QuidelOrtho Corp (QDEL) 2020 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 2020 Earnings Conference Call. (Operator Instructions)

I'd now like to turn the call over to Mr. Ruben Argueta, Quidel's Director of Investor Relations. Please go ahead, sir.

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 Randy Steward, our Chief Financial Officer. Our fiscal fourth quarter and full year 2020 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 February 18 for a period of 24 hours.

Please note that this conference call will include forward-looking statements within the meaning of federal securities laws. Forward-looking statements by their nature involve material risks, assumptions and uncertainties. In particular, our expectations and assumptions around the impact of the COVID-19 pandemic on our business; results of operations and financial condition and that of our suppliers, customers and other business partners, are uncertain and subject to change. Many possible events or factors could affect our future financial results and performance such that our actual results and performance may differ materially from those in the forward-looking statements. For a discussion of such factors, please review Quidel's most recent annual report on Form 10-K, including the section titled Risk Factors, 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, February 18, 2021. 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 and 12 months ended December 31, 2020. If you have not yet received our news 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 will now hand the call over to Doug for his comments.

Thanks, Ruben. Good afternoon, everyone, and thanks for joining us. Given the many factors that are affecting our business, I will be brief so that we can address as many of your questions as we can during the hour. You've seen the numbers for the quarter, both revenue and margin, which speak for themselves. We had a very good quarter, some might even say excellent. Here are a few comments that may provide a bit more color.

First, our Virena de-identified testing data that are collected in real time from a large and statistically significant set of the same Sofia 2 analyzers reflected what we were all hearing in the news in terms of prevalence of COVID throughout the U.S. July and August testing volumes in the professional nonreference lab and nongovernment segments were stable. Then they jumped sequentially in September and October, then peaked in November. December's testing volume was slightly higher than October, and January was slightly above September. In other words, when graphed, the Virena testing data for the period from September through January are an almost perfectly symmetrical bell-shaped curve. As a result, shipments of Sofia SARS Antigen into distribution and outsales from distribution into hospitals' urgent care centers and other professional use settings spiked in the fourth quarter and were large. We kitted and shipped every Sofia SARS Antigen on combo test that we manufactured. And importantly, we exited the year with unfilled orders.

Second, while we gained clearance from the FDA to market Solana SARS and QuickVue SARS Antigen under an EUA, which is another accomplishment, approvals for both products came later than we had expected. And revenue for those products was well under what we had forecasted internally. We manufactured and passed several million QuickVue SARS Antigen test but, given constraints on kit components, did not kit them all. And we chose to fill Sofia orders instead.

Third, at the request of many very large customers and informed by experts in the epidemiology community of the potential for a perfect storm of influenza and COVID during the traditional respiratory season and the impact on an already burdened health care system, we built and shipped millions of Sofia SARS and flu combination assays, tests that were priced higher than the Sofia SARS only tests. This resulted in increased revenue and margin for the quarter but not as much as we had initially forecasted internally. As it became clear that ILI percentages were low relative to previous years, we began to reduce the volume of combo manufactured to SARS only. For the quarter, the unit volume was approximately 37% combo and 63% SARS only.

During the fourth quarter, the R&D and regulatory teams performed extremely well. With Solana and QuickVue EUA clearances, our fifth and sixth COVID products for the year, our Quidel scientists became the most prolific COVID diagnostic assay developers in our industry. We made progress on our submissions for QuickVue SARS Antigen for both prescription use and OTC plans. We expect to submit our Sofia finger-stick point-of-care serology assay before the end of this quarter and have begun a major vaccine study in which we are tracking semiquantitative antibody responses to NS1 and S2 proteins over time from subjects that have received COVID-19 vaccines.

In addition, Sofia Q remains on track. We validated our manufacturing processes for the instrument and will move to mass production this quarter, which will enable us to deliver as many as 100,000 instruments by the end of May. Savanna, our rapid point-of-care PCR instrument, remains on track as well. In fact, we began clinical trials in the U.S. for our RVP4 assay and the instrument on Tuesday this week. And finally, we made steady progress with TriageTrue, our high sensitivity component assay, with a number of clinical sites that are ready to roll -- excuse me, ready to enroll patients increasing every week. Overall, a great quarter for the R&D teams across the organization.

During the quarter, our manufacturing and supply chain teams made great progress. Line 7 is up and running, and we can manufacture the Sofia cartridges that we had expected. The number of tests we can kit each week has lagged our ability to make cartridges and depends on the availability of each of the kit components. The variability in the number of kits shipped has narrowed, however, as we made progress in securing our supply chains. Overall, a great quarter for the operations group as well.

In summary, 2020 was a fantastic year for our company and Q4 was phenomenal. I could not be prouder of the entire organization for their resilience and for having risen to the challenge of the COVID pandemic. Quidel was built for this sort of response, but we still had to execute, and execute, we did. And now it's 2021, and we still have lots of work to do. I recognize that our investors would really like to be able to peg our performance for the year and for each quarter. As much as I would like to be helpful, I'm not sure that we can provide anything further that would be precise enough to be helpful in your modeling. But perhaps a listing of what's known and unknown might be helpful. So let's start with what we do know.

There was a testing spike tied to increased COVID prevalence that peaked in November. Orders for our Sofia SARS product were placed, and distributors reacted by stocking up. After the spike, testing in the professional segments resumed to where they were previously, concomitant to the reduction in COVID prevalence to a level of demand that we were previously struggling to fulfill. For the first time, we have modest inventory but have significant interest from what we call new markets, which include many categories like travel, entertainment, sports and dining. From our Sofia launch in May through the fourth quarter, we have been unable to begin to consider any of those opportunities. We now have a decision to make regarding whether we can support some of these new market opportunities or not, given our commitments to our current customers.

We placed a significant number of Sofia instruments in the year and continued to ship at a higher rate. Each of the Sofia professional placements is on a multiyear contract with a clawback provision. A high percentage of the new placements are new Quidel customers. Further, the new arrangements very often include influenza, Strep A and RSV, which bodes well for us in the future.

It has also been very cold across most of the country, but no influenza of significance and no recurring price lift due to sales of Sofia ABC combo. There is some inventory of Sofia SARS and flu combo product at distribution and with customers. The dating of our products is long, however, dramatically better than our competitors, which interestingly makes us a better value relative to lower-priced competitors. Very little Sofia SARS product, only about 5%, has been shipped to federal or state stockpiling programs. Therefore, our products have not really been stockpiled in a meaningful way.

And here's what we don't know. How long will this stake hold and what impact the weather is having on prevalence and demand for testing? And what orders will our distribution partners place each quarter, which is often driven by leading indicators like upticks and prevalence? How much longer will molecular companies and labs be able to rely on better sensitivity of PCR to delay the avalanche of rapid testing that the federal government is suggesting the country needs to get the economy back on track, whether the demand for COVID tests in new market segments to include OTC is as significant and sustainable as some are projecting? Or what pricing and margin will look like as the capacities of the larger manufacturers in our industry, to include ourselves, increase?

How good we are really? We will continue to execute at a high level in R&D and operations and commercially. But will we continue to maintain a leadership position in the COVID-19 testing market? Clearly, there's a lot to think about and many variables that may make Quidel's business unforecastable at any level of precision, although we will try to be helpful.

And finally, a comment about M&A. The short answer is yes. Yes, we continue to look at just about everything out there, most of which isn't a good fit for us, and we move on. But it's my hope that you would leave that to us to figure out. And in return, I promise that we will not do anything stupid. We have a fantastic company and a highly profitable business. We have cash and easy access to capital but are not compelled to acquire anything that isn't a great fit strategically. Bold claims by new competitors can be fun, and rumors can sometimes be fun, too. But sometimes, rumors can be annoying and time-consuming.

And on that very positive note, let me say again, we had a terrific year and that I think we are poised for another 2 or 3 great years in our future. Prior to 2020 into the COVID-19 pandemic, Quidel is already performing well, executing a strategy that we believed in and are firmly committed to. Our strategic intent to leverage immunoassay and molecular technologies to bring testing closer to the patient to democratize testing remains unchanged. Our ability to address the testing challenge presented by this pandemic will allow us to invest in the manufacturing capacity that we will need in the future. In effect, the COVID pandemic has given us the opportunity and the funds to accelerate and, in a way, to de-risk the execution of our strategy.

Randy?

Good afternoon, everyone. The year 2020 was of significant importance to Quidel, and we could have not realized such substantial strides without Doug's steady leadership. Thank you, Doug. And as Doug has said, I'm truly impressed at the level of passion and dedication shown by our employees, and we are making a profound difference in people's lives and livelihoods. We had a great year in the midst of a challenging time, and we believe that the company is well positioned for a strong 2021.

As reported, total revenues for the fourth quarter of 2020 were $809.2 million. This compares to $152.2 million in the fourth quarter of 2019. Foreign currency had a positive impact of $1.4 million in the quarter and had a minimal impact on the growth rate. The 432% revenue growth was due to the considerable demand for our COVID-19 diagnostic products. Total COVID-19 revenue was $678.7 million, of which $591.2 million was from our Rapid Immunoassay products and $87.6 million was from our molecular products.

Within our product categories, Rapid Immunoassay revenues increased $566.3 million to $631.3 million in the quarter of 2020, driven by demand for rapid antigen coronavirus products. Within this category, Sofia products grew $573.8 million to $620.4 million, of which $587.6 million was attributed to Sofia SARS Antigen and the Sofia combo ABC product sales. The revenue mix was 46% combo ABC test, and 54% was antigen. QuickVue product revenue were five -- $9.8 million, of which $3.6 million were for the SARS Antigen product.

In the fourth quarter, as Doug had mentioned, we did not realize the typical ramp-up of distributor purchases of Influenza, Strep and RSV as in prior years, as we intentionally prioritized our production and shipments towards the SARS antigen test. As a result, Influenza Rapid Immunoassay revenue was $28.1 million in the quarter with approximately 90% of that revenue derived from our Sofia platform. This compares to $45 million in Influenza revenue for the same period last year.

For the Cardiometabolic Immunoassay business, revenue was $70 million, a 6% increase versus the fourth quarter of 2019 and up 8% sequentially. Of the $70 million in Cardiometabolic revenue, $36.4 million were derived from the Triage business, an 8% increase from Q4 of 2019, and $33.6 million from the Beckman BNP business, a 4% increase over Q4 of last year. For Triage, growth came from all geographic areas except for China, which showed a slight decline. This trend was realized within the Beckman BNP business as well. Overall, growth in our Cardiometabolic category was broad-based, which is a very good sign for the category going forward.

Revenue in Specialized Diagnostic Solutions category decreased 20% to $11.5 million in the quarter, mostly driven by a decline in our respiratory products for our cell culture business. Molecular Diagnostic Solutions category increased $89.4 million in the quarter to $96.4 million, driven by $87.6 million in sales of our COVID-19 products. Solana COVID-19 revenue was approximately $400,000 in the quarter, less than our internal estimates due to a later-than-anticipated EUA approval for the product, which was December 23, and this certainly had an impact -- impacted the launch. We continue to see good growth for these products as more small and midsized labs look to bring molecular testing in-house.

In the quarter, total Influenza revenue, and this includes Rapid Immunoassay, DHI Respiratory and Molecular Diagnostics, decreased by 36% to $32.3 million. The decline was due to a very low prevalence of influenza in the fourth quarter as well as the introduction of our Sofia combo ABC test, which is not included in the Influenza revenue number.

Gross profit in the fourth quarter of 2020 increased $606.7 million to $701.5 million, and gross profit margin was 87%. This significant increase was a result of the introduction of high-margin coronavirus products as well as running significantly more volume through our manufacturing plants with relatively fixed overhead. We continue to invest heavily in R&D with the goal of launching additional COVID-19 diagnostic assays, advancing on our Savanna initiatives as well as introducing new Sofia assays and next generation platforms such as Sofia Q, formerly known as Project Sniffles. From a sales and marketing perspective, we will continue to invest in people and resources to include expanded customer service support as we expand our customer reach and enter new markets such as at-home testing and occupational health.

In the quarter, we retired $6.8 million in principal of our convertible notes. We have now retired all the principal outstanding amounts on our convertible notes. The only remaining debt obligations we have on our balance sheet are a small facility lease obligation and the deferred and contingent consideration, which currently has a remaining principal amount of $136 million.

As it relates to our annual provision for income taxes, we recorded $230 million in income tax expense, and the effective tax rate was 22%. State tax obligations increased our rate above the federal statutory rate of 21%. This was partially offset by the tax benefits from excess stock-based compensation. For fiscal year 2021, we are currently estimating a full effective tax rate between 22% and 23%, excluding any potential impact of legislation, which, as we know, remains uncertain. The upper end of this range is higher than previous estimates due to the increase in pretax income expected and the proportional impact of other impacting items to this increased pretax income.

Regarding our contract with the NIH, we are progressing nicely in achieving our manufacturing capacity goals. We have achieved 4 of the 7 milestones and have received $26 million of the up to $70 million contract value.

As of this week, we have cash and cash equivalents of approximately $760 million. As we mentioned previously, we have no outstanding indebtedness, except for the small lease obligation and contingent deferred consideration. In 2021, we are expecting to spend approximately $300 million in capital expenditures, the majority of which relates to plant capacity expansion.

In all, we have a very strong capital structure, access to credit and excellent cash flow, which places us in a great position to support our future initiatives as we continue to increase our R&D investment, strengthen and expand our supply chain, aggressively ramp up our manufacturing capacity and pursue strategic M&A.

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

(Operator Instructions) We have your first question from Alex Nowak from Craig-Hallum Capital Group.

Doug, I wanted to go to the bell curve right ahead here. I just want to be clear about the demand for tests today. Did you say that test demand is still at an elevated level, maybe back to the September level, and that you're still having a hard time fulfilling all these tests? Or have tests in the market started to meet demand at this point?

Well, I guess what I'm saying is that we had a spike October, November, December. When you look back at where we were before the uptick in the fourth quarter, we already had, at that point, more orders than we could fill, and I believe that will be the case moving forward. I think we do have a little bit of a disconnect right now in terms of product that's moving to distribution. But in effect, we'll have to see what happens at the end user level.

So through January, to be specific, I think it looks fine. I am seeing some softness in February so far, these first 2 weeks, which we'll look into. I don't know whether it's weather-related. It does appear, though, that in places where the weather is warmer, that the test volumes have not declined. And certainly, that would be indicative of demand. So I'm not sure if that's the case. But based on what we're seeing geographically, I'm guessing that people are not getting in their cars and going to urgent care centers to be tested when it's whatever temperature it is out there. We struggle to relate, Alex, because we live in San Diego. But I do watch The Weather Channel.

No. Understood. And you mentioned being at this crossroad regarding entering new markets. So I guess what is the -- what gives you the okay to want to move into those markets, whether it's retail or pharmacy or entertainment, travel, et cetera? Is there reaching a certain point on capacity that gives you the okay to move there? Or is it more on the end customer demand for tests in those markets?

Our primary obligation is to the professional segment. We've said that all along, and we've done a good job of keeping our shipments into those segments with the help of our distribution partners. I do feel like as we ramp up manufacturing capacity, though, we will eventually get super comfortable that we can supply everything that we're being asked to that are tied mainly at this stage to all the Sofia analyzers. So we're still placing analyzers. We're still gaining new customers, and I just want to make sure that if we start somebody up that we don't immediately put them on back orders. So -- but I do think there's hope that we can begin to address that. I've got a group of people that is focused on it, pretty large group of people focused not only on the new market segments but also looking at at-home testing through various vehicles, including retail pharmacy. But there are other couple of channels that we're looking at as well.

So I think within this first half of the year, we will feel more comfortable that we can address more of these segments. But the question's a good one because when you do the analytics, when you do the analysis on who could we potentially fit into those categories, the number adds up, on the sheet I just looked at earlier, to about 400 million folks. And then you have to apply whatever frequency of testing you want to that model, and you can get to some pretty big numbers pretty quickly. So I think the opportunity is vast. And we just want to make sure if we make a commitment, let's say, for example, to doing airport testing, that we can handle the volume reliably and sustainably. And we don't want to be in a position where we can't do what we say we're going to do.

Yes. Understood there. And then just last question, you mentioned the QuickVue OTC. And I know a lot of people are waiting for this test. I think it would be great for Quidel. But also, I think we all want this test for our homes, too. It was originally expected that the QuickVue OTC would get approval late January or early February. We're obviously beyond that. So just where do we stand with discussions with the FDA for approval of this assay? Is it still going to be OTC? Are we looking at an Rx? Just any update on the at-home component would be really helpful.

Sure. So we continue to conduct studies. And it's true, Alex, that we don't have the approval that we had hoped at this time. But we are in the middle of conducting additional studies and gathering data to support that OTC submission, especially studies in the asymptomatic population. And in that population, to be transparent, we need to find more positives. And in some areas where we've been collecting those data, because of the frequency of testing, they've been weeding out the positives. So it's harder to find positives when you go to sites that continually test frequently because unless you're able to go directly to their contacts, it's really hard sometimes to find all those positives that you need.

So we're going to continue to work on that. And obviously, that's in progress. In the meantime, we've submitted for a prescription use claim, which we had not thought we would do. But the reason that we're doing that right now, that Rx claim for at-home use, is so that we can support a number of studies that we've committed to in the short term. So under a blanket prescription, we're going to be able to conduct the studies that we had committed to. And so we're going to go ahead and do that. Our goal, though, is unchanged. And that much of the QuickVue SARS were manufacturing this quarter, however, may be sold in the point-of-care professional segment, while we work through the last details of getting to that OTC client.

So I don't have any reason to believe that we won't get there. But you are right, we are not where we wanted to be quite yet. So there will be virtually no impact in Q1 in terms of at-home testing for QuickVue SARS, other than the studies that we're supporting that we had committed to the government to do.

We have your next question from Steven Mah from Piper Sandler.

So just a follow-up to Alex's question about QuickVue OTC. We've heard of -- I know you said you're going to be conducting additional studies to support the OTC. Was that per FDA? And maybe can you talk about some of the discussions you've been having with FDA and how they've evolved over the last month or 2?

Yes. The FDA has specific requirements. There's a template that we must complete and fill and meet the requirements, and we don't have the positives in the asymptomatic population yet to support our submission. That's the primary thing that is the obstacle in front of us. So this is not the FDA being difficult. This is us finding it difficult to find the positives.

So we have had active dialogue. We were in the interactive phase. We just don't have the data yet to support that. So we're now generating additional studies, more sites, more locations in order to find those positives and these presumed asymptomatics that we're testing. Does that make sense, Steve?

Yes. That makes sense. Yes, I've just heard of a few other test manufacturers getting additional requests from FDA. So it sounds like it's just -- you're just doing a normal submission, it's -- nothing on the FDA side.

Yes. So the way the process works is you submit a pre-EUA, and then you do studies. And you enter into what we would call the interactive phase. And we go back and forth, explain this, talk about that. Can you give us data on this? And that is normal. It's not peculiar to the EUA process. This is similar to what is done in a 510(k) as well. So there's nothing new. There's nothing arduous. It's just hard work, and it's not the FDA's fault. We owe them the data.

Yes. Okay. All right. And has the delay affected your discussion with the retail partners? And I know previously, you'd said you had been talking to potential retail partners for QuickVue OTC.

It's creating discussions across a number of the channels to include the retail pharmacies, Steve. I wouldn't say that our entire OTC strategy is reliant on any one particular channel, but you're right. We've obviously had to be very open in terms of timing. And a couple of the things that we had planned from a marketing perspective, we're going to have to push back. One of the events, to be nameless, was actually an annual event, which we're going to miss. So unfortunate, but from a revenue and margin perspective, it has very little impact because that same product, we will simply shift to the point-of-care professional segment where we have demand for the product there. So -- but disappointing? Sure, I'd like to be further down the path. But I don't think it's a showstopper at this point.

Okay. Great. And my last question, so the Biden administration announced a $1.6 billion investment to support testing on Wednesday. Can you discuss any conversation you've had with them? I know it looks like you guys are lacking some of the kit reagents for Sofia, and that's causing a -- causing you not to be able to manufacture as many kitted tests. Did you think there was going to be an impact? And have you -- do you expect to receive any of that money?

That was a multipart question. Let me just start with Sofia manufacturing. We very clearly can manufacture the number of cartridges that we were expecting to at this stage. We have completed line 7. That's validated. We've demonstrated that to the satisfaction of the RADx team at the NIH. So that's all progressing very nicely. Line 8 is actually running ahead of schedule. And lines 9, 10 and 11 will come right after that. So the issue, obviously, as I think you're suggesting, isn't on the cartridges. It's on the supply chain of all the other things. And as I tried to point out in my formal comments, that we think we've done a pretty good job in the fourth quarter of shoring up some of the variability around some of those things.

So I'm not really anticipating a big lag as we move forward in terms of our ability to kit and ship the products that are needed. So there's no issue there, particularly with respect to your second part, the Biden administration's discussion on what they'd like to do with the $1.6 billion in funding. As I read, around $650 million of that would be for schools, and then they're going to go directly through what they're calling new coordination hubs. I will be very eager to understand what that means and how they would want us to participate. I would suggest to you that right now, the government conversations that I'm aware that we're having are mainly centered around the QuickVue SARS product because of the ease of use and the -- and no requirement for an instrument and other factors.

So the Sofia manufacturing capacity will probably continue to be dedicated to our professional segment here in the U.S. and potentially elsewhere. Just this morning, I read an e-mail and I learned that we had just been cleared by the Japanese Ministry of Health to ship product there. It's now cleared there. And I don't know what their volume requirements will be, but that will come out of the Sofia capacity as well. And then there's another $800-or-so million around the things that go into these kits like nitrocellulose and specific injected mold of plastics and all that sort of thing, which frankly, from our perspective, have not been an issue. So that $800 million in spend doesn't -- at least as far as I can tell, won't have any impact on anything that we do. Does that answer your question, Steve?

Yes. It did, yes.

We have your next question from Brian Weinstein from William Blair.

So just talking a little bit about expectations going forward here. You guys had said to assume kind of a flattish Q1 and talked about, I think, a doubling of revenue in '21 over '20. Is that still kind of the expectation? And I want to be clear here because I think there's some belief that a delay relative to expectations on OTC impacts your revenue outlook, and that's not how I understood it. So I just want to kind of be clear on kind of those expectations.

Yes. The delay in OTC will have no impact. And in fact, to the extent that the pricing could be different, it actually, in a funny way, would be advantageous to Q1. I just want to be clear there, that the OTC here delaying there by a quarter or 2 and actually maybe even waiting until we have much larger capacity to manufacture QuickVue is, in a funny way, helpful. It's still unforecastable, though, Brian.

And to the annual target, the annual aspiration, the annual goal, would I like to double the revenue? We sure are going to do everything that we can to make sure that, that happens. But from quarter-to-quarter right now, it is not forecastable. We have no control over prevalence and timing. We don't ship direct to most of our customers. When will the next wave for people are going and when is that going to happen? What impact will that have? When will we see another spike? Is that going to be when it's warmer? If so, how much longer are we going to see these really cold temperatures?

Epidemiologists said be wary of the perfect storm of influenza and COVID, do you remember, in the winter? And people were pleading with its customers and the government to please manufacture a combination assay. So we've built about 9 million tests and sold all of it in Q4. And we had no flu, and we have no flu now. So therefore, we're only not able to manage our business from quarter-to-quarter, as we may have done in years past. Based on interactions with experts and government officials, we think we should continue to pursue our longer-term strategy. We have a fundamental belief that more testing for COVID and other existing and emerging respiratory and other infectious disease pathogens will be needed. And so we're building manufacturing capacity. So I do understand that people would like to model, I really do. But right now, with all the variables in front of us, I think it's unforecastable.

I totally appreciate that answer. And thanks for the clarity on -- especially on your comments on how OTC would not impact revenue. But you did say earlier, just about 6 weeks ago, that you did expect a flattish Q1 to Q4. We are 2/3 of the way through, roughly 2/3 of the way through the quarter. For this quarter, does that comment still stand? Is that kind of where you want people thinking, is relatively flattish Q1 versus Q4? Or do you have any kind of additional visibility there?

Well, from a starting point, Brian, let's just talk about what we do know. There is no flu. There's very little flu, not enough to generate more orders for combo product. And that combo product, we've sold 9 million tests in the fourth quarter. It was approximately $10 higher than we charge for SARS only. So just from a starting point, right, just to go quarter-to-quarter, we're already playing catch up.

So I don't have anything further to tell you. I don't know what that means because I could have -- we could have an uptick in the quarter as well. And who knows what could happen? So I really think, Brian, it's unforecastable just as we thought we were going to see flu at some level and that people would be running the combo product. So that was in our initial model. And I guess what I'm telling you right now is, I just doubt that we're going to see flu at this point in Q1. We're halfway through February.

Yes. Understood. Second question is around this evolving use case for testing as symptomatic cases are coming down a bit for right now, at least. I'm curious about the evolution of the use case here and the seriousness at which you think that these use cases are developing. And we've heard a lot for 9 months or more about cruise lines, about airports, about travel, about entertainment. And theoretically, I completely understand and agree with those. But I'm curious kind of what you're seeing from those actual entities as they think about what they need to do in order to gain public trust, to have people come back and enjoy entertainment or get on airplanes or whatnot. Are these theoretical things that you guys are working through? Or are these representative of actual, substantive discussions that you guys are having and are trying to figure out to whether or not you could supply?

Yes. Thank you for that question. Actually, we had a conversation, as I was walking down the hall with Rob yesterday, with an official at the NIH, who was talking about what we could do to work with them to see if we can figure out how to get people back in restaurants. So these are live daily conversations we're having. I've heard some of the bold projections being passed around. Bold projections, as I said earlier, are fun. But since we're actually in market and are having conversations with real people across various new market segments who are asking us to set aside volumes for them, our definition of market size is obviously a bit lower. But it's still large for the OTC segment only.

Our customer survey research, and I'm going to actually look at it while I'm talking to you, Brian, points to an estimated potential market size of about 4.4 billion tests per year just here in the U.S., assuming current levels of infection and public concern. I know that there are people out there with larger projections than that, but we looked at adults who are both very interested in at-home COVID testing and are the main decision-maker. And of those who are both -- that are interested in at-home testing, it's about 24% of those surveyed. So about 1/4 of the people that we talked to that were adults and actually were a decision-maker in their home, 24% said they would. And we looked at it across several categories, people who would be testing themselves or their spouse or their partner or their children, their parents or others. We looked at also people who said they would test daily, a few times per week, once per week, a few times per month, once per month, once every few months or only when symptomatic to arrive at the numbers that we have.

So I do think the demand actually out there, Brian, is real based on the research that we're doing. And so we are going to increase our capacity in order to address that particular notion and segment. But we're also going to look at those other new market categories as well. So what I would say, in summary, is we think there is a legitimate category that we're calling new markets. That includes travel, entertainment, dining and other uses and also includes OTC. And I think the numbers are large, and we're engaged actively in conversations with people who formerly we told we're not ready yet. And we're now, this quarter, finally able to say, "Hey, we think we're going to be ready Q2 or Q3 or whatever." So is that essentially what you're asking?

Yes. Yes. No, that's great. So the demand side looks good longer term. And then how does pricing look is my last question there. Is -- what are you seeing on price? Obviously, [Tom] had talked a little bit about cutting price pretty significantly on his call. And I'm just curious kind of what you're seeing in the market when it comes to pricing and then how you think about pricing volatility.

You're welcome, Brian. It's a legitimate question. But to be frank, I'm really not thinking about price and price competition in the professional market segment at the moment. Our Sofia agreements are priced at one single price, regardless of volume, across the United States, and they're multiyear agreements. Further, there's no revenue or gross profit incentive for our distribution partners to erode pricing. As our manufacturing capacity expands, though, and we're able to address transactional new market opportunities, it's likely that we'll price products differently by segment or what we call class of trade.

So in certain market segments, I can already see that the price may need to be different, and we'll address those as they come along. But if we're looking at our bread and butter, our core market, we're not seeing price at this point in time. And certainly, the people that have suggested that they are lowering their price, we have not seen them have success.

We have your next question from Andrew Cooper from Raymond James.

Maybe to start just on the CapEx color. Can you give us a little bit more insight on -- obviously, you've got the capacity expansions for QuickVue, for Sofia, for the distribution facility, presumably some for Savanna as you think about that product coming to market. But is there anything else to think about or any way you can sort of help size some of those moving parts on the CapEx spend rolling through 2021?

Yes. Probably the most significant one that we've added is our new facility that we're ramping up our QuickVue manufacturing. I think we had mentioned at our JPMorgan conference, we had entered into a lease agreement for our facility in North County here in San Diego. And we've -- we're basically kind of refurbishing the facility so that by the end of this year, we'll be able to manufacture 50 million QuickVue tests a month. So that's probably half that $300 million is that investment loan. And then as we mentioned, we're doing line 7 through 11 on Sofia. Savanna, we are accelerating our automation in that. So there is incrementally a little more than what we had thought maybe 6 months ago on that investment as well.

Okay. That's helpful. And you mentioned sort of some of the conversations that -- about a month ago. So one of the things that's stuck in my head was just the comment of, "Hey, we think we can sell everything we can make every quarter," pretty bluntly stated. Has that changed at all? Do you still think you can, whether that means more international or potentially there's some timing dynamics around getting to the OTC markets or some of those sort of new markets as you describe them? Any commentary there to sort of square the circle on what you said a month ago versus where we sit now?

I still firmly believe that we can sell everything that we make. As we get to the 50 million a month, total 70 million tests per month, not counting molecular, we think that there is a home for all of that. Clearly, the demand exceeds what we're manufacturing now. And so what we're going through right now is some soul-searching around, do we try to forecast what's happening in the professional segment and see if we can take this modest inventory we're now building and push it somewhere else?

And so it's not a demand issue on our end. It's a timing and allocation, which obviously, over a few quarters, will sort itself out. But matching up demand and timing and all will be the key to moving all the product. But at the moment, at least through the first 2 or 3 quarters of this year, again, there's way more demand for our products than we can currently supply.

Okay. Great. That's helpful. And then maybe just last one on Sofia Q. What should we be looking for or how should we be thinking about it, that moving through the regulatory process and potentially -- maybe as QuickVue waits to get OTC, pushing that to some of these other use cases? Or just any color there, I'm sorry, how you compare one versus the other when we think about some of the alternative markets, if you will?

Well, that's an insightful thought because Sofia Q, while it could be applicable in retail pharmacies or at home, there are a number of locations where because of the smaller volume per site, that the Sofia Q with its lower cost would be more applicable. And Sofia Q with this low cost also enables us to expand globally in a way that we couldn't because of the cost of Sofia 2. So yes, I thank you for your question because if we've given you the impression that Sofia Q is strictly for at-home here in the U.S., that's not actually where we're thinking. We're thinking that and several other use cases.

We have your next question from Jack Meehan from Nephron Research.

Doug, maybe just one bigger picture question. I was curious to get your latest thoughts on some of the COVID variants and how you think the antigen tests, what the performance looks like for some of the variants versus what that tests have been approved for so far?

Yes. Your question is timely, Jack. I was just -- it sounds like I walk the halls here, but I just ran into our Head of R&D in the hall about an hour ago and asked him where we were on the study that we're doing. But we manufactured recombinant proteins that mirror the sequences in the nucleocapsid proteins of the variants. There -- recall, for example, in the B.1.1.7, that there were 3 mutations of the 17 that affected the nucleocapsid protein. So we manufactured these recombinant proteins that basically looked like these variants, and we tested them with both Sofia and QuickVue. And they both looked very good when testing against those proteins even at low concentrations.

And what's interesting is we also looked at 3 other companies who have similar products to ours and their performance with the recombinants. And the good news is 2 of the 3 actually look fine, and the one other appears to be less useful at lower concentration. So we'll publish that study here shortly. I mention that only to suggest that it's not a layup, and your question actually is relevant.

Good to know. So let's turn to the molecular side then. I was wondering if you could just give us some thoughts on what you're seeing in terms of Lyra demand in the first quarter. I think that kind of surprised everybody last year in terms of the initial demand. But as testing is coming down, what are you seeing there? On the flip side, with Solana, you're building off of basically a base of 0. What kind of revenue contribution do you think that could contribute?

Sure. Lyra sales right now are relatively flattish. We came out of the quarter doing pretty well. We had forecasted internally to do about $60 million for the quarter, I think we did $83-ish million, something like that. So we actually did better than we thought, and we're holding steady. I do recognize that in some situations, the big labs are seeing less demand, and I've heard at least one of my colleagues that has a molecular product out there that they're seeing lower demand. We're not actually seeing that at the moment, interestingly, nothing of significant reduction at this point.

On the Solana side, it's early. We've got a little bit of a lag because customers are competing with vaccine sites for minus 80 freezers. So -- and right now, the vaccine sites are winning. But we are slowly getting the customers the freezers that they need, in addition, of course, that these same customers will need to validate. So we have a little bit of a lag. But for the most part, we have a pretty long list of customers that are in process of starting up. We're doing about 0.5 million tests from a manufacturing perspective per month. Obviously, we're in the process of now ramping up. So it's early days. We hope to get to about 1 million tests a month here shortly.

Great. And last question, in the press release, I was very excited to see Savanna coming soon. So I was wondering if you could give us a progress update in terms of EUA submission and what the commercial strategy looks like.

Well, we just started the trials Tuesday. We'll have a limited launch in the year. We're expecting to manufacture about 1.2 million cartridges and to have about instruments -- let's see, I'm going to just add in front of me, I got a chart, Jack, about 1,000 or so instruments, in that range, maybe a little bit more than that, but mainly to do the trials and then on studies and develop use cases and hoping to have a pretty meaningful impact in 2022, cartridge manufacturing ramp-up but also instrument ramp-up throughout the year. We'll submit the EUA in pretty short order in Q2 actually. So we should be in pretty good shape.

I thought you were going to make a comment like, weren't we expecting this in 2015? And the answer was yes. So we're only slightly delayed.

I was able to contain myself. I do remember the Philadelphia AACC, and that was great. But I'm eagerly awaiting for it. So it was a while ago. Good to catch up.

We have your next question from Tycho Peterson from JPMorgan.

Understanding you're reiterating your manufacturing targets here, 240 million on Sofia, 600 million on QuickVue. Can you just talk about how much inventory you're building for the OTC launch? Or how much are you diverting away from the professional channel over the next couple of quarters ahead of the OTC launch? And then what's the latest thinking on pricing for OTC?

Yes. We're not building a lot of inventory at this time for that because -- mainly because I don't have clearance yet. We do have in mind that -- a few million tests that we would build in inventory, but it would move, Tycho, almost immediately into the channel. So we're not stockpiling anything at this stage for that launch. Rather, we're taking -- the beauty is that we're taking that same product, and we're simply moving it into the CLIA waived point-of-care space. So there's really no -- it's kind of a nice thing, actually. I don't have to hold inventory waiting for something because I can use the product elsewhere.

In terms of pricing, it's going to vary depending on how we actually move it. And you can imagine the different sorts of channels that might be deployed. We do have in mind a pricing strategy for the retail segment that has been put together in conjunction with a couple of different retail partners, and the pricing actually is not bad.

Okay. I want to revisit some of the discussion on the nonprofessional channel as well. And so far, a lot of the segments, you've referenced sports arenas and the like, require PCR tests 72 hours in advance based on what we've seen. And I think the CDC actually came out yesterday and said they're not requiring on-site testing in airports. I guess the whole PCR antigen debate still persists. Is your view that the quality of antigens is not that much of a hurdle for adoption in some of these markets that so far seemed to be asking for PCR?

I am saying, absolutely, that's the case, Tycho. I think what you're going to see is people are getting tired of the "they're more sensitive" argument. And I think you're going to see an avalanche of demand shift over to rapid. And I think the government is going to be interested in making sure that happens, but so are of the folks out there. I do respect the idea, and we manufacture a PCR test, that it has use cases that really matter and that are important. But in terms of the things that we're talking about doing, it's pretty clear that it's not useful to do PCR. And so that's my belief. I realize that you don't necessarily believe that, but that's our belief.

Last one, I guess, just as we think about durability here, with the new mutant strains and what's been a slow rollout of the vaccine, has your view of kind of the tail of the testing into the back half of this year and potentially early next year change at all, if we're kind of mixing things from the manufacturers?

No. We're dealing with, what, 7 variants now in the U.S., plus B.1.1.7, the South African and the Brazilian. We just saw our first death of an elderly person because of the Brazilian variant. I don't know whether we'll be able to stay ahead of these variants with boosters over time. I hope that's the case. But in any event, I think it's pretty clear that we're going to see a combination of either a continued and frequent antigen testing. Or we'll see a serology testing using products like the Sofia serology assay in order to continually understand whether you indeed have some titer which would be helpful in terms of neutralizing whatever variant we have.

And I do think that there's a belief, by the way, that in some of these cases that the antibodies being developed after inoculation are going to be somewhat effective against these variants. But the question is, among some of the experts, at what titer? And will it be necessary to maintain a very high titer in order to actually demonstrate that you can neutralize whatever comes your way? And so therefore, I believe that semiquantitative screening could be helpful as well. So I think we're positioned, whether it stays antigen or is it gold serology, semiquantitative, I think we're in pretty good shape either way.

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

Yes. Thanks, operator. Thanks, everyone, for your support and for your interest in Quidel. We had an excellent fourth quarter and a great year. And we're well positioned for success, I believe, over the next few years. Thanks very much.

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