QuidelOrtho Corporation
Q3 2014 Earnings Call Transcript

Published: 22 Oct 2014

[Operator:]

Welcome to the Quidel Corporation's third quarter 2014 earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host Mr. Randy Steward, Quidel's Chief Financial Officer. Please go ahead.

[Randall Steward:]

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 Ruben Argueta, Director of Investor Relations. 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, today, October 21, 2014. Quidel undertakes no obligation to revise or update any statements or 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 nine months ended September 30, 2014. If you have not received our news release or if you would like to be added to the company's distribution list, please call Ruben at 858-646-8023. For today's call, Doug will report on the highlights of the third quarter and provide updates on our product development pipeline. I will then briefly discuss our financial results, and then we'll open it up for your questions. I'll now hand the call over to Doug for his comments.

[Douglas Bryant:]

Thanks, Randy. Good afternoon, everyone. Thanks for joining us. We have a lot to talk about today, so let's get started. Revenues in Q3 were $40.9 million, up $7.3 million or 22% over the prior year. Generally speaking, growth in Sofia influenza and RSV, our AmpliVue and Lyra molecular products, QuickVue Strep and an increase in grant revenue were offset slightly by a decline in QuickVue influenza, due almost entirely to cannibalization to Sofia and our veterinary products. Out sales from our distribution partners to hospitals and physicians offices in the quarter were up 26% over the prior year, which suggest that distributor inventories are well-positioned with respect to Q4 demand. New product revenues in the third quarter were $9.5 million compared with $4.5 million in the same period last year. On a trailing 12-month basis, which includes a soft first quarter this year, new product revenues were $29 million compared with $15 million through September 2013. Interestingly, for the first quarter since the launch of Sofia, Sofia influenza sales were higher than sales of our visually read QuickVue influenza products, despite a low cannibalization rate, which remains at about 30%. Encouragingly, Sofia placement numbers in the quarter were robust and consistent with those we've seen in previous Q3s, driven mainly by share gain and demand for influenza and RSV. Our expectation of CLIA waiver for Sofia Strep A and hCG by yearend remains unchanged. With CLIA waiver of these two products and the introduction of others like Vitamin D in the back half of 2015, we think that the ultimate number of worldwide Sofia placements could be in the 20,000 to 30,000 range in the longer-term. Molecular sales were a modest contributor to year-over-year revenue growth, led by AmpliVue C. difficile, which has been gaining traction, helped by the introduction of AmpliVue Group A Strep, Group B Strep and HSV 1 and HSV 2. With the recent FDA clearances for Lyra Parainfluenza and Adenovirus, we believe that we will continue to gain traction with this product line; enhanced by the impact of sales of our two recently FDA-cleared de novo products HSV 1+2/VZV and Strep A CNG, as customers finish validation studies and come online. Regarding the grant revenue increase, you'll recall that in November 2012, we were awarded a milestone-based grant totaling up to $8.3 million from the Bill & Melinda Gates Foundation, to develop, manufacture, and validate a quantitative low-cost nucleic acid assay for HIV drug treatment monitoring on the integrated Savanna molecular diagnostic platform for use in limited-resource settings. More recently, in September 2014, we executed an amendment to this grant, which provided additional milestone-based funding of $12.6 million through March 2016, for the purpose of accelerating the development of the Savanna molecular diagnostic platform in the developing world. Upon execution of the amendment, we received $10.6 million in cash and recognized an additional $2.8 million in grant revenue in the third quarter. Among other activities that will accelerate the programs development, we have begun manufacturing an increased number of alpha units that will be used in assay validation studies, one of which will be shifted to Africa within the next few weeks. With respect to how the Savanna development project is going, I would say, generally, that we are pleased with where we are. As with any instrument development project, there are technical risks and issues along the way, there are technical issues that we have successfully resolved, and with each of these our confidence growth. There are, of course, technical issues that we are currently working on, and then there is the risk of a technical issue not yet uncovered. At this stage, though there is no technical issue that has the potential to be a showstopper, and overall the entire team is quite happy with its progress. Our next internal corporate goal is to assess the performance of our HIV assay on actual African HIV patient samples, which we expect to start before the end of this year. Early this year, we published a set of milestones for 2014, and from time-to-time throughout the year I have commented on our progress. Here is the latest on where we are with each of those milestones by key platform. Starting with Sofia, our goal for the year was to reach 10,000 placements and we assumed that was possible, provided we received CLIA waiver for Sofia Strep A and hCG before the end of the third quarter, which did not happen. As I suggested earlier, we are confident that we will receive CLIA waiver for both products before yearend, but clearly there will be little or no impact from these two products on our Sofia placement rate in the fourth quarter. Having said all that, for the first time since the launch of Sofia, all of our major distributors are fully engaged and our weekly Sofia placement rate is now quite high in both the physician office lab and hospital segments. Well, it's unlikely that we will surpass 10,000 before the start of Q1 2015, it's actually encouraging that we will get quite close to that benchmark with just Sofia influenza and RSV, which are much smaller opportunities in terms of the number of customers. In terms of the development of quantitative assays, Sofia Vitamin D and hCG, we are on track for the completion of the development of those products and expect to begin clinical trials with at least one of them in the first quarter of 2015. For AmpliVue, we said we aimed to have four products in market before yearend, and we do. In addition, our goal was to submit Pertussis and Trichomonas for FDA clearance before yearend. That's highly likely to happen, as we are wrapping up clinical trials in both products now. For Lyra, we suggested that we would gain FDA clearance for two de novo products HSV 1+2/VZV and Strep A and CNG, and we did. We also had a goal submitting Lyra Adenovirus and Parainfluenza 1, 2 and 3 assays to the FDA for clearance. We did and they are actually already approved as well. And finally, we said that we would begin clinical trials with Lyra Adenovirus before yearend and that's still the aim. We've discussed Savanna, but the specific milestones were three

[Randall Steward:]

Thank you, Doug. As we reported earlier today, total revenues for the third quarter 2014 were $40.9 million as compared to $33.5 million in the third quarter of 2013. We realized strong growth in infectious disease, women's health and gastrointestinal disease as well as incremental $2.8 million in grant revenue. Global infectious disease revenues, which include QuickVue, Sofia and molecular products, grew 17% to $26.3 million in the third quarter of 2014, as compared to $22.5 million last year. Influenza revenues in the quarter were $14.2 million compared to $10.7 million in the third quarter of last year. From a platform perspective, Sofia influenza revenue was up 107%, from last year's third quarter to $7.8 million; while we realized 8% decline in QuickVue influenza revenue. The influenza mix was 55% Sofia to 45% QuickVue. Strep A grew 29% versus the third quarter of last year and RSV product revenue increased by over 100%, heavily driven by our CLIA waived Sofia RSV product. Revenues for the women's health category increased by 8% in the third quarter to $8.8 million, led by double-digit growth in both our autoimmune complement and Thyretain product lines. Our pregnancy revenue was unchanged from last year. Our gastrointestinal product category revenues were $2 million in the third quarter compared to $1.4 million in the prior year, driven by increased AmpliVue C. difficile revenue. As Doug previously mentioned, in the third quarter, the company amended its grant from the Bill and Melinda Gates Foundation. The initial grant in November of 2012 was for up to $8.3 million and through September the company has realized $5 million in grant revenue. The amendment to the agreement is for up to an additional $12.6 million in funding. In the third quarter, the Gates Foundation advanced an additional $10.6 million in cash related to this grant agreement. The company realized an incremental $2.8 million in grant revenue related to this amendment, and then total $3.4 million in the quarter. Going forward, there will be approximately $13.1 million of future grant revenue to be realized based on the proportional performance method, which compares the R&D spend as a proportion of the total anticipated spend and recognizes revenue accordingly. Gross margin in the third quarter 2014 was approximately 59% compared to 54% in the third quarter of last year. The increase in gross margin was primarily due to product mix, improved absorption in our manufacturing facilities as well as increased grant revenue. The improvement in margin in the quarter was slightly offset by the unfavorable impact of higher access and obsolete inventory expense. Excluding the impact of the Alere royalty amortization that is set to expire in February of 2015, gross margin in the quarter would have increased by approximately 4 percentage points in this year and 6 percentage points in 2013. Total operating expenses were $34.2 million in the third quarter as compared to $24 million for the third quarter of last year. Research and development costs were $11.5 million, compared to $7.5 million last year. The increase in R&D was primarily due to the accelerated spend associated with the Savanna project. Adding to the R&D increase was a $300,000 R&D expense reimbursement associated with the Life Technologies collaboration agreement in the third quarter of 2013 that was not repeated in the third quarter of 2014. Sales and marketing expenses in the third quarter were $11.1 million compared to $8.7 million in the third quarter last year. This increase was mostly driven by additional investments in our sales organization as compared to last year. We have added approximately 20 additional sales personnel in the last year. General and administrative expenses were $5.9 million compared to $5.6 million for the same period last year. During the third quarter, the company determined that project Stella, or earlier known as Bobcat, the technology and associated assets were to be written off. As a result, the in-process research and development, the capitalized developed software and associated manufacturing line investment are fully impaired and the carrying value was recorded as an impairment loss. The amount of the total impairment loss recorded in the quarter is $3.6 million and is a non-cash charge. Our tax rate for the third quarter was approximately 44% as compared to 29% last year. We anticipate that our full year effective tax rate will be approximately 37%. The significant differences between the 44% in the quarter and the full year estimates are mainly the recording of one-time discrete tax items in the third quarter of this year. Net loss for the quarter was $5.8 million or $0.17 per share as compared to a net loss of $4.4 million or $0.13 per share for the third quarter of 2013. Excluding the impairment loss, the loss would have been $0.11 per share. On a non-GAAP basis, excluding the amortization of intangibles, stock-based compensation expense, and certain non-recurring items, net loss for the third quarter of 2014 was $200,000 or $0.01 per share compared to a net loss of $500,000 or $0.02 per share for the same period in 2013. As part of the non-GAAP calculation, included in operating expenses for the third quarter was stock-based compensation expense of $1.3 million, amortization of intangibles of $3.9 million, and an impairment loss of $3.6 million. Now, let's briefly talk about the nine-month financial results. Revenues for nine months were $119 million compared to $125.2 million for the nine-month period in 2013. Infectious disease revenues through September were $80.4 million versus $89.2 million last year, a decrease of 10% primarily due to a weaker flu season in the first quarter of this year as compared to last year. During the first nine months, influenza revenues decreased 15% to $36.3 million from $42.8 million last year. Strep A revenues are comparable to last year, while RSV revenues increased 29%, again, driven by our CLIA-waived Sofia RSV assay. Our cell-based product revenues declined by approximately 5%, also, impacted by the light respiratory season in the first quarter of 2014. Women's health segment was $25.6 million for the nine months compared to $25.1 million last year. Through the first three quarters of 2014, our gastrointestinal segment grew by 16% to $5.6 million, led by growth in AmpliVue C. difficile. The revenue from our other categories was $7.5 million, compared to $6.1 million last year, mostly due to the increased grant revenue associated with the Bill and Melinda Gates grant development agreement. Gross margins for the nine months was approximately 56% compared to 61% over the first nine months of 2013. This decrease was driven by product mix, mostly due to lower influenza revenues in 2014, as well as lower absorption of manufacturing costs due to lower production in the first half of the year. The Alere royalty amortization negatively impacted gross margins by approximately 5 percentage points this year and 6 percentage points in 2013. For the nine months, operating expenses, excluding the impairment loss increased to $84.7 million as compared to $71.8 million last year, excluding the facility restructuring charge. The increase in R&D of $5.8 million was primarily due to increased spend on our Savanna platform. Also contributing to the increase was a reduction in the reimbursement of R&D costs associated with the third-party collaboration agreement of $1.0 million. For the nine months sales and marketing expenses increased $6.2 million, primarily driven by our continued investment in the sales organization. Net loss for the nine months was $14.2 million or $0.41 per share, compared to a net income of $6.3 million or $0.18 per diluted share for the first nine months of last year. On a non-GAAP basis, excluding amortization of intangibles, stock compensation expense and certain nonrecurring items, net loss for the first nine months was $700,000 or $0.02 per share, compared to net income of $14 million or $0.40 per diluted share for the same period in 2013. For the first nine months of 2014, depreciation, amortization and other was $20.6 million compared to $18.5 million last year. In the third quarter operating activities provided $200,000 of cash. And purchase of property and equipment was $1.9 million in the quarter. As of the end of September, the company had no outstanding borrowings under its senior credit facility and had $23.4 million in total cash including the $6 million in restricted cash associated with the Gates grant. And with that, we conclude our formal comments for today. Operator, we are now ready to open the call for questions.

[Operator:]

(Operator Instructions) And our first question will come from the line of Bill Quirk with Piper Jaffray.

[Dave Clair:]

It's actually Dave Clair in for Bill. So first thanks for the update and the long range financial targets. I guess, first question from me would be, what you think will be necessary to hit the $100 million incremental revenue target? Is it just a matter of getting the additional CLIA waivers and some of the additional products that you mentioned approved? And then would you be willing to give us what you think the new product revenue or run rate could be exiting 2015?

[Randall Steward:]

First, Dave, I'll start with the question with regard to what would it take to get to the $100 million incremental revenue. And the short answer is it's the same story as we had before. We said that a high percentage of the Sofia revenue net of cannibalization was just those four initial products, all CLIA-waived. So obviously we need two more products CLIA-waived. And once that occurs, we believe that our experience so far with Sofia placements would tell us that we're going to be pretty well at those two products also. And so I don't see any reason, why we would be worried about the $65 million. The question is, how soon can we get there, given that we are delayed in terms of CLIA waiver. Clearly, we still believe that our molecular products are unique and interesting to customers. It's taken us a while to hire an organization that was more oriented towards direct selling effort that would be supplemented by distribution. That's a hard thing to do for a commercial organization to change the way they go to market, but we've done that. And now all the folks that we thought we needed to hire, we have. All the folks that needed to be trained have been trained. And I believe that we have the right top plan in place in order to motivate those people to sell both molecular products and Sofia. So I'm pretty comfortable that we're going to get to the incremental target that we said we would in a not so distant future. In terms of exiting this year, we do have a number obviously in our forecast, but that, Dave, we have not disclosed.

[Douglas Bryant:]

We currently don't want to give guidance on 2015, but we'll certainly continue to give you the historical run rate as we continue to report our numbers.

[Dave Clair:]

And I'm sorry guys I think I missed the gross margin target that you threw out there. Was that 54% or 64% and then the 20% EBITDA margin?

[Douglas Bryant:]

What we said is that in the near-term, even though we have had a delay in terms of the acceleration of the topline, we still believe in the near-term, we can get to 64% gross margin.

[Dave Clair:]

And then for Savanna, thanks for the update there, any color you can give us on expected launch, I guess, for o U.S. and U.S.?

[Douglas Bryant:]

There's no change, Dave. We've said that we would be initiating studies in Africa at the end of this year, and we are. We have also said that we would aim to start the WHO prequal process and CE marking next year. And with a goal of having that completed by the end of 2015, and the other date that we've turned out there is that we would hope to be in market in the developed world including U.S. in the back half of 2016, so all of those things that I just mentioned are unchanged at this stage.

[Dave Clair:]

And then just one last quick one for Randy, just given the Alere royalty expires in February 2015, how big of an uptick do you think we should be expecting gross margin next year?

[Randall Steward:]

Well, as we commented in the quarter that excluding that amortization that we would have picked up approximately 4 gross margin percentage point. So we reported 59%, so I would say, excluding that that would get you to a 63% gross margin. In the period, and full year approximately the same impact, so that gives you confidence that going into next year that, as Doug had mentioned, that we think the 64% gross margin is a realistic target.

[Operator:]

Our next question comes from the line of Brian Weinstein with William Blair.

[Brian Weinstein:]

Doug, you talked about having a lot of confidence in getting that CLIA waiver by the end of the year. You had confidence in it, hopefully getting it by the end of September, but what gives you that confidence that we are going to see it by the end of the year? And when we do see it, can you talk a little bit about how those products fit into kind of the Sofia mix, meaning current customers that have Sofia, how do you expect a significant uptick from them? Or is this also going to be a significant uptick from new customers, because I know the Strep product, in particular, doesn't always overlay with the flu. So just trying to think about how we think about that?

[Douglas Bryant:]

In terms of our confidence, the two CLIA waiver packages are under review at the moment; therefore we have ongoing dialogue with the two reviewers that are handling the packages. We have received the questions, we've responded to the questions. We know based on the series of questions, where we are in the review process. And so I would say, the things that we've been asked most recently would lead us to believe that we're coming to the end of that process. So while nothing is assured, of course, I believe that there is a reasonable likelihood that we will have CLIA waiver for those products before yearend. In terms of the mix of customers that are out there, as you know, Brian, we've said before that we have north of 20,000 QuickVue customers. And if you were to construct a Venn diagram, you would see that a pretty big chunk of those are Strep-only. Some of those are Strep, flu, RSV; that would be a smaller number. So when you think about the number of placements for Strep that would be new Sofia, it would be a significant amount. And that of course, doesn't count the visually red lateral flow of Strep customers that aren't using QuickVue. So those would be in the mix as well. So less opportunity when we launch both Strep and hCG. And of course, hCG, is completely different category, and there are number of customers that do hCG that, of course don't do flu, or RSV for that matter.

[Brian Weinstein:]

And then, Randy, one for you on R&D. Obviously, the tick-up here in the quarter is about a $1 million number. Should we think about that is based on for the next couple of quarters as you're ramping some of these projects or would that drop down? In other words, is there anything kind of special in the third quarter for R&D in particular?

[Randall Steward:]

No, I think that's a good assumption that kind of that run rate will continue for the next couple of quarters, specifically designed for the investment in the Savanna project.

[Operator:]

And our next question comes from the line of Tycho Peterson with JPMorgan.

[Jordan McKinnie:]

This is Jordan McKinnie on for Tycho. You guys talked a little bit about the inventories being more than sufficient for the fourth quarter. And I was wondering if you could kind of just speak to the inventory build in the channel as an early read for the flu season?

[Douglas Bryant:]

Inventories in the channel on a nominal basis are a little higher, but they are consistent with what you would expect from a company that just gained share. And so that's why I made the comment the way that I did, right. We had out sales of 26%, which was quite high. You would have thought, well, should that result in a decline in inventories, but relative to what we normally see, the answer is, no, we don't see that. Why? Because our distribution partners are taking on more and more inventory, because we have new customers.

[Jordan McKinnie:]

And then, also, how do you see the proposed increased FDA oversight on LVTs impacting just the industry and your competitive landscape?

[Douglas Bryant:]

Well, we don't have an opinion as a company, because for the most part we don't participate in that particular segment. We don't have an instrument, for example, on which customers would run their LVTs. So there are plenty of documents that would tell you about where the FDA is in the process with respect to those issues, but we don't really have a public comment on that particular topic.

[Operator:]

And our next question comes from the line of Bill Bonello with Craig-Hallum.

[Bill Bonello:]

A couple of questions. So when you were talking about the fact that the market in the Street is pretty well aware of the factors that might have caused the delay in the timing, in which you would hit the $100 million new product revenue target. And I would agree, you've been very vocal about that. You also then threw in a comment about, we've looked over most of the models and the analysts appear to be projecting sort of a mid-teens kind of topline growth. Can we infer from that that you kind of think those estimates pretty accurately reflect where you're at today in terms of product approvals and sales force development?

[Douglas Bryant:]

I am sorry, Bill. No, I can't, because as I said in my prepared comments, we neither provide guidance nor comment on your model. Therefore, I just observe though that on average it looks like the consensus of you all appears to be around a mid-teens growth rate.

[Bill Bonello:]

The second question is just as you think about CLIA waivers out there for your test. What's your thought on the potential competition from some of the molecular tests that are out there sort of pending CLIA waiver as well, particularly on the flu side? And do you think there is much of an appetite for that, do you see much competition to what you're doing in the Sofia for maybe just sort of pros and cons?

[Douglas Bryant:]

I would say that the CLIA waiver is certainly one issue that would be a barrier to entry, particularly in the physician office segment. But regardless of CLIA waiver, speed and economics actually matter most. And so we've always found that workflow in a physician office, in other words patient flow, were significantly important to the physician. And anything that you did to disrupt that was going to be problematic. So anything that is longer than 10 minutes is a little bit of a problem, and we know that from our own experience in the market. So test like Strep are five minutes, test like hCG are in a couple minutes, some of the Japanese flu test are now three minutes. So when you look at the way the markets going, I don't know that somebody is going to want to invest in a piece of capital equipment. And I don't know if they're going to want to take onboard the cash flow issue, regardless of what the reimbursement is. So again, regardless of CLIA waiver, I don't know that I see even with our own products. Even if I told you that Savanna we thought was CLIA waiverable, I am not sure I would tell you that to count on a lot of revenue, as a result of that not in the physician office space. Now, this CLIA waiver mean something in a hospital space, I think so, because even though a hospital lab or an emergency department can certainly handle moderately complex products. CLIA waiver is better, because it shortens the validation time, enables anybody in ED to run the product. So I think if there is an opportunity for manufactures like us, we might have either moderately complex or a CLIA-waived of flu RSV product that the hospital segment is probably the market where we're going to focus. Makes sense?

[Operator:]

Our next question comes from the line of Shaun Rodriguez with Cowen and Company.

[Shaun Rodriguez:]

So if I look at the infectious disease segment specifically on a year-over-year basis, it looks like flu provided just under $4 million of growth while non-flu was about flat. And then you noted growth in several new product areas, but that they were offset, I believe, by QuickVue, but in my model and you provided the QuickVue numbers that was down by less than $1 million year-over-year. So I am really just trying to understand what else is offsetting growth within infectious disease? Is it DFA or anything from the acquired business or anything else that you might call out?

[Douglas Bryant:]

The DHI business is relatively flat. The vet products are off quarter-over-quarter, and I think some of that is timing-related. And we're certainly not expecting that segment to grow, but it hasn't declined either. So some of that's timing. We do have some molecular growth; I said modest. It's not big. And you're correct, that most of the new products revenue is related to flu and RSV.

[Shaun Rodriguez:]

So how significant are these vet products within that franchise? That's clearly enough to impact and offset some of the growth, but is that something that could continue to act as a headwind or no?

[Randall Steward:]

No, I don't think so. I mean there is $1 million order in the quarter, it's similar to I think it was in Q1 where the order got pushed into the next quarter. I mean it's a $3 million business for us full year. So it's not significant.

[Operator:]

And our next question comes from the line of Tim Evans with Wells Fargo Securities.

[Tim Evans:]

I wanted to come back to the expense question really quickly. Both R&D and sales and marketing were higher than we had modeled, and if they continue at the same run rate in Q4, it would be higher than what you've guided to. So I just wanted to understand what is driving that higher? Is it just a pull-forward of investment based on the new grant revenue you've got or just kind of what's going on there?

[Randall Steward:]

Yes. Really as the way to look at the R&D is the fact that the incremental spend that you see in R&D has offset by the kind of the incremental grant revenue that we realized on the quarter as well. So if you take out that the incremental Gates acceleration payment, it's pretty consistent with what our guidance had been. Relating to sales and marketing, that was a little higher than what we had initially estimated more because of one-time events that occurred. So I think we're still saying that kind of on a run rate, we're looking at a $40 million annualized spend in the sales and marketing area.

[Tim Evans:]

And you said, you're expected $13 million of future grant revenue, I believe. Can you predict how that's going to pace out? Is it going to even over the next few quarters or what should we be expecting there?

[Randall Steward:]

Well, as Doug had mentioned that the agreement goes through kind of the first quarter of 2016. Well, it's predicated in the old-fashioned world that was kind of a percentage completion. But if you look at the percentage of spend and the total, and it's kind of amortized over that period, so it's predicated on the acceleration of the spend. We certainly would say that, so it's not straight lined. Our proportion probably would be more in the next three to four quarters versus the fifth and sixth quarter.

[Operator:]

And our next question comes from the line of Mark Massaro with Canaccord.

[Mark Massaro:]

Could you please comment on what percentage of your Sofia installed base has expressed interest in running a CLIA-waived Strep A or hCG assay, assuming you obtained the CLIA waivers?

[Randall Steward:]

Mark, we really haven't pulled the customers to kind to get our percentage. Certainly, there is certainly interest out there, but I couldn't tell you what a percentage would be.

[Mark Massaro:]

It's safe to say that maybe the majority of them would be likely to use Strep A, for example?

[Douglas Bryant:]

I would think that it makes sense that quite often when a physician would do a nasal swab for flu, they quite often will also test for Strep. I think that's quite common. But please understand that there are also physicians who will swab a throat for Strep who don't do flu testing. But you are right, if the customer does run flu, there is a propensity to also run Strep. And obviously with the Sofia on the bench, that makes that a very good target.

[Mark Massaro:]

And I appreciate all your color on Ebola and the development of Ebola. With respect to your comments on continuing some of Dr. Kong's work, can you maybe put that in perspective on the timing that you think you could bring a test to market?

[Douglas Bryant:]

Sure. I mentioned that it would take us about three weeks to put the probes and primers together, but frankly we got a little bit of a head start there. I think the way to think about it is that typically we could put an assay together in a couple of months. And certainly when we were asked to put an H7N9 PCR product together last year, we did it seven weeks. But then you have to think about developing pilot lots and getting ready to do full-blown manufacturing, and that actually is where there is a little bit of a time constraint. So I would think, conservatively, we could have a product that would be available at some regulatory hurdles within the six to nine months period of time.

[Operator:]

And our next question comes from the line of Zarak Khurshid with Wedbush Securities.

[Zarak Khurshid:]

So just curious, Doug, how we should be thinking about the Lyra and AmpliVue franchises, just in terms of their absolute revenue contribution and as growth drivers in the future? I guess, I'm just trying to understand, which one is more attractive and which one is likely to be most impactful going forward?

[Douglas Bryant:]

Well, we view them to be somewhat equal at the moment. They address at least at this stage quite different segments. Even though we do have a handful of very large AmpliVue customers for the most part, customers are small, and I would say, in that less than 200 bed hospital size. Whereas the Lyra customer are actually customers that fit somewhat in between the very, very large reference lab and the very, very large hospital. So when I look at the names of the customers for Lyra, they're all institutions that most of us could name. And then, so the number of customers with Lyra is quite small, but the volumes are quite high. I'll just give you an example, Zarak, we have a flu A/B customer that during a flu epidemic tends to run three to four plates per day. So that would be three times 96 per day. So it's handy to have a high-volume platform like that to run all the respiratory viruses that we now have available, because the products that today exist in the marketplace that are multiplex they run just a small number of patients at a time. So the ability to run higher volume is where we seen Lyra getting in. And while we've done some forecasting along those lines and we do see some attraction that we couldn't really evaluate, which is going to be more important in the longer term. And then, Zarak, let me just conclude that the other reason we're developing these PCR-based assays is because they fit very nicely on Savanna, and we think that that would speed up the process, when we're getting closer there. So then Lyra becomes maybe more important. Does that make sense?

[Zarak Khurshid:]

Can you give us a sense for the just absolute revenue coming off of these businesses?

[Douglas Bryant:]

Well, the only thing as we said initially that that we would see a path to get into $25 million of revenue over the period of time. And as I said earlier in the call, we're obviously behind that. We had to hire, recruit -- recruit and hire, excuse me, the other way around, and then train a commercial organization that could be capable of selling those products. I don't think the organization realized how much that was going to take, but we now know and we've got that behind us. So I still think that $25 million split evenly at this moment between the two product lines seems appropriate, as a goal for us in the medium-term.

[Operator:]

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

[Douglas Bryant:]

Thanks everyone for your support and for your interest in Quidel. We had a good quarter and I believe that we are well-positioned to close out this year and to take that momentum into 2015. Take care, everyone. Appreciate it.

[Operator:]

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