QuidelOrtho Corp (QDEL) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation fourth-quarter and full-year 2015 earnings conference call.

(Operator Instructions)

I would 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. 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, February 17, 2016. 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 3 months and 12 months ended December 31, 2015. If you have not received our news release, or if you would like to be added to the Company's distribution list, please contact Ruben at 858-646-8023. For today's call, Doug will report on the highlights of the fourth quarter, and provide updates on our product development pipeline. I will then briefly discuss our financial results, and then we will open the call for your questions. I will now turn the call over to Doug for his comments.

Thanks, Randy, and good afternoon, everyone. In advance of the JPMorgan healthcare conference in early January, we had announced that revenues in the fourth-quarter 2015 were lower than anticipated, and that the shortfall was driven almost entirely by the delay in the onset of this year's influenza season. For today's call, I will provide a bit more color on our results for the quarter, and talk briefly about our progress with a few key initiatives, and our product pipeline.

Total revenues in the fourth quarter 2015 were $52.4 million, a significant reduction from $64 million in Q4 2014. Interestingly, until the last three weeks of the year, we had been running meaningfully favorable to each of the prior year's months and quarters, including Q4. The key difference in the last three weeks of last year was the absence of reordering of our influenza products by our distribution partners, a difference of approximately $20 million in influenza revenues.

Further, the softness in influenza revenues persisted through January, as well, due to the continued delay of an influenza epidemic, which still has not occurred in many of the key states that quite often drive the demand for influenza revenues. While the data we collect through Virena, our cloud-based surveillance and data management system, are indicating an uptick in influenza testing and prevalence in several regions of the US, I think it's safe to say that our Q1 2016 revenues will be lower than we would have anticipated, to some degree, as well.

Despite the year-end revenue disappointment, there are several highlights that would suggest that Quidel actually had a very good year, and is well-positioned for growth, and at the levels previously communicated. First, revenues, at $196.1 million for the year, were actually a record for our Company, even without the additional $15 million to $20 million or more that we would have expected the last three weeks of the year.

Second, given no obvious beginning of a US influenza epidemic, Sofia placements were surprisingly strong in Q4, as they had been in Q1 and Q3, driven by market share gains for Sofia Influenza, RSV, and Group A Strep, in both the professional and nontraditional segments. The ability to easily and affordably standardize across networks, and near real-time access to data through our Virena system, were among a number of factors that drove many decisions to move to Sofia.

Third, the Sofia 2 immunoassay system development program is going very well. Relative to several successful R&D initiatives we have undertaken in the last few years, Sofia 2 has clearly been well-managed, and is likely to be a near-term contributor to our Company's growth. We are on time, on budget, and expect to be in US trials with three Sofia products imminently.

Fourth, we made good progress with Sofia assay development. We launched Sofia Strep Pneumo ex-US, and although early, have won our first tenders in Europe. We continued to expect favorable FDA CLIA reviews for Sofia hCG and Sofia Strep A+ Read-Now mode, the latter of which will enable high-volume physician office labs' strep customers to perform 40 or more Sofia strep tests per hour, per instrument. And we expect to begin US trials for Sofia Lyme and Sofia Vitamin D shortly, as well.

Fifth, our Solana molecular program was US FDA cleared mid-year in 2015, as was the first assay, a confirmatory method for Group A Strep. Now, on our second quarter of launch, having gained valuable insights from our experiences with our previous AmpliVue launches, we are demonstrating our ability to compete in the molecular segment. In fact, I would say that the number and type of customers, early on, has been encouraging.

Sixth, our Savanna development teams, who arguably have responsibility for the most ambitious and innovative of our product development endeavors, have made tremendous progress. Recently, the team has achieved another major milestone, by demonstrating that our quantitative HIV-I viral load assay performed well on a fully integrated Savanna instrument, with a fully integrated cartridge assembled with assay reagents in their intended form factors. The teams are now moving to our next big milestone, field studies in Africa, during which we hope to reproduce our internal results using fully integrated Savanna HIV-I viral load cartridges, assembled on our manufacturing line in Athens, Ohio, and shipped under normal shipping conditions to the developing world.

And finally, in December, we validated our newest manufacturing line, which further automates the assembly of Sofia and Sofia 2 test cartridges. This higher-speed line lowers labor costs and gives us the additional capacity we expect that we will need to address the demand created by the new Sofia product that we have in various stages of product development.

In closing, 2015 was, in reality, a productive year for Quidel, in retrospect. Our commercial organization is right where we want to be, in terms of structure and training, and our execution from targeting to close is noticeably better. Further, our relationship with, and the performance of, our key distribution partners have never been better, which is a testament to the clarity of our strategy, our brand strength, and the uniqueness of our products.

We also had a very productive year from a product development perspective. I mentioned where we are in respect of our Sofia and Savanna platforms. In addition, there are currently numerous Solana assays in development, several of which we would expect to introduce to the market in 2016.

In 2016, we expect our commercial and R&D organizations to execute as they have been, and that these efforts will demonstrate tangibly that we are on a path toward our previously stated longer-term financial goals. In addition, we continue to look at the deployment of our capital, with a particular emphasis on M&A, although we cannot speak specifically to what targets we may or may not look at, or to timing.

Overall, 2015 was a good year for us, and I would expect 2016 to be an important next step toward the achievement of our longer-term aspiration. Randy?

Thank you, Doug. As we reported earlier today, total revenues for the fourth quarter of 2015 were $52.4 million. This compares to the $64 million in the fourth quarter of 2014. As Doug mentioned, our shortfall the last year, and to our internal estimates, was driven by the lack of demand for our influenza products in the last three weeks of the quarter.

Global infectious disease revenues, which includes QuickVue, Sofia, DFA, cell culture and molecular products, decreased to $38.7 million, as compared to $50 million in the previous year. This difference was the result of the shortfall in influenza revenue, which was $24.3 million in the fourth quarter. Also impacted by a weak respiratory season, total Strep A product sales decreased 7%, to $7.9 million, although Sofia's Strep A product line grew by 290%.

RSV product sales increased 33%, to $2.9 million in the fourth quarter, led by 60% growth in Sofia RSV. Even with a weak respiratory season at the end of Q4, total influenza revenue for the year reached $88.4 million, an 8% increase over last year. We also achieved strong Sofia influenza revenue growth year over year, as full-year Sofia influenza revenue increased 40% versus last year.

All of our Sofia metrics remain intact. We have placements of over 14,000 instruments, the cannibalization rate for all assays is below 40%, our annual Sofia revenue per customer is approximately $6,000, and we continue to steadily convert QuickVue customers to the Sofia platform.

Revenues for the women's health category increased 6% in the fourth quarter, to $9.3 million. We realized strong growth in our complement business, as well as a 5% growth in Thyretain. Our pregnancy revenue was $4.3 million in the quarter. Our gastrointestinal product category revenues were $1.8 million in the quarter, and other product category was $2.6 million.

Gross margin in the quarter was approximately 65%. This compares to 67% in the fourth quarter of 2014. We estimate that the influenza revenue shortfall impacted our gross margin by approximately 250 basis points. Otherwise, we were tracking to our internal expectations.

Research and development costs in the quarter increased versus last year, due to the additional investment in our immunoassay business with the Sofia 2 instrument, as well as the vitamin D and Lyme assay development. Sales and marketing expenses in the fourth quarter were $12.1 million. In the quarter, we accelerated our spend on marketing, specifically focusing on the Virena cloud-based system and data visualization capabilities.

General and administrative expenses were $7.4 million in the quarter, a $500,000 increase over prior year, mostly related to investments in the information services group. In the fourth quarter, interest expense was $3 million, of which $2.8 million related to the convertible senior notes. Of that $2.8 million, $1.4 million relates to the 3 1/4% cash coupon.

In the fourth quarter, we realized a small income tax expense of $50,000. The taxable income in the quarter was relatively small, as well. Thus, the discrete tax items disproportionately impacted the effective tax rate percentage and the income tax expense. For the full year, our effective tax rate was approximately 35%.

Net loss for the fourth quarter of 2015 was $400,000, or negative $0.01 per share, as compared to net income of $7.1 million, or $0.20 per diluted share, for the fourth quarter of 2014. On a non-GAAP basis, net income for the fourth quarter was $3.5 million, or $0.10 per diluted share, compared to net income of $13.3 million and $0.37 per share for the fourth quarter of 2014.

Let's talk briefly about our 12-month financial results. As Doug mentioned, revenues for the 12-month period were the highest in Quidel's history, at $196.1 million. And we're pleased with the traction we're getting with our new product platform and assays.

Infectious disease revenues totaled $141.9 million, versus $130.4 million last year, an increase of 9%, driven by solid increased demand for influenza, Strep A and RSV products. For the 12 months, flu revenues increased 8%, to $88.4 million, Strep A revenues increased 11%, to $29.3 million, and RSV revenues increased 37%, to $7.8 million.

The women's health segment increased 8%, to $37.2 million, for the 12 months of 2015. Growth in the category was led by our Graves' disease product, which grew 10%, while our pregnancy product line increased 4%, to $17.8 million.

For 2015, our gastrointestinal segment revenues were $7.2 million, down slightly versus last year, as a 17% growth in our C. difficile product line was offset by revenue decreases in some of our other product lines. The revenue from our other products category was $9.9 million, of which $5.1 million was related to the grant from the Gates Foundation for the development of the Savanna platform.

Gross margin for the full year was 63%, as compared to 60% for 2014. This increase was due to improved manufacturing efficiencies, with higher volumes, plus the expiration of the amortization of the Alere settlement. For 2016, we believe that with normal flu volume in the back half of the year, we should be able to improve our gross margin to 65%.

R&D expense for 2015 was $35.5 million. Approximately 45% of our product development was for amino assay business, specifically Sofia 2, vitamin D and Lyme. 55% of the R&D spend was focused on our molecular platforms, and support of Solana and Savanna.

As Doug mentioned in his comments, we achieved a major milestone with our Savanna platform, successfully running a quantitative HIV assay in an integrated instrument and cartridge environment. With these results, we continue to gain confidence in our ability to commercialize our Savanna platform in the 2017 and 2018 time period, as we roll out additional assays on our Solana instrument this year. For 2016, we are estimating our total R&D expenses to be in the range of $35 million to $37 million.

Sales and marketing expense increased by $4.8 million in 2015, to $47.9 million, primarily due to the full-year effect of the 2014 sales force expansion. We currently believe we have the right size and talent in our sales and marketing team to support our revenue growth in the near term. For 2016, we are estimating that sales and marketing expense will increase by 5% to 7%.

G&A expenses were $29.4 million for the year. The increase versus the prior year was mostly the result of a one-time business development activity that concluded in the first quarter of 2015.

For 2016, we are estimating that G&A expense should be in the range of $25 million to $27 million. The year-over-year reduction is mostly due to the deferment of the medical device excise tax. As noted by our expense estimates, we believe we have the right-sized organization, and appropriate number of R&D projects, to support our revenue growth expectations, while we strive to improve our profitability.

Net loss for the 12 months was $6.1 million, or $0.18 per share. On a non-GAAP basis, net income for the 12 months was $11.2 million, or $0.32 per diluted share. For the 12 months ended December, depreciation, amortization and other was $23.9 million, as compared to $28.4 million in 2014.

For the year, we spent $17 million on property and equipment. And during the year, we spent $30.9 million to purchase shares of our common stock, effectively offsetting the dilution of our stock compensation program over the last couple years. As of the end of December, the Company had no outstanding borrowings under the senior credit facility, and had $191.5 million in cash and restricted cash.

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)

Jack Meehan, Barclays.

Good afternoon, guys. I wanted to start, maybe with Doug. I'm curious, given -- obviously, there's a lot of moving parts, with the flu revenue in the quarter and to start the year. I was wondering, what gives you the conviction that you are taking share in the flu market? And then I'm curious, what impact do you think that some of the new molecular entrants have had?

First, I will say that we are required, as part of our compensation program, to actually determine what our share loss or gain has been. And we are able to successfully defend our position that we've gained a number of share points in this space. There are a number of different vehicles for determining that, including third-party data. Sofia placements, even in a soft market, have continued.

They are not what we would expect in a normal, robust season, but they have been pretty strong throughout the quarter, and they continue, even now, in a soft market. They are at a level consistent with a low level of flu, however, particularly in the physician office segment. But in the hospital segment, we continue to gain share in chunks, due to the standardization that we are able to help our customers achieve with our platforms.

Got it. That's helpful. And then, just as my follow-up, just a little bit more visibility on the Sofia 2.0 trials. Where do those stand today? What is the timeline, through the year, for when we should see announcements from you and the team? And then the three assays, could you remind me what those three are?

The three assays, Sofia influenza A+ B, RSV and group A strep. We use the same Sofia test cartridge that we use in Sofia 1, and so we will be demonstrating the equivalence of the two instruments, Sofia 1 and Sofia 2, actually achieving the same test results. So most of the studies that we are engaged in will be internal studies, and those studies will begin imminently.

In addition to that, of course, we will do a user study, to make sure that folks find the Sofia 2 platform to be as easy to use as the Sofia 1, as you would normally do on a [CLIO] waiver trial. Given the fact that it's next generation technology, and that it's touchscreen-based and obvious to the user, I don't think we're going to find an issue with that. So we will start trials reasonably soon. And we would expect to complete those trials in time for a dual submission, 510(k) and CLIO waiver application, to the FDA, sometime later this year.

(Operator Instructions)

Bill Quirk, Piper Jaffray.

Thanks, good afternoon everyone. This is actually Alex Nowak filling in for Bill today. A three-part question on Solana. The first, what are your reps hearing from customers when contacted about Solana? Second, who are the current Solana users so far? Are these going to be the new to molecular users? Or are they coming from another molecular instrument? And three, what is the major reason these customers switch from another molecular instrument to Solana? Is it automation? If you could provide any color there, that would be great. Thanks.

Sure. I think that I need to describe what we are actually doing, because it sounds like you think, Alex, that we are competing with other molecular platforms. And so far, that has not been the case. Our position is that there is a dilemma that faces physicians who cannot get a confirmatory result back soon enough to make a good decision, with regard to writing a script for an antibiotic or not.

Solana group A strep, or any other product that could give a confirmatory assay in a short period of time, would be helpful. So our customer that we are targeting is the customer running culture. And we are able to demonstrate that Solana works very nicely into a workflow, which usually demands testing of a lot of samples. Further, because of our low cost of goods sold position, we are able, actually, to provide the customer with a means of getting all this done pretty close to being within their existing budget.

So workflow matters, because of the high volume. Cost also matters, and our success so far has been in converting people who are running larger volumes of cultures, in order to do confirmatory testing. For example, the individual who spoke for us at the American Molecular Pathology meeting not so long ago actually, before bringing on board Solana, was running about 30,000 cultures per year. Again, at that volume, converting that customer from culture over to molecular requires that the product be reasonably priced. I hope that addresses your question.

Okay, perfect. That's -- yes, it does. That's very, very helpful, and thanks for the clarification around that. Just a follow-up to that. How may Solana instruments are installed, to date?

We're not prepared to discuss that quite yet. There are numerous, I can tell you, based on the fact that most customers are getting more than one, and many are getting several. The number of instruments is really not so relevant. I can tell you that the average customer is of this higher volume size, maybe not to the 30,000 per year, but they certainly each are meaningful, in terms of volumes. And as I said in my earlier comments, I think we are pleased with both the receptivity of our message, but also the types of customers that we are seeing so far.

Okay, perfect. Thank you.

Brian Weinstein, William Blair.

Thanks for taking the question guys. Good afternoon. On flu, going back to some of the market dynamics there, you said you have taken share. But can you talk about efforts that you have undertaken? And if they've been successful or not, in terms of expanding the flu market? In other words, are we seeing a greater percentage of docs that are testing that's rising all boats here, as you go through those efforts? And can you just remind us what some of those efforts are?

Sure. I would say that the number one cause for market expansion, as far as we can tell, is the introduction of instrumented systems into the market. Of course, we can talk all day long about Sofia, but we also had a competitor, VD, who introduced a product, as well, simultaneously. So you have seen thousands of analyzers go out by these two companies combined, and I think that physicians have more confidence in an objectively read result. They like the speed, of course, but having an answer that requires less interpretation by the staff has been an important factor.

And I would say that if your question, with regard to the number of physicians feeling more comfortable, and testing has increased. In addition, of course, the data management aspect, I think, has been an important factor for some, but I will admit that it's still early on. When we talked about Virena placements, we're -- as a percentage, we're still 10% or more of our placements are actually on Virena at this stage. We are working hard, of course, to increase that number. In areas where do have Virena placements, we do see higher utility and higher testing rates, as well.

So two factors. One is, more physicians are testing, I think because of the objectivity of the results. And two, to a lesser extent, at least so far, the access to data management is helping, as well, in terms of the number of tests that a physician actually does.

So, are you able to quantify what Virena is actually driving, in terms of revenues, at this point? You talked about sales and marketing spend increasing around some of that. But have you identified, really, a business model to get paid directly for Virena?

I'll answer the latter question first. We are exploring the value of the data and what that could mean, in terms of our success in monetizing that. There are a number of different models we've been looking at it, but we haven't settled yet on what our game plan is. What was the first part, Brian?

Virena.

Are we able to quantitate, and do we have a model? Yes, we have a model. We have embedded that expectation into our strategic plan. As I look at the strategic plan, very little in 2016. 2017, we do see growth in flu, at the level of about 3% of our total growth for the year, in 2017, is attributed both to the expansion of the market due to Virena. But again, that's just expanding the number of tests run.

Okay, I will get back in queue.

Nick Jansen, Raymond James.

My first question will be surrounding just what you are seeing thus far in the first quarter? I think Doug, obviously, you said January certainly hasn't seen any real flu season development of material size. So just wanted to know if you could perhaps maybe quantify for us, as we think about 1Q revenue expectations, on how you want to -- how you're thinking about the quarter? To make sure our models are aligned appropriately, at least for the flu aspect of it. Thanks.

I can't help you with the number, per se, but what I can tell you is a couple qualitative -- or give you a couple qualitative comments. First, as I said, January was soft. We do collect Virena data, which unfortunately are not available to the public. But we now show not only an increase in the number of tests being performed at those sites, but we also see an increase in the prevalence.

Curiously, this year, we're seeing upticks in volume, in places and states that we hadn't seen previous, which I have no explanation for. The states that we normally see, early in the start of an epidemic, now have started, finally. But I don't think that the ordering that will occur will be enough to offset the softness that we have seen in January, even though we know that inventories at distribution, at the moment, are quite low.

Okay, that's very helpful. And then we think about Sofia 2 launch, in terms of the customer rollout and the adoption, is this the game plan, is to replace existing Sofia customers with Sofia 2? Is it the go after the market that hasn't yet adopted Sofia? Just wanted to get a better view of that trajectory that you are expecting, from an uptick perspective? And is there any deals associated with these physicians who have adopted 1, where they can get a 2, and just substitute? Just your thoughts on the rollout? Thank you.

Sure. As we roll this out, we will have inventory of Sofia 1 that we are now drawing down. And with the launch of Sofia 2, the boxes that will go out the door will be Sofia 2's and not Sofia 1. But it's not our intent to replace the existing installations that are out there, which are normally on reagent rental agreements. As they come up for renewal, of course we could consider flipping those over to Sofia 2.

Now, if a customer requires Sofia 2 because it with an assay that is a Sofia 2-only assay, then, of course, we're going to have to swap the instrument out, or just simply provide an additional instrument. We, of course, are encouraged by our ability to achieve the cost target on Sofia 2, so we are very much interested in rolling that out as quickly as we can. Plus, I think that customers are going to like the product better, as well, and we will be able to put menu, like Lyme, for example, that simply we can't do on Sofia 1. Make sense?

Thanks, Doug. Appreciate the comments. I will hop back in queue.

Tycho Peterson, JPMorgan.

Doug, on Solana, can you maybe talk to whether you're seeing higher or lower than expected cannibalization of AmpliVue? And then you mentioned, a couple times, that the types of customers emerging was interesting. Can you maybe just elaborate on whether you're seeing customers you didn't expect?

First, I'm not aware that one of the customer closes so far has cannibalized AmpliVue. It's almost a different customer set. AmpliVue is a hand-held device that is really suited to lower volume, whereas the Solana, we are looking at customers who would typically like to run several at a time.

I would say that we have been pleasantly surprised that the concept that we're selling really does resonate, and people are looking to solve these antibiotic stewardship issues. And I do think some of the customers are taking some time to evaluate, and look at their various options. But for the most part, the time from targeting to close has been reasonably quick. And I would say, I'm a little bit surprised, in some of these, that they've gone as quickly as they can. We have some individuals in our sales force who seem to have been pretty prolific in finding customers for whom this solution meets their needs.

Okay, and then maybe a bigger picture question. First, on your cash position. Obviously, you've got a fair amount. Can you maybe just talk on M&A? Are you seeing more targets, given the market volatility? And then conversely, there has obviously been some consolidation, with Alere going to Abbott? Does that change your view of competitive dynamics in the market?

First, yes, we do have a number of active targets that we are exploring at the moment. I don't know that they are more actionable than they were before. I don't see that it changes our view, having had a year now since we actually raised the funds.

In terms of the Abbott/Alere announcement, I think the biggest change is the number of investment bankers who are asking to come see us. (Laughter) But other than that, the power targets are pretty much the same. I don't see a big change in the market, at least thus far. I don't see pricing of the targets being more or less than they were before. It is true, obviously, that the number of things that we are looking at is quite, quite small.

Okay, and then lastly, on Virena. I know you had a couple questions earlier. But are you able to use that to help you manage supply chain, in terms of proactively reaching out more to some of the higher volume customers? I'm just wondering if you can use that, at this point, to manage that?

That certainly is a possibility, and I would say, also, our customers think it's a possibility that they can manage their own supply chains. So that is a factor. Certainly in the non-traditional segment, that's a factor that is a big discussion topic.

Okay, thank you.

Thanks Tycho.

Tim Evans, Wells Fargo Securities.

Thanks. Doug, I'd like to take a big step back here, and ask a strategic question. Really, the Company remains highly levered to respiratory viral illness, and you've made some efforts internally to diversify away. You've had a substantial amount of cash on the balance sheet now for over a year, but deals really haven't materialized. How realistic do you think it is for us to think that, over the next two or three years, Quidel might be able to take a substantial step toward that diversification plan?

That's a very good question, Tim, and one that we constantly ask ourselves. If you look at 2016, most of the growth that we have projected for the year comes from our core business. That's absolutely true, and a big part of that still remains our flu product. But if you look at the two other major drivers of growth for us, just this year, we've got Solana. And when we, at least at our forecast, look at the growth, we're looking at a contribution of around 5%.

And then, when we look at Sofia and the new products, and we pair that with the economics of Sofia, which have improved with our distribution partners, we are looking at another 4%. So those two combined are not as large as the core business yet. But then, when you look at 2017 and 2018, those two categories that I just mentioned become much stronger contributors to our growth.

For example, in our model, in 2017, Solana suddenly becomes another 5%, on a larger base. Sofia, though, nearly doubles in terms of its growth potential, to 10% of our total business, again, on a larger basis.

So those two things combined are non-flu and pretty significant. I did mention earlier, in that same model, that I'm still forecasting, because of Virena, to grow the market a bit. And we do have, in our model, 3% growth of flu, due to that particular factor. Savanna in 2017, we show only a 2% contribution to the total, in terms of growth. But then in 2018, those numbers look pretty solid. Again, Solana, another 5%. Perhaps conservatively, Savanna, just slightly more than 5%.

And then Sofia, we see still, because of the other new products being introduced, all of which are non-flu, and actually immunoassay-based, and not susceptible, by the way, to molecular competition, we see that as another 10%. So I won't take you all the way through to 2020. Obviously, we have a model that does that. But I would say, beginning in 2017 and 2018, Tim, we should be up to demonstrate that, while we try to continue to grow flu, because we like flu, we will have meaningful contribution from the other products that aren't so closely tied to the respiratory season.

Okay, and then just one other one, real quick. We've had the announcement that one of your big competitors is going to get taken out. What kind of feedback are you getting from customers? Do see this impacting the competitive dynamic at all? Thanks.

I actually do. And I see it as an opportunity for us, in a number of ways, which I won't go on in this call. But we're absolutely exploring what positive benefit this could mean for us.

Thanks.

Mark Massaro, Canaccord Genuity

Thanks for taking the questions. I appreciate the color on the first three assays on -- next up on Solana. But maybe looking beyond those, I think in the past, you have discussed assays like [C. diff], MRSA, and CTNG. Could you comment how these are progressing and developments? And do you think we might expect them to hit the US market sometime in 2017?

2017 is a possibility for the ones that you have mentioned, yes, assuming that all things go as planned. Of course, that's not always true. But I think it's a reasonable expectation that you would see some contribution, in 2017, from the products that you mentioned.

Okay, great. And R&D spend declined a couple million dollars in 2015. I wanted to ask about Savanna, and if there's any change in the pace of bringing tests to the market? I think you had stated that you want to launch -- or 20 tests close to launch on Savanna. Is there any change at all in your outlook? I believe you still are targeting 2017 OUS, and if I interpreted your comments on the call correctly, 2018 in the US. Any change at all there on R&D spend, as we think about 2016 and 2017?

Other than we are coming down slightly. Randy, do you want to comment?

Yes, no, we -- I think as we mentioned, we found a little faster pace to get to our beta instruments, so we were able to reduce the costs without affecting the timeline too significantly. So we still believe first half of 2017 is developing world, and we still believe back half of 2017 still has the potential for US launch. So nothing has changed from what we have communicated previously, Mark.

And I will add (multiple speakers) that we're pretty much on track, and have been for most of the back half of 2015, and now going into 2016. Just last weekend, we met the milestone that I talked about earlier. So we feel really good, at this stage, that we should be able to forecast what our spend is, based on what remains to be done between now and launch. To the menu question, Mark, I think you are very well aware that we've developed a number of PCR assays that are FDA cleared. We also have quite a large number that are, also, CE marked.

In addition, we have a number of HDA assays. Any one of those, we can port over fairly quickly to the Savanna test cartridge, and I think we have already demonstrated that. So now, for us, it's a matter of which assays to bring out, in which order, depending on which customer we're trying to serve, and what makes the most sense from the perspective of our commercial organization. So I don't know precisely what the number will be in the first wave and the second wave at this stage, but we are in the process of actually looking at that, and determining what the batting order should be.

Okay, great. Thank you.

Sure.

(Operator Instructions)

Bill Bonello, Craig-Hallum.

Yes, a couple of questions. First of all, just in terms of Solana, and the customers that you are finding there for the strep testing. Do these tend to be either multi-hospital health systems with related physician clinics, where the physicians are doing rapid testing in their offices, and they're sending the confirmatory testing to some centralized hospital lab? And that's the entity that's considering switching from culture to molecular? And then if so, do the clients need to go through some kind of outcome study, to demonstrate that having faster confirmatory results actually changes physician behavior at all?

First, some of our closes so far have been part of networks. That's true. Some of them have also been either children's hospitals or tied to children's hospitals. We've also seen just very large pediatric practices, who either send their negative test results out, or who already do their own culture and are simply moving over. I don't think it's a difficult conversation for our sales organization to have, and there will be people who will object to moving to molecular, of course, but it's not time to result, for sure.

Let me give you an example. There are some laboratorians who have a concern about what they do with the C or G's. They do culture for A today, but they also do cultures for C or G. Pyrogenic C or G also is an issue, and can be treated with the same antibiotic compounds. So doing a molecular group A strep assay doesn't necessarily solve, for that particular customer, what they are going to do with their C's or G's.

So those are -- that would be an example of the conversation where you have to discuss the merits of doing the molecular, giving the customer the answer, or the ability to provide the answer to their physician quicker, versus wanting to be more thorough, and actually reflects the C or G's in the absence of a strep A positive. So it's not all smooth sailing, and there are certainly impediments to moving from culture to molecular. But for the most part, the overwhelming desire is to give the physician an answer in a timely manner.

Okay. And then just separately, can you comment a little bit more on the opportunity for vitamin D and Lyme? You might have talked about the timing, but I might have missed that when you said it. But more so, what you see the market opportunity there? Why the need for those test results to be delivered at point-of-care, versus sent off to a central lab, et cetera?

This is a very good question, Bill, because I think there's a little confusion on the part of some of the folks who cover us. We're not developing an assay that is being used to diagnose whether a customer -- or a patient, excuse me, is in need of a vitamin D either by prescription or over-the-counter. What we are providing is a test that enables physicians who routinely monitor patients who are deficient for vitamin D, to ensure that they are actually benefiting from taking vitamin D.

So for example, there are certain nephrology practices, there are certain cardiology practices, there are certain OB/Gynies that routinely test their patients. That's why, when we do our market analysis, we're not looking at this huge vitamin D market. We are only looking at a potential available market of somewhere between 16 million and 18 million tests per year.

That's extraordinarily helpful. On Lyme?

And Lyme is the much smaller market, if you're looking at people who are currently diagnosed. We do think that it is an underserved market, and we think it's one where, early on, the number of tests will be smaller, but that it has the potential to grow. And I think it has the potential, also, to differentiate us, and our platform, from others who might want to compete with us.

Great, thank you.

Sure.

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

Great. Thanks, everyone, for your support and your interest. We had what I think was a great quarter, and a nice finish to the end of the year. And I certainly believe that we are well positioned to achieve our longer term financial objectives. Take care, everyone.

Ladies and gentlemen, we thank you for your participation, and ask that you please disconnect your line. Goodbye.