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Quidel Corporation (



Q4 2010 Earnings Call

February 24, 2011 5:00 PM ET


John Radak – CFO

Douglas Bryant – President and CEO


Ashim Anand – Natixis

Jeff Frelick – Canaccord

Ross Taylor – C.L. King

Steven Crowley – Craig Hallum

Scott Gleason – Stephens

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Pete Vitali – William Blair & Company

Daniel Owczarski – Avondale Partners



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Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation Fourth Quarter and Full Year 2010 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, instructions will be given for the question-and-answer session. (Operator instructions)

I would now like to turn the call over to Mr. John Radak. Please go ahead.

John Radak

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

Today Quidel released financial results for its three months ended December 31, 2010 as well as for the full year. If you have not received this news release or if you would like to be added to the company’s distribution list, please call Ruben Argueta at Quidel Corporation at 858-646-8023.

Please note that this conference call will include forward-looking statements within the meaning of federal securities laws. It is possible that actual results and performance could differ materially from these stated expectations. For a discussion of risk factors, please review Quidel’s Annual Report on Form 10-K, 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 24, 2011. 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.

For today’s call, I will report on the financial results for the quarter and year-to-date and speak to our financing activities. Doug will talk about our accomplishments in 2010, our near term growth drivers and things to watch for in 2011. We will then open the call to your questions.

Total global revenues for the fourth quarter were $31.7 million compared to $66.6 million in the fourth quarter of 2009. The prior year period was abnormally high due to 2009 flu pandemic. DHI contributed $10.5 million of revenue in the quarter, partially offsetting the revenue decline.

In the following comments on revenues, I will compare our business on a pro forma basis, as if DHI had been acquired at the start of 2009. Global sales of infectious disease products totaled $21.4 million in the fourth quarter of 2010 compared to sales of $69.2 million in the fourth quarter of the prior year. As previously stated, 2009 was a pandemic year and there was a no Influenza in 2010 until week 51. What little flu activity we saw in December was absorbed for the most part by existing distributor inventories which at year-end were the lowest in recent history. Consist with the approach that we implemented in 2009, we did not incent distributable partners to take on-board inventory in advance of flu demand. Consequently global flu sales in the fourth quarter of 2010 remained modest.

Gross margin in the fourth quarter of 2010 decreased 56% as compared to 71% in the fourth quarter of the prior year, primarily due to a less favorable product mix. Operating expenses were $18.5 million in 2010 compared to $15.8 million in the prior year. The expenses in 2010 include $5.1 million of DHI’s operating expenses in the current period, which includes $1.6 million of intangible asset amortization associated with the DHI acquisition.

Research and development costs were $5.8 million, which were slightly lower than the third quarter because of a reduction in spend with the outside contractors on the next generation lateral-flow and (inaudible) programs in the fourth quarter. We expect to see higher research and development costs in Q1 and Q2 of 2011 as a number of new products enter clinical trials which Doug will comment on. Stock based compensation expense was $1.3 million in the fourth quarter versus $2 million for the same period in 2009.

Summarizing the financial results for the full year of 2010. Total revenues declined to $113.3 million from $164.3 million in 2009. Revenues for the year were affected primarily by two factors. First, the absence of a respiratory season in 2010 versus a pandemic situation in 2009 and second the acquisition of DHI in February of 2010. Gross margin for the year declined to 54% in 2010 compared to gross margin of 66% in 2009. Our margins were affected by less favorable product mix due to our higher margin Influenza products making up a lower percentage of total revenues versus the prior year. Operating expenses for the full year 2010 were $76 million compared to $56.5 million in 2009. The increase in operating expenses was driven primarily by operating expenses associated with the DHI business and our initiatives to reinvigorate our new product development pipeline, including our efforts to develop a molecular diagnostic franchise.

Stock based compensation expense was $5.2 million for 2010 versus $4.5 million for the full year in 2009. The tax rate benefit in the fourth quarter of 2010 was favorably affected by the extension of the federal research credit. The full year effective tax rate for 2010 was 35.3% compared to 36.9% for 2009. We anticipate our tax rate for 2011 to be approximately 37%.

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