place in order for us to actually just receive an order. So, those things have been working out and I would say as we move through the quarter we are going to see many of those people that are evaluating product make decisions which would favor us and then that will happen about the same time we're going to be introducing two more new products and I think that will be extremely useful.

Okay, perfect.

Steven Crowley with Craig-Hallum.

Maybe a couple quick questions. In terms of the GI, the non-AmpliVue products that were back ordered in Q3 that have subsequently come off backorder, can you give us some sense from order of magnitude of what that hurts you in Q3?

Yes, it's not huge numbers. We're talking about hundreds of thousands, but it was across both -- two products iFOB and H. pylori.

Because that's masking some of the progress you're obviously making with the AmpliVue C. diff product?

Sure, but at the same time I don't want to exaggerate the progress we're making. As I said, our guys have been really effective in getting in there and generating customer interest and generating an evaluation. And those evaluations take, I don't know, 30 days or so and then after the customer says yes, then we've got to get them to order the product and put it in their system and all that. So, there is a bit of a lag that we've been overcoming. We're pretty pleased with the progress so far, but it hasn't translated into noticeable sales.

In terms of your guys getting into accounts in general, you've added more people to do that. You've made that pretty clear to the investment community recently. Can you give us a little more texture to the type of people? Where you have pointed them? How many people you've added in the most recent swap?

We completed the additions probably in first quarter of this year, right? And then we had a training in the second quarter. And our call points are very similar to the call points that we make on most of our products, with the exception that for C. difficile we also spent some time with infectious disease folks. Yes, the people that we added most recently, if you're referring to that, Steve, were on the physician office segment. They wouldn't be making a lot of AmpliVue calls.

And -- but you've been talking about better supporting McKesson PSS in the wake of their merger and that's part of where these folks are pointed. I'm wondering whether or not --

That is true. That is true. I thought we were still talking about AmpliVue, I'm sorry.

No, I not so artfully segued to the overall sales and marketing strategy and what you've done with that group. And was that is swap of maybe 10 or so extra people pointed in that direction you just mentioned?

It's closer to 15, I believe.

Now, in terms of your efforts with pricing and more favorable pricing to Quidel with Sofia assays, what can you tell us at least qualitatively about how those efforts are going and whether or not you're encouraged by your ability to do some of the things that you intended to do or whether you're discouraged?

We're comfortable that the pricing matrix we put together is appropriate and the pricing for strep and hCG is higher and noticeably so.

And in terms of the delay or the shift in timing of distributor orders from the end of Q --

Hello? I think we just lost them.

(Operator Instructions)

Sorry about that, all of the sudden I was in hyperspace. That delay or the timing shift you experienced with distributor orders from the end of Q3 to Q1 that you gave us some nice color on, was that a function of your inability to react to some last-minute orders or for whatever set of administrative or other reasons you did not get those orders until early Q4?

We just didn't get the orders from our major distribution partners. We were expecting them as we do typically in Q3 to come in at the very end, and for whatever set of reasons this year we saw very large week one Q4.

We see a buying pattern, Steve, September, early October time period. This year we saw it just kind of move over a week to 10 days.

Yes, nothing other than that. Our relationship with our major distribution partners is solid and actually I would say terrific and for whatever strange set of reasons, they didn't get done before the Thursday in order to get the product shift FOB destination. That's basically it. Nothing sinister, Steve, just timing.

Shaun Rodriguez, Cowen and Company.

Doug, I was hoping you could share your thoughts on trends with regard to Rapid test share of the total influenza market. As you have Sofia picking up share clearly but maybe the Rapid category overall losing some share to Molecular and somewhat related where you were at about 100% QuickVue just a couple of years ago at this point, what does this mix look like now with an influenza with Sofia placement obviously continue to progress?

Sure, I'll start and then just follow up, Shaun, if I'm missing something behind the question you're asking. In Q3, roughly one-third of flu shipments were Sofia, but in Q4 sales actually so far for Sofia are larger than QuickVue. We had assumed when we modeled the year that the ratio would be 55% QuickVue and 45% Sofia, but Sofia cannibalization at 35% means that most of the Sofia placements of course are new, so our 55/45 forecast may be off by actually a lot. And we'll obviously know a lot more when we get end-user data over this quarter and into next quarter.

It's encouraging because of course a significant percentage of our business then would be stabilized and would be on the right platform moving forward regardless of what the FDA requirements are. So, we're pretty comfortable with that. Is that kind of what you were asking?

Yes. No, that definitely answers part of the question. The second one was any trends in Rapid share of the total influenza testing market? Just trying to think through as you are clearly picking up share for Rapids, I would imagine that as a category, Rapids may still be losing some share to Molecular, so just some updated thoughts on that dynamic.

I think for sure that the folks that manufacture Rapid influenza test would tell you that we were losing share to Molecular and we probably gotten down to somewhere around 8% of the volume moving over to Molecular, but with our product introduction and the other instrument in the market, I actually think that the category is clawing some of that back and I have some specific customer detail on evidence of that. So, where these instruments, Sofia, our instrument, and the reader from our competitor are actually being used on the very front end and only the customers then that are reflexing would end up being Molecular. So, I'm anxious to see what it looks like at the end of Q1 now that both competitors, us and the other guys, have a lot more instrument out there, but if you take what we know our instrument units to be and you assume that their's are similar, that's a large number of placements out there that are in the hospital segment.

Yes, Shaun, as Doug said, we will certainly know a lot more after Q1 and we go through another flu season and we will know a lot more about sell-through versus currently more selling information.

Well, the key is if you assume that this was just a physician office product, then you could arrive at the conclusion that Molecular category was going to gain share by the number of tests, but that's not turning out to be true, is it? We're seeing significant orders announced from the hospital segment.

Okay, that's very helpful, thank you for that. And, secondly, maybe just a higher level question. Over the past four quarters revenue outside of influenza has been about flat, right? So, as we're sitting here in Q4, 2013 we're looking at a pretty good inflection required pretty soon outside of flu to get to your 2015 targets. And so I was just hoping you could use this opportunity to talk about whether the expected timing or magnitude of this inflection has changed in your mind and maybe whether the acquisitions of BioHelix and AnDiaTec say anything about that, certainly acknowledging and appreciating all the great progress in the pipeline?

Sure. I think the easiest way to think about this is to go back to what we said a couple analyst days ago when we said we were going to aim at developing products that would create incremental revenues of around $100 million in 2015. Of the $100 million incremental revenue in 2015 that we've modeled, our model says that $79.5 million of that is from sales of products that are already developed and cleared. So, for Sofia those products are flu, strep, RSV, and hCG, and then our model of the $65 million net of cannibalization that we have in for Sofia, $59 million of that is just those four products.

So, you would -- and the reason we modeled it that way, in other words the reason we haven't modeled a ton of revenue associated with all those other -- the remaining five products is because we knew that we had certain technical risks. And so we risk-adjusted our numbers as a result, plus we did not know about the timing. We feel very confident that we can develop these products that we're aiming to develop, but the risk we see as timing. So, having those done in 2014 and in enough time to have a big impact in 2015 we weren't sure of. So, not to beat this thing to death, but we significantly risk-adjusted the five remaining products relative to what we thought we would do with those first -- with those four plus Legionella are the first five.

On the Molecular side, if you take the assays that are already cleared, which most of them in terms of numbers of course are the PCR products, and then you at the first AmpliVue product only, those account for $20 million in 2015 in our model of the $25 million that we said we would do. So, in total you end up with nearly $80 million in revenue in 2015 in our model of the $100 million incremental. So, even though you're right to say, boy, you've had some issues with FDA clearance that didn't come when we thought they would, you don't have CLIA waiver yet and the CLIA waiver process is somewhat unpredictable, we still feel like we're pretty much on track.

In terms of the BioHelix acquisition, the rationale was pretty simple. We've been working with these guys for a while and we liked what they were doing so well we basically bought the company and in doing so, we were able to double what we had in development. On the acquisition of AnDiaTec, they have a couple of products that are superb from a product performance perspective and then we think we can very quickly and easily with very little work begin clinical trials here in the US and have FDA cleared products which we know customers feel like there is a gap out there. So, neither one of those acquisition was intended to make up for something that was not going well but rather they're acquisitions that give us either better scale or better ability to introduce things quicker.

That's great. Thanks, guys.

(Operator Instructions).

Zarak Khurshid with Wedbush Securities.

Good afternoon. Thanks for taking the questions. I apologize if I missed it in the prior comments, but how is the flu channel shaping up at the distributor and physician office level versus last year?

How is the channel shaping up? Are you talking about inventories?

Yes.

Yes. There is no -- if you look over the last five quarters, there is really no significant changes in any of our major products with the inventory levels at any of our major distributors.

We think at the moment we're somewhere around three weeks in the channel from flu.

Two weeks with hCG and strep.

Yes, that's about right, so, but again hasn't changed much. It's been quite well for a couple years now.

Correct.

Yes. That is what we're thinking. Thanks for that color. And then just curious on CapEx in the quarter. What was that again and how should we be thinking about CapEx over the next couple quarters and year?

CapEx for the first nine months, as I've indicated, was $17 million. Pretty much was -- we spent about $5 million with the expansion in Athens on our Molecular platform. Spent a couple million dollars with our ERP system. Our normal maintenance is somewhere around -- it's been pretty consistent and then as you are aware that we are capitalizing the Sofia instrument is included there as well. I think we estimated approximately $20 million full year and I think we are still tracking towards the number.

And then as we look out to next year should that come down significantly?

I don't know about significantly, but it will definitely come down. Yes.

Great.

Yes, there is an anomaly here because of the build out in Athens and our ERP investment.

Okay. Great. And then just dovetailing on one of the prior questions on Molecular and in competition and so forth. Obviously one of the big players out there is talking about a CLIA waived flu and RSV combo test teed up for next season. How would you guys sort of think about that in terms of potential threat or overlap? Thanks.

Sure, I can tell you that when customers don't like Sofia it's because it's a 15 minute assay instead of 10. So, if a CLIA waived Molecular assay were at 10 minutes or less, it would be a significant threat. If it's more than 10 and certainly more than 15, I don't know how that fits in to the workflow. So, it doesn't mean that there wouldn't be larger places who would take those assays on board. I would assume that there would be some, but I can't imagine that the demand for any product regardless of what the technology is would be high if the assay time was long.

Steven Crowley with Craig-Hallum.

Just one follow-up. You've been helpful and forthcoming with some of your plans and assumptions for this cold and flu season and mixed with Sofia. I'm wondering on CLIA waiver status of those products, I know that's a process that's difficult to pin down and forecast, but what kind of assumptions have you made about that coming into play this cold and flu season, if any, or is that just something you hope to have in place fully for next season?

We're not making comment or forecasting on any of that again for the reason you just stated, Steve, it's so unpredictable. You can point to the last time that we had something CLIA waived, it took six months, that was with the influenza product, but 510-k approval while it's on the clock, CLIA waiver applications are not with the FDA. So, there is absolutely no way for us to predict. Obviously, we are hopeful that it will be earlier rather than later, but there is just no way for us to forecast how long these are going to take.

Fair enough.

I would have to say the government shutdown probably didn't help.

Now, the acquisition you just made, obviously it was for content that you want to bring in the United States here, but was there any even noticeable revenue stream of these products internationally at this stage? What can you tell us about that? Thanks for taking the questions.

Yes, there certainly was -- is some revenue. They were doing somewhere between $0.5 million and $1 million in revenue and certainly we think that we can certainly accelerate that over the next couple of years since they were totally outside the United States.

Great, thank you again.

That is all the time we have today. Please proceed with your presentation or any closing remarks.

Great. This concludes the call for today. Thank you for your time this afternoon and for your continued support. Take care, everyone.

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