QuidelOrtho Corp (QDEL) 2021 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation Third Quarter 2021 Earnings Conference Call. (Operator Instructions)

I would now like to turn the call over to Mr. Ruben Argueta, Quidel's Director of Investor Relations. 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; our Chief Financial Officer, Randy Steward; and our VP of Finance, Kristin Caltrider.

Our third quarter 2021 earnings release is now available on ir.quidel.com, our Investor Relations website. We will also post our prepared remarks on the Presentations tab of our IR website following the conclusion of this call on November 4, 2021, for a period of 24 hours.

Please note that some of the information we provide today during today's conference call constitutes forward-looking statements. Forward-looking statements, by their nature, involve material risks, assumptions and uncertainty. In particular, our expectations and assumptions around the impact of COVID-19 pandemic on our business, results of operations and financial condition and that of our suppliers, customers and other business partners are highly uncertain, continuously evolving and unpredictable. Actual results may differ materially from the forward-looking statements due to various important factors, including the risk factors discussed in our most recent 10-K and subsequent periodic reports and registration statements filed with the SEC.

Furthermore, this conference call contains time-sensitive information that is accurate only as of today. Except as required by law, we undertake no obligation to update these forward-looking statements or time-sensitive information, which speak only as of today.

Today, Quidel released financial results for the 3 and 9 months ended September 30, 2021. If you have not received our earnings release or if you would like to be added to the company's distribution list, please contact me at (858) 646-8023. Following Doug's comments, Randy will briefly discuss our financial results, then we'll open the call to take your questions.

I'll now hand the call over to Doug for his comments.

Thank you, Ruben, and welcome to everyone on the call. We really appreciate your time and your interest in Quidel.

I want to start by recognizing the entire Quidel team for their commitment to their teammates and communities. We started the pandemic with both grave uncertainty and the label of essential workers. We've all been affected as well as bonded by it because of our culture, that pressure only motivated us to lead the industry's response to the pandemic to develop new assays, drive discoveries on new platforms, manufacture at unprecedented scale and keep that production going despite supply chain challenges and concerns over the rapidly changing environment. Our team did it all despite personal and family concerns in long hours day and night. Their efforts have been heroic, and their impact on this country has been life-saving on a level that can never be fully charted.

While others balked, we never wavered. But what our people have done for our company can be measured at least in part because what we are discussing today only boils down to the results from a single quarter.

Let's step back for a moment and consider. The U.S. has weathered several COVID spikes. Our Quidel teams have been asked by our country to do and have done what was previously considered impossible, to go from 0 to 60 in multiple categories of COVID diagnostics and take those innovations to scale at lightning speed. In the process, Quidel has transformed into an enterprise that is far more than essential. We are purposeful, we have delivered on our foundational purpose of advancing diagnostics to improve human health when it really counts. And that is a far more important metric to our Quidel family than any numbers we discussed today.

Nevertheless, the numbers reflect the effort. We delivered solid 7% revenue growth from the third quarter of 2020, which was previously our strongest third quarter ever for revenue.

We further broadened our installed base of Sofia analyzers to just over 74,000 instruments in the field, expanding our base to support Influenza A and B, RSV, Strep and of course, COVID as well as numerous other diagnostic assays in our portfolio. The year-on-year expansion is explosive and has long-term implications for our diversified business going forward.

Demand for our SARS products continued with Quidel shipping over 45 million SARS tests in the third quarter of 2021 across all platforms, and we strengthened our beachhead for COVID testing in the retail segment, partnering with Walgreens and CVS to grow our presence in pharmacies. When combined with our other major and independent retail partners, we are seeing strong demand, and consumer awareness in the Quidel brand is rising with it.

We are proud and have loved the effort to decentralize and democratize COVID-19 rapid antigen testing into this new market. And I would add that we are proud to have devoted a portion of that production to support our charitable government and sports league partners to bring our advanced diagnostics to serve many of the minority and underserved communities hardest hit by COVID-19 infections.

As noted in our earnings release, we are working to fulfill a federal government award originally estimated for 51 million QuickVue At-Home COVID-19 tests with a dollar value of approximately $284 million. A recent order suggests that purchases could grow to approximately $100 million QuickVue tests. In any event, we believe the implications of these positive developments will extend well beyond a single quarter.

While we are now thankfully seeing declining COVID infections, we still believe that symptomatic and asymptomatic diagnostic testing is crucial to keeping the disease and its variants at bay. We believe that there will be continued demand for COVID-19 rapid antigen testing for at least the next few quarters, but I would emphasize that the unpredictability of this pandemic makes everything fluid and a firm baseline level of demand is still too early to call.

Looking beyond our COVID categories, our nonseasonal core business is stable. In fact, the revenue for this business, excluding influenza and COVID-19 products, grew 2% to $93.3 million as compared to $91.4 million in the third quarter of 2020.

There has been no significant distribution stocking for influenza products. So we remain poised to meet the needs of the market should a normal flu season arrive. We expect our non-COVID business to strengthen further in the coming months as flu season kicks off, supported by our incremental Sofia placements and the opportunity to increase utilization of the platform, not to mention the launch of new Sofia gastrointestinal assays and the launch of Savanna, just to name a couple.

But if we pull back to look at the big picture, due to manufacturing capacity constraints. We are primarily playing in the pharmacy segment of the OTC space and have made limited inroads beyond that. We have been cautious in partnering with more large players until we are able to fulfill their volume requirements in a timely manner. That said, we expect that once we get our Rutherford facility fully operational, we can sign on other large retail and corporate partners. Moreover, we believe this new OTC market will bode well for the rest of our point-of-care respiratory assays going forward.

Another reason for the limited launch into retail is the large government contract we were awarded in the third quarter of 2021, which we originally estimated to be $284 million in revenues, as I mentioned. We have recently received their order for over $500 million in total and expect that it will take time to fulfill the order, likely into the third quarter 2022. We have a good idea as to how this order will be broken up in terms of volume and revenue between the subsequent quarters, but a lot of it depends on how quickly we are able to validate and fully scale our manufacturing capacity at Rutherford, and what new critical components and unknowns, we will need to solve at those considerably larger volumes. We face the same supply chain challenges facing everyone from manufacturers to consumers, but I'm pleased to say that we've done quite well in resolving all of them so far.

Speaking of our manufacturing capacity, our manufacturing and operations teams really stepped up this past quarter as they have been during -- since the beginning of the global health crisis. Due to the extraordinary efforts of these teams in the third quarter of 2021, we manufactured and shipped the largest volume of tests ever produced and shipped in any quarter in Quidel's history and are also on track to reach our target run rate capacity of approximately 70 million rapid antigen tests per month by the end of the year.

In the third quarter 2021, we also were pleased to see continued strength of our Lyra PCR sales, given that the assay requires no proprietary instrument and has a large number of competitors offering similar solutions. We believe our Lyra sales signal 2 important trends: first, a heightened brand reputation among PCR labs; and second, a strong, longer-term underlying cohort of potential Savanna customers as they see the value of adopting a system that is one of a kind in terms of speed, ease of use, assay menu and price. I'll touch more on Savanna later.

Taken all together, we believe the ebbs and flows of COVID-19 demand for Sofia, QuickVue and Lyra are a net positive for us in the short term and position us favorably for a world where either COVID-19 reaches the endemic stage or it completely abates. As I've said before, it's very difficult to provide a baseline COVID revenue number that I can confidently call a floor until we have completely fulfilled the government order, which we estimate to take place within the next few quarters, potentially by the third quarter of 2022.

Let me turn now to the progress made on our product pipeline during the third quarter of 2021. On the COVID-19 side of the business, we are working on a QuickVue combination test, flu A, flu B and COVID-19 and hope to submit that test to the FDA within the next few weeks. We also have a few other tests in the works, and I plan to share more of those as they get closer to launch.

On the non-COVID side, we have several Sofia gastrointestinal assays that we believe can increase the clinical utility of the Sofia instrument and provide additional placement opportunities within hospitals and other moderately complex medical settings. Admittedly, these assays have been taking a bit longer than we had hoped, but this delay is well worth the trade-off that we made in tackling COVID-19. We expect to launch several of these assays next year.

On the Triage side, we initiated our clinical trial for our high-sensitivity troponin test early in the year and are hoping to complete it near the middle of next year. If we are able to realize the claims that are competitive with or better than large lab analyzers, we think this could be a nice growth driver for us. Behind that, we have other -- excuse me, behind that, we have our test for placental health, PLGF, which could also be a meaningful contributor to growth in the U.S. market.

Regarding our molecular business, we received CE Mark for our Savanna instrument and RVP4 respiratory cartridge in Q3 and are launching Savanna outside the U.S. Savanna is our multiplex molecular diagnostic analyzer, which will further extend our pipeline through integrated sample prep combined with rapid, real-time PCR amplification and detection technologies, making it ideal for syndromic testing in hospitals and moderately complex labs with the goal of eventually accessing physician offices, urgent care clinics and other point-of-care locations. Like other manufacturers, we have been challenged by shortages in a critical component. We have since resolved the supply issue, but we expect supply chain challenges to persist off and on into 2022. We are planning to launch Savanna by the end of this year in select markets outside the U.S. We are very excited about the future of this product.

Lastly, let's talk about our capital allocation. Investing in the future growth of the business, either by funding R&D or increasing our manufacturing capacity, continues to be the biggest priority followed by M&A. Regarding M&A, we continue to actively look at opportunities within our funnel but highly value strategic fit. We want to stay in diagnostics and like businesses that can expand our international reach or products that can fit within our commercial channel. We aren't interested at this time in technologies that are far away from commercialization. So we have a set of criteria, we're looking and stand ready to deploy capital to further strengthen our product portfolio should the right opportunity present itself.

To wrap up, the third quarter of 2021 proved to be another strong quarter and an important step forward in our long-term game plan. We were fortunate in that we stuck to the game plan all year, and were focused on increasing manufacturing capacity. Our product platforms and offerings have never been more robust. Our productivity is up across the board, and our market penetration is deeper and wider than ever before.

We believe we are well positioned for the future. Our products are exceptional. We've continued to add customers, entered new markets, added incremental Sofia placements on multiyear contracts and have made inroads towards establishing a brand name that is recognizable across multiple verticals. We have executed successfully against our core goals and the business is stronger than it ever has been before.

Now I'll turn the floor over to Randy to give you a deeper understanding of our third quarter 2021 financials. Randy?

Thank you, Doug, and good afternoon, everyone.

As Doug stated, we had a great quarter, and we made and continue to make steady progress on our longer-term goals. As reported, total revenues for the third quarter of 2021 were $509.7 million compared to $476.1 million in the third quarter of 2020, achieving growth of 7% year-over-year, largely due to increased COVID-19 testing demand related to the Delta variant. Foreign currency exchange had a positive impact of $1 million in the quarter.

The increase in total revenue was due to strong demand for all of our COVID products, especially our visually-read QuickVue At-Home OTC COVID-19 test, which received EUA late in the first quarter of this year. This sudden and sustained demand for at-home testing in the quarter resulted in a shift in SARS product mix related to the third quarter of 2020 when we were only authorized to sell Sofia SARS antigen test in the professional segment.

In effect, we started selling Sofia rapid antigen tests in the professional segment in the high teens price point. And today, we're selling them in the professional segment in the low teens and selling QuickVue tests to pharmacies, schools, employers and government agencies in the mid-single digits.

Total SARS revenue in the quarter from all products was $402.6 million, and this compares to $375.7 million in the quarter last year, a growth of 7% year-over-year. In total, we sold over 45 million COVID tests in the quarter. Approximately $24 million of those were QuickVue and 16 million tests of Sofia.

Influenza revenue in the quarter was $13.8 million versus $9.0 million in the third quarter of last year. Included in this influenza revenue number for the quarter was $4.3 million in the Sofia ABC revenue. This combo product was not yet available in the third quarter of last year. As we mentioned last quarter, moving forward, we will be reporting the Sofia ABC revenue together with flu revenue.

Rapid Immunoassay revenues were $378.7 million in the third quarter, showing growth of 12% from the third quarter last year. Within this category, Sofia products were $240.3 million of which $221.4 million were attributable to the Sofia SARS antigen test. QuickVue product revenue in the third quarter was $137.5 million of which $131.4 million was attributable to the QuickVue SARS tests.

Inventory and distribution for our non-COVID products is low, as Doug had stated. Flu, Strep and RSV inventory was 35% below the same time last year. QuickVue and Sofia COVID tests at distribution was estimated at approximately 3 weeks demand as we entered the fourth quarter of 2021.

For the Cardiometabolic Immunoassay business, revenue was $64.8 million in the third quarter of 2021, split $30.3 million from the Triage business and $34.5 million from the Beckman BNP business. With respect to Triage, the U.S. and Europe realized good growth while China realized a year-over-year decline due to continued shipping and supply chain constraints. For the Beckman BNP business, the $34.5 million in revenue included approximately an $8.4 million payment related to the agreement with Beckman Coulter entered into July of this year. More on this topic shortly.

Revenue in specialized diagnostic solutions category increased 2% to $11.4 million, driven by an increase in sales of our complement products. Our Molecular Diagnostic Solutions revenue was $54.8 million in the quarter as we continue to realize continued demand for the Lyra SARS-CoV-2 product, which constituted $43.5 million of the total. Solana revenues grew to $10.2 million in the third quarter due to the incremental revenue from SARS-CoV-2 assay.

Gross profit in the third quarter decreased to $373.4 million, and then gross margin was 73% of revenue. This compares to gross profit of $383.6 million and 81% gross margin for the 3 months ended September 30 last year. The decreased gross profit and gross margin were driven by a shift in product mix from selling primarily Sofia SARS in the professional segment to selling large volumes of less profitable QuickVue COVID-19 tests.

On the spend side of the business, we continue to invest in R&D, specifically our Savanna platform. We are also spending in support of our longer-term initiatives such as new Sofia assays that can leverage our large installed base of instruments and in new markets, next-generation platforms and in Sofia Q to name a few.

In the quarter, R&D expense was $23.7 million, a large portion of which was focused on Savanna instrument and cartridge development. For the full year, we are still expecting R&D expense to be approximately $100 million.

Sales and marketing expense in the quarter increased to $46.8 million with the biggest driver being higher marketing and advertising spend associated with the launch of our QuickVue At-Home OTC COVID-19 test. We also had increased freight out expense as well as higher compensation costs driven by increased headcount and improved performance during the quarter. We will continue to invest in sales and marketing as we develop more strategic partnerships and increased marketing dollars in support of our broad product portfolio as well as promoting other markets that can significantly broaden our customer base.

G&A expense in the quarter increased to $21.1 million due to increased IT spend and higher compensation costs associated with an increased headcount as we continue to support the overall growth of the business. We expect G&A expense for the year to be approximately $85 million. As it relates to the provision for income taxes, we recorded $65.7 million in income tax expense resulting in an effective tax rate of 23%. The tax provision was primarily impacted by higher pretax earnings for the quarter relative to the anticipated annual pretax earnings. We are currently estimating a full year effective tax rate of 22% for the full year, excluding any potential impact of legislation, which certainly continues to remain uncertain.

As of the end of September, we had $578.4 million in cash and cash equivalents. Year-to-date, the company has invested $223.5 million in capital expenditures, including the purchase of a third party's interest in our McKellar facility for $28.9 million. The McKellar facility is strategically important to us as we invested heavily in automation such that by the end of this year, we expect a manufacturing capacity of 20 million Sofia tests per month. For the full year, we are expecting to spend approximately $270 million on CapEx, net of the NIH RADx reimbursement. And we expect to exit the year with a year-end cash balance in excess of $800 million.

And relating back to our Cardiometabolic business, as mentioned previously in July of 2021, we announced an agreement with Beckman Coulter on the BNP business and to settle outstanding litigation claims. I'd like to take a brief comment for modeling purposes. As consideration for the new agreement, Quidel will receive for calendar years 2022 through 2029, annual payments between $70 million and $75 million, depending on sales volume of Beckman BNP assay. Such minimum and maximum payments will be prorated for 2021. The minimum payment is not dependent on sales of the Beckman assays.

Quidel will continue to provide Beckman services in connection with the BNP business, including continued supply to Beckman of the Quidel antibody used in the manufacture of the BNP assay. The payments under the master agreement are expected to be EPS and cash neutral to the existing supply agreement through 2029. Quidel's reported EBITDA under the master agreement is expected to be similar to the EBITDA derived from the Beckman BNP business prior to entering into the master agreement. Beckman payments will be recorded as Cardiometabolic revenue in Quidel's financial statements.

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

(Operator Instructions) The first question is from Alex Nowak with Craig-Hallum.

This is Trenton on for Alex Nowak. Now that Delta is waning a bit here, are you starting to see COVID testing normalize heading into Q4? Or is it still at elevated levels? And with new variants constantly in the headlines, do you think a higher floor could be forming as COVID testing becomes a natural part of respiratory seasons? I guess in other words, while I understand it's hard to pinpoint an exact floor, but do you think that $20 million to $25 million per month is the appropriate floor going forward?

Good questions. First, with the decline in infection rate, I think it's pretty much our expectation that we'll see lower and softening demand for COVID testing across all manufacturers in the professional segment. At the same time, though, testing for asymptomatic individuals remains still very, very high across employer, schools, retail, governments as well as ex U.S. So it's very difficult to know what will happen. But I would say that the $25 million floor was a level that we were seeing prior to the Delta variant. Could it be higher? I suspect so.

At the same time, we also have the government order. So it's hard to predict how much of the floor is influencing that one, we're going to far exceed that at least in the next few quarters, not with -- not just with the government, but also with the employers that we'll now be able to take on board. Schools, if indeed that does continue to develop. And obviously, there's a retail component that we've been struggling to serve across all of the sites throughout the United States.

So that's sort of the overview of what's happening out there. I think I could safely say that we have a 2022 that looks fairly significant in terms of COVID revenues. That will be helpful, I think. It gives us a little bit of a bridge as we launch Savanna, which is going to take obviously a little bit of effort as we manufacture more cartridges and instruments and roll it out ex U.S. and then here in the U.S. So I hate to say it, but there is a decline in infections, but I don't think it's going to cause a big difference in testing at least for the next few quarters.

Got it. Okay. And then if I could ask one more question here. Of the 700-plus thousand Sofia installed base that you have, how many of these systems are still primarily being used for COVID? And are you starting to see utilization trend higher for other non-COVID assays? And I guess like from a priorities perspective, what is next in the pipeline beyond COVID, if you had to rank them?

First, it's true that a large number of those placements occurred during the initial pandemic. We continue to place. But it's also true that many of those, I think about 3/4 or more, included agreements to purchase influenza, Strep, RSV and other products. So assuming those infectious diseases continue to be prevalent here in the U.S. as well as ex U.S., I think that we will do still reasonably well, even when the volume does fall off.

Because imagine that if indeed we go from pandemic-level testing globally to endemic throughout regions of the globe that during those periods of endemic disease, we won't know whether it's influenza or whether it's COVID. And so I suspect that we will see syndromic panels, whether they're small panels like you would see on Sofia or larger panels like you would see in Savanna. So I think the syndromic panels moving forward are going to include COVID.

And what was the second part of your question? I apologize.

I just asked...

Yes, just...

Yes, we've got a number of things that we're looking at. I like the toxicology space a great deal. I think the technology that we're developing now will be suitable to that to a higher multiplex toxicology panel or more. And I also think that the allergy panel, particularly when you think about regional allergy panels and the flexibility that we might have to both develop those panels, but also manufacture for people who live in the South or people who live in the Northeast or people who live in Japan, et cetera, the allergies that they're going to be experiencing as a result of different things floating in the air, right? So I like those 2 in particular. There are others that I probably shouldn't talk about on the call here, given what I see is a large number of competitors listening in. But we have a number of opportunities. I think that our R&D team is going to be super busy over the next couple of years.

The next question is from Brian Weinstein from William Blair.

This is Griffin on for Brian. Just first to clarify on the government contract, the minimum used to be at just about $284 million as you said. Is the minimum now updated? Has the government communicated to you that the NIM is now updated to that $500 million contract? And then can you tell us how much, if any, of those fourth quarter -- oh, excuse me, third quarter COVID revs were, I don't know, contract [instructs -- sorry], just on the $500 million minimum?

Let's go in reverse. Yes. Let's just go to reach the sync in reverse order. We didn't ship anything in Q3 related to government orders. Everything you saw there was mainly retail, mainly professional segment and some employer testing and some school testing. So no government testing there.

Just to the order that we have for them isn't specifically a minimum, it's more of a range. And so I wouldn't bake the number into your model, sort of anticipating why you're asking me that question. But I would say that the discussions that we've had with HHS, DoD and others strongly suggests that they're interested in fulfilling that contract. And the discussions really have been more around the timing and in which quarters, and we've actually been arguing for delaying a little bit because we're struggling to fulfill some of our large employer orders. And we have a pretty significant number of employers that have requested testing that we've been pushing out into Q1.

So I would say the government has been super flexible with us, and we appreciate it greatly. We think that we can get all caught up as we exit this year, move into Q1 and then start fulfilling some of those orders, some of which we do have a pretty nice idea of what we're going to be expected to deliver, but we probably won't complete those government orders until around September 4 or so.

Great. And then just one on M&A. You talked about $800 million of cash exiting the year. That's been a topic of discussion for a little while. Would you say that it's the quality of assets or more valuation that is a sticking point here?

I think for us, it's about strategic fit. It's about having products that fit our commercial team across the globe. And we're not interested so much, at least at this time, in things that are too far away from commercialization or where revenues are low but costs are high and there's not a lot of EBITDA. In fact, there's just no E. So we're less interested in that because I just think that just pulls us down. It's not super helpful and a short return.

So we're looking at things that are tuck-ins, but also we're looking at a couple of things that are a bit larger. So again, for us, it's strategic fit. And I said many, many times to our existing investors that we promise to try very hard enough to do something done.

The next question is from Casey Woodring with JPMorgan.

This is Casey on for Tycho Peterson. First question is kind of a broad one on what gives you confidence that the sort of employer demand that you're seeing now, that's going to sustain throughout next year? Does this sort of vaccine or test once a week in the workplace going to last the entire year next year? And yes, any sort of color around employer demand trends?

Well, the Biden plan, in particular, obviously, steering at a lot of employers to do that. The recent OSHA guidelines are helpful in that regard. Not to just us, but across the board, the other manufacturers. Not just the ones who are doing rapid antigen but also goes to doing pooled PCR testing, all sorts of things. And just a number of -- case of people that are approaching us. And because of the scarcity of supply, which hopefully, that will be it a little bit, but because of the scarcity of supply right now, people are interested in making a commitment to us.

Originally, we were asking for 12-month purchase orders or more, we're being a little bit more flexible now because the world is uncertain. And so I would say most of the folks that we're talking about are firmly committed to giving us a number for the next 6 months, which is helpful because from a planning perspective, are we making a lot of flu or Strep or RSV? Can we do that during periods of time? Or do we have to devote the -- just a very, very high percentage of our manufacturing capacity, just exclusively to COVID or COVID/flu combo, that sort of thing?

So in terms of an understanding of what to make and what SKU and what size -- is it a 1 test? Is it a 2 tests? Is it a 5 test? Is it a 10 test? We have a 25 test now. An understanding of what each of the individual employers who are large, but they all are a little bit different in terms of how they want to deploy the test and so the packaging sometimes is a little bit different. So an understanding in case you have exactly what we need to deliver. If we had that sort of certainty, it certainly would make our lives easier, that's for sure.

But it's fluid. It could abate. It could soften. People can make different changes, but at the same time, we also have an ex U.S. component, which we can't get to at all right now. And in fact, we promised the government that we wouldn't until we fulfill their orders. So right now, we're pushing off or we've -- I shouldn't say it that way. We've asked slightly HHS and DoD to have us -- have a more flexible delivery schedule so that we can address some of the employers, and I just don't know that, that's going to go away anytime soon. So in a nutshell, I think 2022 is probably likely to be fairly significant for us still as we move from this pandemic situation into something that's more traditionally endemic.

Can you please remind us what your current manufacturing run rate is now as we sit here first week in November and then what it would be beginning in 2022? And then just on the government order, it sounded like it was for 100 million tests, so ASP is around $5. Can you talk about the margin profile of that test? And -- yes.

Yes. first, I'm not as good as some others on the multipart questions, so I'll try very hard here. The price on the government agreement is [$550 million]. So the margin profile is still quite attractive, right? And so there's room as we compete moving forward, more competitive entrants. Do we have the ability to lower the price? Yes, we do. At the same time, we're ramping up manufacturing capacity.

And I would say that our overhead in our original facility, McKellar, which manufactures now how much -- exclusively Sofia product. That overhead is very similar to the new facility, even though a big chunk, a big percentage of the cost is the depreciation of that capital equipment. So even with that, we've got a large depreciation expense. Even with that expense, the 2 look very similar. So we're not really in a period of time where we're worried about factory absorption.

The other thing that obviously you would know very well better that I do is that depreciation expense is noncash. So it has no impact on our cash position. And so it's actually better from a cash perspective, these products that we're manufacturing there now.

As we exit the year, we are not in a position where we could confidently say, according to my Head of Operations just the other day, that we're going to exit the year at Rutherford at right around maybe plus or minus, but we should be right at about 50 million tests per month. And on the Sofia side -- or even -- or I would just say we're equally confident that we are going to be at a $20 million to -- per month range.

So for those 2 technologies, those 2 methodologies, we're going to be in total about $70 million as we exit. And we're not really talking about what our capacity is right now. You could probably do some math in Q3 and figure out with the $45 million cash, we're obviously making more than that now as we move into the fourth quarter. So if that helps you. September was a really big month for us in terms of manufacturing.

The other factor we're considering, Casey, and this is why I don't talk a lot about current capacity is I'm making more than I'm shipping. And I'm not doing it on purpose, right? I'm growing my distribution center here. I'm growing our capacity to get stuff in trucks, into airports and moved out of here, right? And I know a lot of people don't really fully fathom what all that entails, but it's a lot of stuff. When you start to get to the point where you have 1 billion tests a year, 1 billion of anything is a lot of action and a lot of things and a lot of trucks and a lot of IT, a lot of many, many components that enable us to do all that. And that's the awesome thing is once we get there, we will be able to compete with companies that formerly were much larger than we.

Got you. That's very helpful. If I can just sneak one more in on Savanna. It doesn't sound like any supply chain issues are affecting manufacturing of the -- that product. Just wanted to get an update sort of on your long-term goal for that product. I think at the Analyst Day last year, you said $300 million in revenue by year 3 launch. Is that still on the table here for that product? And any color on that?

We believe so. I -- having been a marketer before, I would tell you that every forecast is wrong, but some are useful. And I still think that $300 million by year 3 is achievable. We are internally ramping our forecast down a little bit for 2022 simply because of the delays that we experienced as many other companies did because of difficulty getting the chips that we needed -- that needed to go on the instrument.

We are now at the stage where we have the molds ready to go from the manufacturer of the molds for the cartridges. I think those are scheduled to ship into the U.S. here shortly. We're running a couple of things to ground, but I would say we've had some fits and starts because of supply chain but the assays themselves, the menu looks great. Performance across the board, generally, is very, very good. And I like the way this product look, and I'd like the way the customers are describing their needs and how this particular product, if we do everything that we say we're going to do, how this product will actually do in the marketplace.

I think it's very difficult to forecast the early stages of the launch, it always is. I've been surprised both ways in my career, but I still feel comfortable based on everything I know that Savanna looks like a $300 million product after year 3.

The next question is from Andrew Cooper from Raymond James & Associates.

Sorry, I was on mute, I'm here. It's bound to happen at some point, sorry about that. A lot has been asked, but maybe a topic that I feel like a lot of companies this quarter have been referencing has been labor. And certainly, as we think about ramping up some of your facilities and adding some more capabilities, whether it's sales and marketing side, the R&D side, all of that, maybe what's your sense for labor markets and whether there's any kind of pressure there to think about on costs, both now and then as we move into '22 and you continue to expand from here?

That's a fair question. Before I get there, I'll say, Andrew, I think you might be the first person that's ever left himself on mute. Just control that out there. Fair point, labor and demand for labor right now is a factor. And we've recently had to make our standard labor rate. We recently had to make that just a bit higher. And once we did, we were able to attract and retain talent more easily. And I think it's probably going to be, at the end of the day, well worth it. And in the calculations that we've done now more recently, we factored in that higher labor rates. So we're in good shape, but we did have to spend a little bit more money.

It is a competitive environment in Southern California for these types of jobs. And some of them are highly skilled, some of them are less skilled, but we have had to make an adjustment. Any time you say we're just going to hire another 400 people for the factory, guys like me don't think about it. The guys down the hall here, they'll panic. And so we've been at it then for a while. And I think we're in good shape. We'll have people we need here moving forward, yes. Look, our labor though, because of the automation, please consider -- Andrew, I know you know this already, but our labor as a percentage of our cost is quite low, it's less than 10%.

No, fair enough. Appreciate that. And then maybe just one more on the M&A front. I don't believe you've kind of put global as the first example of places you might be looking. So is that something that, as you've added this capacity, maybe has moved up the list of, hey, how else can we get out to some of these markets where we're not as big? Or has anything changed there? And how do we think about, I guess, the priority stack when you consider M&A of what spaces are attractive?

Yes. The demand from outside the U.S., according to our international team, is significant. We have served some of that, but not to the level that we had -- that we could. And I certainly think that with increased capacity, our costs are going to be lower. Our factory will be absorbed. More greatly, our overhead cost as a percentage and all in terms of [cents per test] will be well within control, and we should be able to price competitively.

Having said that, I still have an obligation to provide all the product that the federal government here in the United States has asked us for. So until we get to the end of that, I really won't be exploring too many ex U.S. opportunities, but they're still out there. And we routinely get asked. Because of the brand name, because of the quality of our product, because it's a U.S. FDA-cleared product, we are routinely asked by foreign governments to supply products, either part of the products or all the products, but the demand is actually out there. And -- but we're not going to get to it until at least the third to fourth quarter of 2026.

The next question is from Jack Meehan with Nephron Research.

I was hoping for a little bit more color, just talk about the monthly cadence of the COVID sales in the quarter. I know at the end of August, you had the press release saying you had already topped the 2Q number. And then obviously, for the quarter, it came in a lot bigger. So just would be helpful to get just how July, August, September went for Sofia and QuickVue and what you have seen so far in October.

Yes. September was a big step up. And it really had to do, of course, with increasing demand. Employees started coming on board. The CDC guidance adjusted slightly [but it's helpful]. And...

About CVS.

CVS came online. And of course, they've got a lot of stores, and we had a bit of stocking going on. And so I would say -- and then a lot of sell-through in the month of September. And as we go into October, we don't want to speak too specifically, but it's still trending. Not a percent step-up from July, of course, but we're still seeing increasing demand. And it's really related to just the improvement in manufacturing capacity for one, but then also our ability to distribute more closely what we're actually manufacturing. So our ability to get the product out the door improved also as we exited Q3.

Got it. Is there a way to say how October compared to September?

Not really, but I'm anticipating you're going to ask me, Jack, what does Q4 look like, so I'll just go ahead and say, I think to be reasonable but not over the top and give ourselves a bit of flexibility, I would say that Q4 probably will look a bit like Q3. And the reason I say that is I don't know exactly where the floor is on the professional segment. Is it at the $20 million to $25 million like it was in the second quarter? It's got to be higher than that, but I don't know how much higher than that. And so there's a little bit of fluidity here. But if I'm modeling, we're modeling something that's around what we just did in Q3.

That's helpful. And then back on Savanna, just wanted to clarify how you're thinking about the time line here in terms of FDA review, FDA approval. And maybe just any color around the breadth of the launch internationally so far would be helpful.

Well, we're just at the stages of figuring out where we're going to ship ex U.S. We've got some pretty big opportunities teed up and really, I've got customers waiting for instruments. So that's where we're at with the ex U.S. launches.

We have demand. The demand right now exceeds what we can manufacture and ship. Sounds familiar? So we'll get going there. In the meantime, we are in clinical trials in the U.S. And yes, it just depends on -- with RVP4, COVID being a component of it, will we get a reasonably quick review time? And if so, that would tell you when we can effectively launch in the U.S., which, obviously, we're going to try to launch as early in 2022 as possible.

Normally, as you know, Jack, we've said before that we -- just for modeling purposes, we call an FDA 510(k) review about a 90-day turnaround. But who knows? These 4 folks at the FDA, the reviewers are just way overworked. And so -- and they've been turning things around a lot faster than 90 days when it included COVID. So I'm giving you all the variables. I don't know.

Yes. That's helpful. And then...

We'll be interested in your best guess.

Well, I'm going to pencil in mid-2022, and we'll see how it plays out. My last question, Doug, yes, I know it's not a huge market for you, but there's been a lot of buzz around China and local purchasing and also efforts to promote local competition there. I think you have some exposure in Triage, but just curious what you're hearing on the ground related to that and how you think about Quidel's positioning, where there may or may not be exposure.

Yes. I think it's a fair question. I would say the biggest issue right now is that the Beckman BNP business is reasonably significant in China, and that will roll over. And so that is a factor. To the extent that the pro competitive situation in China is affecting us, I'm not aware on the Triage side, that we're seeing any pressure at this point in time, and we're doing a couple of things in terms of our relationships with various distributors and managing things slightly differently. So I would say, stand by, I'll have a better answer for you moving forward. But right now, I don't see a lot of movement.

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

Well, thanks, everybody, for your support and again, for your interest in Quidel. We really appreciate it. We had an excellent third quarter as you saw, it far exceeded what we thought we were going to do. And kudos to my teams, particularly the operations guys, the supply chain guys, our commercial guys for figuring out how to allocate product across so many people who wanted the product all at once. I think I couldn't be more proud of the team and what they've gotten done. And I think it portends well for us as we move forward.

We're stronger as a company across the board. We're stronger in all functional areas. We have more talent. We have better processes. We have stronger B2B relationships, particularly on the supply chain side. And as a result, also much greater brand strength. And I would say in the professional segment, we've earned customer loyalty.

And so the numbers are the numbers, but at the end of the day, we're a far stronger organization as we move into 2022, as we're launching these new products. And I don't think this company has ever been positioned better. So I'll stop there because I can keep going, I think. But again, thank you for being on the call.

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