Ladies and gentlemen. Thank you for standing by and welcome to the Quidel Corporation First Quarter 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.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us today’s call. With me today is our President and Chief Executive Officer, Doug Bryant; and Randy Steward, our Chief Financial Officer. Our first quarter 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 May 6 for a period of 24 hours. Please note that this conference call will include forward-looking statements within the meaning of federal securities laws. It is possible that actual results and performance could differ significantly from these stated expectations. For a discussion of risk factors, please review Quidel’s annual report on Form 10-K, registration statements and subsequent quarterly reports on Form 10-Q as filed with the SEC. Furthermore, this conference call contains time sensitive information that is accurate only as of the date of the live broadcast, May 6, 2020. Quidel undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call except as required by law. Today, Quidel released financial results for the three months ended March 31, 2020. If you have not 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 your questions. I will now hand the call over to Doug for his comments.

Thank you, Ruben, and good afternoon, everyone. First quarter 2020 feels like a really long time ago. We had a good quarter in terms of product development, manufacturing and financial performance. I will be unusually brief though as I know there will be several questions with respect to what we are doing with our SARS-CoV-2 coronavirus assays. Total revenue for Q1 was roughly $175 million driven by $80 million in influenza testing revenue which demonstrated the strength of our Sofia franchise and shows what leveraging 43,000 analyzers looks like. Favorability in respiratory disease testing was offset by a decline at the end of the quarter and patient demand for our cardiometabolic products. In terms of product development, first, the Savanna team made significant progress which gives me a great deal of confidence as we exit this year that we will have a highly competitive sample to answer molecular platforms, one that will likely begin to take significant market share in 2021. I predict that Savanna will become, within a two to three-year window, our next flagship product, perhaps equal to our Sofia franchise in importance. Second, the triage high sensitivity Troponin team prepared and submitted our pre-submission package to the FDA in advance of the dialogue we will have with them shortly in preparation for the U.S. clinical trial later this year. And finally, while several other assay programs remained on track, we began the development of three COVID-19 product offerings: the Lyra reverse transcriptase PCR for high volume, high complexity labs; the Sofia SARS antigen assay; and the Sofia serology assay. On March 17, we received emergency use authorization from the FDA for Lyra SARS-CoV-2 and began immediately solidifying our supply chain and ramping up manufacturing. Before the end of the quarter we were able to manufacture a modest volume of PCR kits, all of which were sold. Sofia assays are now in the final stages of development. We suggest a summer launch for both assays and are running slightly ahead of that timetable. In terms of manufacturing in the quarter, our operations group demonstrated the strength of our supply chain and production teams generating record levels of output when others in the industry were struggling to keep up with demand. The proven scalability of our Sofia cartridge manufacturing lines during this recent influenza epidemic pertains well for our ability to meaningfully contribute to improving U.S. public health during the COVID-19 epidemic.

Thanks Doug. Good afternoon everyone. As we reported earlier today, total revenues for the first quarter of 2020 were $174.7 million as compared to $148 million in the first quarter of 2019. This 18% increase in revenue was driven mostly by growth in flu and other respiratory products. In the first quarter of 2020, rapid immunoassay grew 54% over the prior year while molecular diagnostic solutions grew 45% and specialized diagnostic solutions grew 19%. Foreign currency impact was minimal at $500,000 in the quarter. For the cardiometabolic immunoassay business, revenue was $53.9 million, an 18% decrease in the first quarter of 2020 or a 17% decrease in constant currency. Of the $53.9 million in cardiometabolic revenue, $28.5 million was derived from the Triage business and $25.5 million from the Beckman BNP business. In the first quarter, we saw an atypical decline in all the major geographies as patients with chest pain either would not or could not visit traditional testing centers as a result of the coronavirus pandemic. We believe this quarterly trend will continue for the next couple quarters. Rapid immunoassay product revenues increased 54% to $95.9 million compared to $62.5 million in the previous year. Within this category, Sofia products grew 52% from the first quarter 2019 to $65.2 million, while QuickVue product revenues increased 61% to $29.5 million, both driven mostly by influenza. Total influenza revenue, which includes rapid immunoassay, DHI and molecular diagnostics, grew 69% in the quarter to $79.6 million. The influenza rapid immunoassay revenue was $73.8 million with approximately 76% of the revenue derived from the Sofia platform. Rapid immunoassay revenue for Strep grew 22% in the quarter and RSV revenue grew 17%. Revenue in the specialized diagnostic solutions category increased 19% in the first quarter to $16.5 million driven by a 36% increase in DHI respiratory revenue and 44% growth in our general virology segment. Our molecular diagnostic solutions category increased 45% in the quarter to $8.4 million due to a 41% revenue growth in Solana. This growth was primarily driven by the respiratory season as influenza revenue grew 120% and Strep A grew 24%. Adding to the overall molecular growth, the Lyra product category grew to $1.7 million in the quarter driven by $1 million in sales of our Lyra® SARS-CoV-2 product which is granted EUA approval by the FDA on March 17. Gross profit in the first quarter of 2020 increased $24.1 million to $115 million primarily driven by higher sales volumes, favorable products and geographic mix and higher manufacturing overhead absorption. Gross profit margin in the first quarter of 2020 improved to 65.8%. R&D expense increased by $2.4 million in the first quarter as compared to the same period in 2019. The increase is due to higher employee related costs, increased spending on clinical trials, and development of COVID-19 assays and next-generation platform development projects. Sales and marketing expense in the first quarter increased by $1.1 million as compared to the same period last year due to higher employee related costs driven by increased revenue in the quarter. G&A expenses increased by $900,000 in the quarter primarily due to greater employee related costs driven by improved financial performance in the quarter. As it relates to the provision for income taxes, we recorded $8.6 million in income tax provision in the quarter and the effective tax rate was 17.6%. From the statutory tax rate of 21%, the effective tax rate benefited from foreign derived intangible income, R&D tax credits and stock-based compensation somewhat offset by state taxes and other one-time discrete items. As of the end of March, we had $108.8 million in cash and cash equivalents. In April, we made the third annual Abbott payment and now have a $136 million principal balance remaining on the deferred and contingent consideration to be paid over the next three years. We have no outstanding debt balance on our $175 million revolving credit facility and only $13 million remaining in convertible bond debt which matures this December. In short, we have minimal debt, access to credit and good cash flow which places us in a great position to support our future initiatives. And with that, we conclude our formal comments for today. Operator, we're now ready to open the call for questions.

Certainly. [Operator Instructions] Your first question will be from the line of Alex Novak with Craig-Hallum Capital. Please go ahead.

Great. Good afternoon everyone. Doug, can you help us from a market opportunity here on the COVID Sofia test? Have you run any scenarios thinking about what COVID testing could be as a percentage of what you're doing from flu over the next several years? Because I think a lot of people out here are trying to figure out how frequently you are going to be testing for COVID in the post-COVID world. Is it just going to be a test that runs just this year or is this something that's going to be recurring for a longer time period?

It's an interesting question, and I don't have an answer for you. I really can't speculate on what will happen moving forward. I would guess that we will be doing fairly high-volume testing for some time into next year. Beyond that, will this be a seasonal virus that we see quite often? Will we test for it routinely? Will the vaccine have any impact on that? If it's a vaccine like flu, then you could guess that we'll be doing testing just like we do for flu today. If it's a vaccine that is very, very useful, then perhaps we wouldn't need to test as frequently. So it's an interesting question. I understand why you're asking it, but I don't really have a good answer for you.

Understood. And when you're speaking with distributors today about preparing for the next flu season, what are you hearing from them? Are they stocking up expecting a ton of flu testing in this next flu season to rule out COVID or are they somewhat expecting a light flu season because we're all being told to socially distance and wash our hands, etc.

We're not really hearing much from distribution in that regard. What we're preparing for is some level of volume that we saw recently, and in that regard, we're manufacturing pretty significant volumes that we'll keep an inventory in advance of that recognizing that we will likely take those same manufacturing lines and begin manufacturing both the COVID antigen product as well as the serology assays.

Okay. Got it. And just last question if I can. I think this pandemic really highlights the need for point-of-care testing for COVID but also just a range of diseases, illnesses. As you're talking with customers today, are you seeing more demand in recent weeks to place Sofia in a spot you typically wouldn't see one? I'm thinking the traditional retail clinics, the pharmacies, even the grocery chain centers. Just wanted to know if this is really going to expand the scope in the use case of point-of-care diagnostics going forward?

I think you're right. We have seen evidence of that prior to this, and this is going to accelerate it.

Okay. Understood. Thank you.

Yes. Thanks, Alex.

You have a question from the line of Brian Weinstein with William Blair. Please go ahead. Your line is open.

Hi guys, good afternoon. This is Andrew Brackmann on today. Thanks for taking the questions. Doug, maybe just start off with your commentary on the Sofia antigen and serology assays for COVID-19. Could you maybe provide a little bit more color on some of the key hurdles that are still out there for bringing these to market? Anything you can say on the timeline there? A little bit more firmer than summertime when each of these will be made available and then how should we be thinking about pricing for these tests, both the standalone SARS-CoV-2 and potentially combined flu A/B + SARS-CoV-2 assay? Thanks.

I'm pretty sure that was more than one question. I'll start with timing, we are running ahead of what we have suggested before, and I can't be more specific than that other than we are manufacturing product. We do have an intent to, as a first step, to ship about 40,000 tests into the market imminently in order to do studies that will be useful in demonstrating the performance of this product. And so that's the first step. What we intend to do moving forward is then to onboard customers in the traditional professional segment and particularly those that would help us in addressing testing for hospital healthcare providers and first responders, and so we have a number of work streams beyond that. We’ll next target pharmacies and schools and all those things before we'll get to companies that want to do testing either themselves or through third parties like occupational health companies. And then there's another category: dentists, ophthalmologists, optometrists, and finally the travel industry. So in terms of timing, I think more about timing in terms of ramping up manufacturing. We will, as I said, ship initial tranches that we will use for tests with key customers, and then we'll be building to a number that is a subset of our total capacity. In that regard, we currently have a capacity to do about 84 million tests per year for all of the Sofia assays. On top of that, we can do another 30 million QuickVue assays. We were also adding a seventh manufacturing line that will give us additional Sofia cartridge capacity of another 30 million tests and right now the manufacturing plan is to ramp to a number that is more like 50 million to 60 million tests that we would allocate for both the antigen product and the serology product. In other words, we would get to a point within several weeks moving forward from here to the capability to ship something north of a million tests a week. So in terms of timing, I'm more concerned about us ramping up so that we can address immediately what's required to do those healthcare providers and first responders, and then there's a whole series of things that we want to get to moving forward. But the most important element of all that, the biggest challenge is securing and locking down our supply chains and ramping up manufacturing. So that's where we're at. I can't be more explicit than that, I think, Andrew.

That's perfect. Thanks for all that color. Anything that you could say on pricing for these assays?

We've determined the price. We'll launch the COVID antigen assay first at a price per test that takes into consideration our increased cost of labor and raw materials for both assays and instruments. We are, of course, looking at what our opportunity cost has been because we've moved people on other projects over these projects. We'll look at the performance of the product relative to other clinical assay products that are currently in market and other factors, and then our price will become well known as soon as we start selling it.

Completely understand. But appreciate that color. And then just sort of last one for me, there seems to be a pretty large opportunity to deploy by Arena here to track COVID once you test. Any details you can provide on how we should be thinking about the business model for that capability moving forward?

Well, we've reached out to the CDC through our contacts there and may make adjustments to allow for additional data that they say needs to be collected. I think that will increase the value of that information we provide which will then provide significant value to our overall product offering which will help with placements and secure our Sofia franchise. I think it will be an added value that others are going to struggle to mimic. I know there's a lot of expectation around whether we should be charging folks for data and as a means of monetizing what we've done, and I would just say that at this time we want to do the best for public health that we can, and right now we don't have an intent to charge for data that's collected. We will provide that to the CDC, to state, county, and city public health departments as they require and we'll do that at no charge. The benefit to us from a monetary perspective would obviously be that we would hope to be a preferred supplier of these types of products, and that's how we'll recoup the investment we've made there. I do recognize that a lot of people are saying, boy, those data are valuable. Is there a way that you can monetize that? And maybe there is moving forward, but right now I just don't feel like that's the right thing for us to do.

I got you. Thank you guys.

Thanks Andrew.

Your next question will be from the line of Tycho Peterson with JP Morgan. Please go ahead.

Hey, good afternoon. Doug, can you talk a little bit about Lyra? You did a million, you still have you sold all [indiscernible] manufacturing, and you're now doing kind of 500,000 tests per week. How do you think about the trajectory of that going forward?

Yes. What an exercise that was for us. We'll admit it. The Bill of Materials on these assays was long and there's a lot of components, and we struggled at the outset to secure our supply chain. So we only made a handful of assays in March. We made, I think, 130,000 tests. The first million got sold in March and then the remainder of those kits were sold early April. We ramped to about a million and a half tests that we did in April, and we're going to be moving forward at effectively a thousand kits a day which is 480,000 tests per week. Some folks are going to say, well can you manufacture Saturday and Sunday? My answer there would be we are, but we're manufacturing our other stuff on Saturdays and Sundays. So I suppose we could make more if we had to, but 480,000 tests that we're at now is pretty solid. Early on we had trouble getting probes and primers. Our principal supplier of enzymes said they forgot our order. We had to lock down all sorts of chemicals and components of this process. The guys in Ohio that are manufacturing this product did a tremendous job for us. We're now solid at a thousand kits a day, 480,000 tests a week. As we exit June, the last week, our forecast which is put together by customer bases is this is roughly 2/3rds of our manufacturing capacity. So we think by the end of June we'll have a run rate of what we're shipping on a weekly basis that would be roughly 2/3rds of that 480,000 tests that we would have manufactured that week. So that's what we think we're going to be. I like the fact that we'll have a little bit of inventory; that was a concern of ours. We didn't want to start up customers that we couldn't supply routinely and sustainably. So that's kind of where we're at. It's been a great experience for us. A lot of people I think are surprised that we could do all this in short order, but we've got a great team in terms of scientific count but also in terms of our supply chain and our operations guys. So nice little additional business that we've added onto our overall infrastructure.

And then as we think about Sofia, I appreciate you don't want to talk explicitly about pricing, but if we think about flu pricing, is there any reason it should be materially different for the antigen test? You get about $10 to your distributors on this weekly?

It will be higher. And the volumes will be dramatically higher.

And maybe lastly, I mean I know you had a question before about how you think about the market evolving, but you've had to put manufacturers, Roche and Hologic scaling up, you've got the syndromic players. How do you think about how much of this market ends up getting centralized versus decentralized and can you talk a little bit about how you see Sofia test stacking up versus some of the syndromic panels that COVID will be added to?

This market will become extraordinarily democratized, and if you just follow the flu example, more than 90% of flu tests are done by rapid tests because they can't be done by molecular methods. And I do respect what the molecular players are doing and trying to increase their capacity, and I'm glad they're doing it, but at the end of the day the constraint on the molecular side is more in the lab than it is on the manufacturers. So I think it will be beneficial to public health that these large panther systems, not just the Panther Fusion, can run the assays, and I am appreciative of what that company is doing, but at the end of the day if we're going to be doing a million tests a day, we can't get there by molecular methods. And so it's going to be useful not only that I enter the market with the volume that we're talking about, but we need BD, we need Abbott, we need Roche, we need all of the players to be developing rapid antigen tests and rapid serology tests as well. Otherwise, we're not going to get everybody tested. I mean, meaningfully in a meaningful number that will be useful to get people back to work. So this is a huge task but it's not just on the IVD manufacturers. It's also on the people who have to run it. People have to do the swabbing, accessioning the samples and the samples to where they need to be, and there's extreme value in being able to test on the spot and not have to wait. I know for my own company that I'm thankful that we'll be able to test everybody under 15 minutes and we'll be able to tell them whether they can enter the building and stay working.

Lastly, just anything you can say on specificity or sensitivity for the serology tests? Obviously, there have been press reports about mixed quality of the tests that were brought to market earlier. I assume your quality is going to be much higher, but any numbers you can give us on performance?

Sure, let me talk about antigen first. What we've done, which is what all of the rapid antigen folks will have to do, is you'll have to look at samples that you know are positive by PCR for the patients. You'll need to run those tests, as you have the samples against your own product, and when we do that, even in that diluted format, which is not how we would do the test in the field, even at that diluted sample we are of a sensitivity that meets the hurdle required and exceeds actually noticeably what the FDA would expect. Once we actually run those samples clinically on patients in the field on dry swabs, we expect an improvement of LOD of about eight folds, and so we will see an assay with Sofia that effectively is equivalent to an isothermal methodology even though it's molecular but still short of what PCR tests are. In terms of specificity, specificity there will be quite high as we go into the market there. This is also why we're focused early on getting 40,000 tests or so out there, so we can run a lot of actual patient samples and we're going to give people confidence that this product is as good as what you see out there today. On the serology side, I have a lot of concerns about serology because even if I manufacture a product that's 99% specific and 90% sensitive, which I think most of us are going to be able to do, positive predictive value is really unknown. I don't know what the prevalence out there is. So if the prevalence is only 1%, I know how to do the math on positive predictive value, but if you take on a thousand samples with 90% sensitivity, 99% specificity, I'm dividing 9 by 19 and coming up with 47%, which is less than a coin flip, positive sample that you're going to test for. Now if we're at 10%, then the math changes, and now I'm at 91%. So the test may be put together very well and we may be able to demonstrate in our hands that we're highly specific and highly sensitive, but if the prevalence is low there's going to be a time that these tests are not going to be as useful. So I see a world where we're going to be doing both for a while. We're going to be doing antigens and we're going to be doing serology. Now there is a benefit of having serology of actually determining what the prevalence is, but it's going to be some time before we actually understand what that prevalence is. So as I look at it, I'm more concerned about what the prevalence is, not the performance of our assay and the other assays that I see out there. Now, you did refer to assays that weren't validated, and I'm not even going to comment on that. I think that was a mistake to allow assays to be imported into the United States that have not been validated, and I really don't want to speak more about that.

Understood. Thanks for the color.

[Operator Instructions] Your next question will come from the line of Andrew Cooper with Raymond James. Please go ahead.

Hey, thanks guys. A lot has already been asked, but I just kind of one piece looking maybe a little bit beyond just COVID-19 as we think about flu. Obviously, I think there was a lift as early on in the process you were looking to rule out anything that could have looked like COVID-19, and that sort of changed as things progressed. So, are your flu volumes still elevated because of the coronavirus pandemic or have those sort of started to tail off more like your typical seasonality that you might see in that?

Yes, they have tailed off, Andrew. I will say that the beginning of the second quarter though was reasonably strong. So if you take our typical second quarter and you're trying to model, you probably ratchet that up just a bit, but what it has now tailed off, and we're not seeing anything in May of significance.

Okay. That's helpful. And I guess maybe jumping into COVID kind of discussions in terms of Sofia and you talked about potentially it's an incremental demand that other avenues of care. What's your capacity from an instrument perspective if you get this test launched at the timeline you expect, and as far as the first kind of rapid antigen with any scale coming to market, what's your ability to ramp that 43,000 to something higher by whether it's end of year or just sort of how you think about that trajectory?

Yes, instruments active in the U.S. right now would be very accurate right at 36,000. We have on hand something approaching 5,000, and then we've got 1,000 being built right now. Our monthly normal manufacturing would be at about a 1,000 moving forward, but we've also added another party that's helping us out, and we hope to ramp to about 7,000 analyzers a month, beginning in September. So we firmly believe that the number of analyzers is giving all those work streams that I talked about are going to be necessary, and we're going about as fast as we can to make sure we have all those analyzers out there certainly before the fourth quarter.

Okay. Great. That's really helpful, and then maybe a little longer term as you think about sort of those dynamics, and there are players out there talking about home-based testing. I think with what you could do with Sofia 3 or Sniffles, has that changed the way you think about that product and how it could be used and deployed out in the real world? Or any thoughts around that would be of interest. Thanks.

We always decide that a combination of telehealth and what we are doing with Sniffles makes sense. This experience is just confirming that causing us to think we got to go faster here. The number of patients that are now enrolled in telehealth increased dramatically in the first quarter, and so I think moving forward it's going to be increasingly access-like to healthcare. So I love the fact that we've got the product in development. It's on schedule for year-end. We are thinking through how we partner with others to make this happen. I'm staying away from the at-home testing so much because I don't know what the tolerance will be for this particular virus in terms of how the FDA thinks about testing at home, but certainly under the care of a physician through telehealth, I think Sniffles is going to be important.

He is not in the queue any longer.

Okay. Perfect. Well, before I say thanks everyone and see you later and all that, I will mention that this has really been an interesting start of the year. We certainly have had to change direction and all that, but at the same time, we have stayed focused on the things that we've been working on, and particularly I have to say that if it weren't for the COVID discussion I would be spending a lot of time right now talking about Savannah. We are now more convinced that we're going to do well with this product. We've made significant progress over the last several months. Our thermal cycling times now are down to 10 seconds per cycle. We think that we can do a reverse transcriptase assay, our RVP, our respiratory viral panel, which more than likely will include COVID-19. We think we can do in 18 minutes tops. We're working out actually decreasing that and for DNA assays those panels, we think we can get that down to 13 minutes. So isothermal speed and footprint with Savannah but with PCR performance. We think that we're going to make significant progress with our molecular franchise once we introduce Savannah in 2021. So if it weren't for this other distraction, we would be spending a lot of time talking of that because I really do think that that's our next franchise. That's our next flagship product. So with that I'll say thanks for everyone for your support and your interest in our company. We did have a strong start to the year, and we're in really good shape to achieve our objectives over the next few years. Thanks again.

Thank you. Thank you again for joining today's conference. You may now disconnect.