Form 10-Q for QUIDEL CORP /DE/
25-Apr-2008
Quarterly Report
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
In this quarterly report, all references to "we," "our" and "us" refer to Quidel Corporation and its subsidiaries.
Future Uncertainties and Forward-Looking Statements
This Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws that involve material risks, assumptions and uncertainties. Many possible events or factors could affect our future financial results and performance, such that our actual results and performance may differ materially. As a result, no forward-looking statement can be guaranteed. Differences in actual results and performance may arise as a result of a number of factors including, without limitation, seasonality, the timing of onset, length and severity of cold and flu seasons, uncertainty surrounding the detection of novel influenza viruses involving human specimens, adverse changes in the competitive and economic conditions in domestic and international markets, actions of our major distributors, technological changes and uncertainty with research and technology development, including any future molecular-based technology, the reimbursement system currently in place and future changes to that system, manufacturing and production delays or difficulties, adverse actions or delays in product reviews by the U.S. Food and Drug Administration (the "FDA"), intellectual property, product liability, environmental or other litigation, required patent license fee payments not currently reflected in our costs, potential inadequacy of booked reserves and possible impairment of goodwill, and lower-than-anticipated sales or market penetration of our new products. Forward-looking statements typically are identified by the use of terms such as "may," "will," "should," "might," "expect," "anticipate," "estimate," and similar words, although some forward-looking statements are expressed differently. The risks described under "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007, and elsewhere herein and in reports and registration statements that we file with the Securities and Exchange Commission (the "SEC") from time to time, should be carefully considered. You are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date of this Quarterly Report. The following should be read in conjunction with the Consolidated Financial Statements and notes thereto beginning on page 3 of this Quarterly Report. Except as required by law, we undertake no obligation to publicly release the results of any revision or update of these forward-looking statements.
Overview
We have a leadership position in the development, manufacturing and marketing of rapid diagnostic solutions at the point-of-care ("POC") in infectious diseases and reproductive and women's health. We focus on POC testing solutions specifically developed for the physician office lab and acute care markets globally. We sell our products to professionals for use in physician offices, hospitals, clinical laboratories, retail clinics and wellness screening centers. We market our products in the U.S. through a network of national and regional distributors, supported by a direct sales force. Internationally, we sell and market primarily in Japan and Europe by channeling products through distributor organizations and sales agents.
Our total revenues increased to $40.9 million for the three months ended March 31, 2008 from $33.9 million for the three months ended March 31, 2007. This growth was largely driven by increased domestic sales of our infectious disease products and included the impact of the timing of the 2007/2008 flu season. We continued to focus our efforts to strengthen market and brand leadership in infectious disease and reproductive and women's health by delivering economic and clinical proof through our Quidel Value Build™ ("QVB™") program.
We derive a significant portion of our total revenue from two product categories. For the three months ended March, 31 2008 and 2007, we derived approximately 92% and 88%, respectively, of our total revenue from sales of our infectious disease and reproductive and women's health categories. Additionally, we derive a significant portion of our total revenue from a relatively small number of distributors. Approximately 56% and 52% of our total revenue for the three months ended March 31, 2008 and 2007, respectively, were derived from sales through our four largest distributors.
Outlook
For fiscal year 2008, we anticipate continued year-over-year revenue growth in our infectious disease and reproductive and women's health product lines. We expect gross margins will continue to be positively affected by a more favorable product and geographical mix, increased unit volumes and to a lesser extent overall increased average selling prices. While we experienced significant year-over-year growth of our immunoassay fecal occult blood ("iFOB") test in 2007, we continue to expect a gradual conversion of the fecal occult blood test market from the current guaiac-based test to an immunochemical-based test. Successful conversion of this market requires changing physician behavior through education, focused in part on clinical and economic validation. Additionally, we expect our QuickVue® RSV test for the qualitative detection of respiratory syncytial virus ("RSV") to be a well-received companion test to our QuickVue® Influenza test so that physicians are well prepared to diagnose and appropriately manage patients with influenza and/or RSV. We received Clinical Laboratory Improvement Amendments of 1988 ("CLIA") waiver on our RSV test in February 2008. Internationally, we expect our previously announced global alliance with bioMérieux to increase the reach of our products to markets around the world. Consistent with recent historical periods, the Company has grown operating expenses at a rate less than our revenue growth rate, and we expect this to continue for fiscal 2008.
Results of Operations
Total Revenues and Gross Margin
Three months ended March 31, 2008 compared to three months ended March 31, 2007
The following table compares revenues and gross margin for the three months
ended March 31, 2008 and 2007 (in thousands, except percentages):
For the three months
ended March 31,
------------------------- $ increase % increase
2008 2007 (decrease) (decrease)
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Net product sales $ 40,614 $ 33,654 $ 6,960 21 %
Royalty income 251 280 (29 ) (10 )%
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Total revenues $ 40,865 $ 33,934 $ 6,931 20 %
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