Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation Fourth Quarter and Full Year 2020 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. 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 three 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’ll 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 deidentified testing data that is 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 the prevalence of COVID throughout the U.S. July and August testing volumes in the professional, non-reference lab, non-government 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 shows an almost perfectly symmetrical bell-shaped curve. As a result, shipments of Sofia SARS Antigen into distribution and out-sales 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 and 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 pouched several million QuickVue SARS Antigen tests 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 healthcare 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 the 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 claims. 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 semi-quantitative antibody responses to N, S1 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 of this week. And finally, we made steady progress with Triage True, our High Sensitivity Troponin assay, with the number of clinical sites that are 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 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 continue to ship at a high rate. Each of the Sofia professional placements is on a multi-year contract with a claw-back provision. A high percentage of the new placements are new Quidel customers; further, the new agreements 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 price 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 it stay cold, 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 in 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 while we continue to maintain a leadership position in the COVID-19 testing market? Clearly, there is 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 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 add that I think we are poised for another two or three great years in our future. Prior to 2020, and to the COVID-19 pandemic, Quidel was 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.

Good afternoon, everyone. The year 2020 was of significant importance to Quidel, and we could not have realized such substantial strides without Doug’s steady leadership. And as Doug has said, I am 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 Sofia Combo ABC product sales. The revenue mix was 46% Combo ABC test and 54% was antigen. QuickVue product revenues were $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 toward the SARS antigen tests. 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 with 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 on the launch. We continue to see good growth for these products, as more small and mid-sized labs look to bring molecular testing in-house. In the quarter, total Influenza revenue, including 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%. The 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 the 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 year effective tax rate between 22% and 23%, excluding any potential impact of legislation, which remains uncertain. The upper end of this range is higher than previous estimates due to the increase in pre-tax income expected and the proportional impact of other rate impacting items to this increased pre-tax income. Regarding our contract with the NIH, we are progressing nicely in achieving our manufacturing capacity goals. We have achieved four of the seven 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 the contingent and 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 are now ready to open the call for questions.

Thank you, sir. [Operator Instructions] We have your first question from Alex Nowak from Craig-Hallum Capital Group. Your line is open.

Great, good afternoon, everyone. 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 I’m saying is that we had a spike in 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 two weeks, which I will look into; I don’t know whether it's weather related. It appears 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 based on what we’re seeing geographically, but I’m guessing that people are not getting in their cars and going to urgent care centers to be tested when it’s very cold. We struggled to relate, Alex, because we live in San Diego, but I do watch the weather channel.

I understood. And you mentioned being at this crossroads regarding entering new markets. So I guess, what is the criteria? What gives you the okay to want to move into those markets, whether it’s retail or pharmacy or entertainment and travel, etc? Is there a specific 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, when we start somebody up that we don’t immediately put them on backorders. 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 a pretty large group of people focused not only on the new market segments but also looking at home testing through various vehicles, including retail pharmacy among other 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 the segments. But the question is a good one, because when you do the analytics on who could potentially fit into those categories, the number adds up on the sheet I just looked at earlier to about 400 million folks. 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, I 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’d 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, 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 a prescription? Any update on the at-home component would be really helpful. Thank you.

Sure. So we continue to conduct studies on 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. To be transparent, we need to find more positives. In some areas we’ve been collecting data because of the frequency of testing, they’ve been weeding out the positive. 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 prescription 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. Our goal though is unchanged. Much of the QuickVue SARS, we’re manufacturing this quarter; however, it may be sold in the point-of-care professional segment, while we work through the last details of getting to that OTC claim. 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 are supporting that we have committed to the government to do.

Okay. Understood. Thank you.

Sure. Thank you.

We have your next question from Steven Mah from Piper Sandler. Your line is open.

Great. Thanks. Thanks for taking the questions. 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 the FDA and how they’ve evolved over the last month or two?

Yes. The FDA has specific requirements. There’s a template that we must complete 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. We have had active dialogue. We were in the interactive phase. We just don’t have the data yet that supports that. So we’re now generating additional studies in more sites, more locations in order to find those positives in the presumed asymptomatic population 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 the FDA. So it sounds like it’s just, you’re just doing a normal submission, it’s not nothing on the FDA side.

Yes. So the way the process works is you submit a pre-EUA, then you do studies and 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 happens in 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.

Okay. All right. Thanks for the clarification. And has the delay affected your discussions with the retail partners? And I know previously you’d said you’d been talking to potential retail partners for a QuickVue OTC.

It’s creating discussions across a number of the channels to increase – to include the retail pharmacy, 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 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. 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. Thanks. 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 you not to be able to manufacture as many kitted tests. Did you think there’s going to be an impact and have you – do you expect to receive any of that money?

That was a multi-part question. Let me just start with Sofia manufacturing. We can manufacture the number of cartridges that we expected to at this stage. We have completed line seven; it’s validated. We demonstrated that to the satisfaction of the RADx team at the NIH. So that’s all progressing very nicely. Line eight is actually running ahead of schedule. And lines 9, 10, and 11 will come right after that. So the issue, 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, 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 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 issues there, particularly with respect to your second part, that Biden administration 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 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 we’re having are mainly centered around that QuickVue SARS product, because of the ease of use 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 email. I learned that we had just been cleared by the Japanese Ministry of Health to ship product there. It’s now clear 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 million or so around the things that go into these kits like nitrocellulose and specific injected molded plastics and all that sort of thing, which frankly from our perspective has not been an issue. So that $800 million in spend that’s 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. Thank you.

We have your next question from Brian Weinstein from William Blair. Your line is open.

Hi, guys. Good afternoon. Thanks for taking the questions.

Hi, Brian.

So let’s 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 2021 over 2020. Is that still kind of the expectations? And I want to be clear here, because I think there’s some belief that a delay, well, it’s just expectations. I know OTC impacts your revenue outlook, and that’s not how I understood. So I just want to kind of be clear on those expectations.

Yes. The delay in OTC will have no impact. 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 you to be clear there. That OTC here delaying their by a quarter or two and actually maybe even waiting until we have much larger capacity to manufacture QuickVue, it’s in a funny way, helpful. It’s still unforecastable though, Brian, and to the annual target, the annual aspiration goal, what 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 had no control over prevalence and timing. We don’t ship direct to most of our customers. When will the next wave, wave four people are calling, and when is that going to happen? When 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 this really cold temperature? Epidemiologists said be wary of the perfect storm of flu on top of 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 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 really 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, and I really do. But right now with all the variables in front of us, I think it’s unforecastable.

I totally appreciate that answer. Thanks for the clarity on – especially on – the comments on how OTC would not impact revenue. But you did say, your earlier just about six weeks ago that you did expect a flattish Q1 to Q4. We were two-thirds of the way through – roughly two-thirds of the way through the quarter. So this quarter, does that comment still stand? Is that kind of where you want people thinking is relatively flattish you want versus 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 now. There is no flu. So there’s very little flu. Not enough to generate more orders for combo product and that combo product, we sold 9 million tests in the fourth quarter. That’s approximately $10 higher than we charged for SARS only. So just from a starting point, right, just to go quarter-to-quarter, we’re already playing catch up.

Understood.

So I don’t have anything further to tell you, I don’t know what that means, because I could have – we can have an uptake in the quarter as well. And who knows what could happen. So I really think, Brian, some forecastable just as we thought we were going to see flu at some level. And people who 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 the medications 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. We’ve heard a lot for nine 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 whether or not you can supply.

Yes. Thank you for that question, actually. We had a conversation as I was walking down the hall with Rob yesterday with officials at the NIH, who were 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 end market and 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 based on our customer survey research. 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 look at adults who are both very interested in at-home COVID testing and are the main decision-maker. And those who are both that are interested in at-home testing it’s about 24% of those surveyed. So about a quarter of the people that we talked to that were adult and actually were a decision-maker in their home said they would. We looked across several categories, people who would be testing themselves or their spouse, 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, 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 will also 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. What are you seeing out of price obviously kind of talked a little bit about cutting price pretty significantly on this call. I’m just curious kind of what you are seeing in the market in terms of pricing. And then how you think about pricing volumes here. Thanks for taking all the questions, guys.

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 multi-year agreements. Further, there’s no revenue or gross profit incentive for our distribution partners to lower 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 a class of trade. So in certain market segments, I can already see that the price may need to be different. 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 who have suggested that they are lowering their price, we have not seen them achieve success.

We have your next question from Andrew Cooper from Raymond James. Your line is open.

Hey guys, thanks for the questions. Maybe to start just on the CapEx color, can you give us a little bit more insight on obviously you got their capacity extensions for QuickVue, for Sofia, for the distribution facility, presumably some for Savanna as you think about that product coming to market? And is there anything else to think about or any way you can sort of help size some of those moving parts on the CapEx then rolling through 2021?

Yes, probably the most significant one that we’ve added is a new facility that we’re ramping up our QuickVue manufacturing. I think we had mentioned on our JP Morgan Conference, we had entered into a lease agreement for our facility in North County here in San Diego. 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 was that investment loan. As you mentioned, what you’re doing line seven through eleven on Sofia, Savanna, we are accelerating our automation and that so there is incrementally a little more than what we had thought maybe six months ago on that investment as well.

Okay. That’s helpful. And you mentioned sort of some of the conversation that about a month ago. So one of the things stuck in my head was just the comment of, hey, we think we can sell everything we can make every quarter pretty monthly stated, has that changed at all? Do you still face 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, or any timings 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 a 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 at all will be the key to moving all the product. But at the moment, at least through the first, two or three quarters of this year, again there’s way more demand for our products than we can currently supply.

Okay, great. That’s helpful. And maybe just last one on Sofia Q, what should we be looking for or how can we be thinking about it is that moving through the regulatory process and potentially maybe a QuickVue waste the data 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 as well?

Well, that’s an insightful thought, because Sofia Q, while it could be applicable for retail pharmacies or at-home, there are a number of locations where due to the smaller volume per site that the Sofia Q of its lower costs would be more applicable. 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 what we’re thinking or, thinking that and several other use cases.

Okay. That’s helpful. Appreciate the question.

Thank you.

We have your next question from Jack Meehan from Nephron Research. Your line is open.

Thank you. Good afternoon. Doug, maybe just one bigger picture question 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 the tests have been approved for so far.

Yes, your question is timely, Jack. I was just – it sounds like I walked 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 B117 that there were three mutations of the 17 that affected the nucleocapsid protein. So we manufactured these recombinant proteins that basically look 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 three other companies who have similar products to ours, and their performance with the recombinants. The good news is two of the three actually looked fine. And the one other appears to be less useful at lower concentrations. We’ll publish that study here shortly. I mentioned 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 zero, 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 million, something like that. So we actually did better than we thought and are holding steady. I do recognize that in some situations, the big labs are seeing less demand. I’ve heard at least one of my colleagues that as 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 got a little bit of a lag, because customers weren’t – are competing with vaccine sites for a minus 80 freezer. Right now, the vaccine sites are winning. But we are slowly getting the customers the freezers that they need. In addition, of course, 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 a half a 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 a 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 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 the manufacturer about 1.2 million cartridges and to have about instruments, let’s see, I’m going to just add this in front of me. I got to charge that 30,000 or so instruments in that range, maybe a little bit more than that, but mainly to do the trials and then run 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 where are 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 waiting for it.

Sorry.

We have your next question from Tycho Peterson from J.P. Morgan. Your line is open.

Hey, thanks for fitting me in. And 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? So 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, that a few million tests that we would build in inventory, but it would move a cycle 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 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 the 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 non-professional channel as well. I mean so far a lot of the segments you’ve referenced sports arenas and the like, required PCR test 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 onsite testing in airports. I guess the whole PCR antigen debate still persists, is your view that the quality of the antigens is not that much of a hurdle for adoption in some of these markets that so far seem to be asking for PCR.

I am saying absolutely that’s the case I talk about. I think what you’re going to see is people are getting tired of the 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 the folks out here. I do respect the idea and we manufacture a PCR test that 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 realized 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 on the vaccine, has your view of kind of the tail of the testing and in the back half of this year, potentially early next year change at all, if we’re kind of mixed things from the manufacturers.

No. What are we dealing with? What, seven variants now in the U.S. plus the 117, the South African, the Brazilian, we just saw our first steps and an elderly person because of the Brazilian variant. I don’t know whether we’ll be able to stay ahead of the 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 will see the serology testing using products like the Sofia Serology assay in order to continually understand whether you indeed have some tighter, which would be helpful in terms of neutralizing whatever variant we have. I do think that there’s a belief by the way that in some of these cases that the antibodies being developed after inoculation may be somewhat effective against these variants. But the question is among some of the experts at what titer, and will it be necessary to map to maintain a very high titer in order to demonstrate that you can neutralize whatever comes your way. And so therefore I believe that semi-quantitative screening could be helpful as well. I think we’re positioned whether it stays antigen or will be serology / semi-quantitative, I think we’re in pretty good shape.

Okay, thanks.

Thank you, Tycho.

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.

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