QuidelOrtho Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation fourth quarter and fourth year 2020 earnings conference call. At this time, all participants are in the listen-only mode. Later, instructions will be given for the question and answer session. If anyone should have difficulty hearing the conference, please press star zero for operator assistance. 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 Stewart, 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 18th 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 us all. Today, Quidel released financial results for the three and 12 months ended December 31st, 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. Our Virena de-identified testing data that are collected in real time from a large and statistically significant set of the same SOFIA II analyzers reflected what we were all hearing in the news in terms of 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 are an almost perfectly symmetrical bell-shaped curve. As a result, shipments of SOFIASAR's antigen into distribution and outsales 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 Sophia SARS antigen on combo tests 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 QuickView 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 quick-use 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 then formed 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 Sophia SARS and flu combination assays, tests that were priced higher than the Sophia 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 commo 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 Solana and QuickFu 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 quick-fuse SARS antigen for both prescription use and OTC clients. We expect to submit our Sophia 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, Sophia Q remains on track. We validated our manufacturing processes for the instrument and we'll move to mass production this quarter, which will enable us to deliver as many as 100,000 instruments by the end of May. Savannah, 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 a 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 so few 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. Quartel 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 do know. There was a testing spike tied to increase COVID prevalence that peaked in November. Orders for our Sophia 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 Sophia 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 a year and continue to ship at a higher rate. Each of the SOFIA professional placements is on a multi-year contract with a clawback provision. A high percentage of the new placements are new Quidel customers. Further, the new arrangements 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 left due to sales of Sophia ABC Combo. There is some inventory of Sophia 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-priced competitors. Very little SofiaSARS 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 will we continue to maintain a leadership position in the COVID-19 testing market? Clearly, there's 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 a 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 the execution of our strategy. Randy?