This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk05: Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation first quarter 2022 earnings conference call. At this time, all participants are in a snowy mode. Later, instructions will be given for the question and answer session. If anyone has 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 Senior Director of Investor Relations. Please go ahead.
spk12: 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 our chief financial officer, Randy Stewart. Our fiscal first quarter 2022 earnings release is now available on ir.quidel.com, our investor relations website. We will also post our prepared remarks on the presentations tab of our IR website following the conclusion of this call on May 4th, 2022, for a period of 24 hours. Please note that some of the information we provide during today's conference call will include forward-looking statements, including but not limited to the types of statements identified as forward-looking in our quarterly report on Form 10-Q that we will file later today, which will be available on our IR website. Actual results may differ materially from those projected in any forward-looking statement. For a further description of the risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements, as well as risks related to our business and the proposed business combination with ortho clinical diagnostics, please see our annual report on Form 10-K and subsequent periodic reports and registration statements filed with the SEC. Furthermore, this conference call contains time-sensitive information that is accurate only as of today. Except as required by law, We undertake no obligation to update these forward-looking statements or time-sensitive information which speak only as of today. Today, Quidel released financial results for the three months ended March 31, 2022. If you have not received our earnings 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. and we'll open the call to take your questions. I'll now hand the call over to Doug for his comments.
spk00: Thanks, Reuben, and welcome, everyone. We really appreciate your time and interest in Quidel. We had an extraordinary start of the year. The first quarter was historic. We achieved record revenue on the top line, record profitability that flowed through to the bottom line, and record cash on the balance sheet. our first quarter truly demonstrates the earnings power of the business as we build on the significant investments we've made and execute against our growth roadmap our diverse suite of assays increasing brand strength and growing installed base of sophia analyzers continue to propel our market expansion and broaden our post pandemic opportunities our new product pipeline including our revolutionary Savannah platform that we expect to launch in the U.S. later this year, further adds to Ford momentum and runway. And yes, once again, the entire Quidel team performed very well. From product development in our R&D organization to the responsiveness of our manufacturing and operations teams to our commercial channel, we fired on all cylinders, Sark. First quarter results put us in a strong financial position, creating additional flexibility to strengthen our balance sheet while we continue to drive our R&D investment to further develop and broaden our portfolio. Let's take a look at some specifics. Revenue for the first quarter of 2022 reached just over $1 billion. That's a pretty extraordinary 167% increase. over the prior year period. It was driven primarily by strong performance in our rapid immunoassay product portfolio. Total rapid immunoassay revenue increased by $655 million in the first quarter, 22 to $893 million. We saw significant sales of quick view at home OTC COVID-19 tests. And while COVID-19 testing made up the bulk of this heightened demand, it's noteworthy that non-COVID sales grew 56%. We're almost double that if you exclude the Beckman B&P business, as we saw increased sales of Sophia ABC combination, tests for influenza and SARS, as well as increased demand for Sophia influenza tests. Although we haven't seen a typical flu season, flu continues to linger. Interestingly, ILI right now is at 2.1% of visits, and while we are seeing increasing seasonal influenza activity in a few states, this highlights the importance of diagnostic testing and the significance of having a differentiated menu, which is part of our post-pandemic strategy to widen our point of care footprint and introduce our full portfolio of assays to both patients and healthcare providers. Relative to COVID-19, we're seeing softening demand and we expect this trend to continue as we head into the summer months. In fact, we started to see this in the first quarter as test demand shifted significantly from retail outlets to the federal government and to a lesser extent to the professional segment. This shift allowed us to focus on delivering more tests to the U.S. more tests to the U.S. government than we originally anticipated. And in the first quarter, we shipped approximately 70 million quick QFM OTC COVID-19 tests to the federal government. We will ship the remaining 35 million tests to the government in Q2 to fulfill 108 million test commitments. And as you can appreciate, we remain in close conversation with the federal government and related government agencies to determine the government support strategies going forward. We are in discussions with the government to supply an incremental number of tests in Q2, Q3, and we'll update you on any order that is placed from those discussions. Our longer term expectation is that COVID-19 tests and infections and related testing demand will continue to wane as COVID-19 becomes more seasonal, similar to food demand. We currently are not forecasting a significant revenue contribution from our COVID-19 products in the back half of the year. The prospect of endemic SARS seasons amplifies the long-term benefits of the brand awareness we have generated in the strategic partnerships we have built with retail and distribution powerhouses. These trusted relationships provide us with access to point of care and over-the-counter channels for both COVID and non-COVID product lines going forward, which is exciting. Consistent with the anticipated shift in COVID-19 testing demand, we continue to bolster our resilience in the post-pandemic future by accelerating assay development and production and further expanding our footprint at the point of care. Given our pipeline, we have high confidence in our ability to capture evolving healthcare trends that will drive both future growth and profitability. These opportunities include a number of products we've discussed on previous calls, such as QuickView and our Sophia Q device, new Sophia assays, as well as new products. in our cardiometabolic and gastrointestinal segments. But foremost among our upcoming product launches is our flagship Savannah molecular platform. As you know, we already have CE approval for markets outside of the U.S., but our main focus is on getting the necessary approvals to launch Savannah in the U.S. later this year. We plan to submit our Savannah EUA for RVP4 next week, and submit our 510 in July with two more 510 panel submissions set for year end and three more submissions by the end of Q1 2023. Meanwhile, our teams are hard at work scaling Savannah instrument production and transitioning to fully automated manufacturing. Experienced as we are over the last couple of years, we've learned a lot about hyperscaling production and managing complex supply chains. And you can rest assured we're leveraging the lessons we've learned and expanding COVID-19 testing capacity to our other products. Once online in the fall, our Savannah cartridge automated manufacturing line is expected to begin its ramp up and outfit to over 1 million cartridges per month with 300 million annual revenues and anticipated within three years of US launch. Of course, we're also immensely excited by the opportunities presented by our planned acquisition of Ortho Clinical Diagnostics. As I've said before, this acquisition will more than double our market opportunity to over $50 billion among the point of care clinical laboratory and transfusion medicine segments. We're thrilled by the potential catalysts we see in a combined business. Our teams are working well together, planning for the integration and the highly complementary nature of Quidel's and Ortho's portfolios is expected to create ample cross-selling opportunities across a deep and diverse matrix of customers and channels to significantly accelerate market penetration worldwide after closing. We believe it is a truly compelling formula that can position the combined business for long-term growth and a lasting global impact in delivering advanced diagnostics that improve human health. Integration planning is going well. We've formed 15 cross-functional teams, defined 87 projects, plus defined day one, day 30, and longer timeline objectives that day one must have, either on track or completed. Operationally, no risks have been identified that would create significant disruption on day one through day 30. Of course, there's a lot of work still to be done and challenges are being identified, but no critical path items are delayed. Overall, we are very pleased with the cadence and progress that we've made thus far and are excited about getting to day one. We are bullish on the acquisition and look forward to harvesting the expected $90 million in cost synergies by end of the year three and $100 million in revenue synergies by 2025. We expect investors have recognized the value that can be created by bringing the companies together and will vote to approve the deal. Here's a quick snapshot of the process to closing. On April 11, we began mailing our joint proxy statement. On May 16, There will be stockholder meetings for each of Quidel and Ortho to vote on the business combination. On May 26, we've scheduled the UK court hearing, and on May 27, we anticipate the successful close of the transaction subject to receipt of the stockholder vote, the UK order, and satisfaction of other customary closing conditions. In closing, I'm incredibly proud of our employees and their commitment to making a positive impact in our fight against COVID and more than pleased to see them now find that same focus and commitment to their work addressing a post-pandemic world. And it goes without saying that I'm exceedingly encouraged by our performance in the first quarter. It's clearly one for the record books. and we have a long, exciting roadmap for our continued growth and success as we advance diagnostics to improve human health. It's our mission, and we're happy in the knowledge that we're making a difference. Randy?
spk11: Thank you, Doug, and good afternoon, everyone. I'd also like to thank all of our employees who demonstrated Quidel's strength of spirit, perseverance, and dedication to deliver such outstanding results. Due to their tireless efforts, we again achieved another record quarter for revenue, eclipsing our previous high-water mark of $809 million set in Q4 of 2020. During my tenure here, I've seen Quidel grow substantially, and Quidel's incredible culture has been the driving force behind such explosive growth and our sustained excellence. I'm very proud to be a part of what we have achieved here at Quidel. As Doug mentioned, total revenues for the first quarter of 2022 were $1.2 billion, compared to $375.3 million in the first quarter of 2021, achieving growth of 167%. This growth is primarily due to increased rapid immunoassay product revenue, which was driven by the continued fulfillment of the U.S. government order for over 100 million QuickView COVID-19 tests. Total SARS revenue in the quarter from all products was $836.1 million, and this compares to $269.1 million in the first quarter of 2021, a growth of 211%. In total, we sold over 126 million COVID tests in the first quarter, 113 million tests We're quick view 12 million pounds were Sophia and over 2 million were all other tests foreign currency exchange had an unfavorable impact of $1 million in the quarter. Influenza revenue was $89.1 million and this is versus $16.4 million in the first quarter of last year. Included in the influenza number for the quarter was $54.2 million in Sophia ABC revenue, $25.4 million in Sophia flu revenue, and $5.9 million in Quick View flu revenue. Rapid immunoassay revenues were $892.8 million in the first quarter, showing growth of 276% from first quarter of 2021. Within this category, SOFIA product revenues were $224 million, of which $137.9 million were attributable to the SOFIA SARS antigen test. And as just mentioned, influenza revenue was another strong contributor to this group, adding $79.6 million in revenue. Quick-due product revenues in the quarter of which $657 million were attributable to the Quick View SARS test. For the cardiometabolic immunoassay business, revenue was $50.2 million, lower than the prior year quarter as a result of the agreement we entered into with Bettman Coulter in July of 2021. OSBT, Curt Brown, As a reminder, the agreement states that in connection with transitioning the Batman BMP business to button culture quite overseas annual cash payments. OSBT, Curt Brown, Between 70 million to $75 million per year through the year 2029 in the first quarter 2022 we recorded revenue of $16.8 million associated with this agreement. The quarterly revenue was based on product shipments in the quarter to Beckman Coulter. For the full year, though, the minimum revenue to realize is $70 million, and it's there regardless of product shipments. The triage business generated revenues of $33.4 million versus $33 million in the first quarter of 2021, with growth in Asia Pacific and Europe, Middle East, Africa, offset by a decline in the U.S. Our molecular diagnostic solutions revenue was $46 million in the quarter, as we saw continued demand for the Lyra SARS-CoV-2 products, which constituted $38.2 million of the total molecular diagnostic solutions revenue. Solana revenues were $5.7 million in the quarter, and Savannah revenue was an incremental $400,000 in the quarter. Specialized diagnostic solutions revenue increased 23% to $13.3 million, driven by an increase in sales of our DHI respiratory products. We realized good growth in the core business as revenue Excluding the COVID-19 revenues and Beckman BMP revenues increased 105% over the first quarter of 2021 to $149.4 million. Rapid immunoassay revenue increased $73 million or almost 300% due to an increase in the flu and strep revenue. Triage business increased 1% and molecular revenue increased 20% though on a small revenue base without COVID. We also saw strong performance in our specialized diagnostic solutions revenue as stated previously. Gross profit in the quarter increased to $740 million and gross margin was 74% of revenue. This compares to a gross profit of $302 million and 80% gross margin for the three months ended March, 2021. The increased gross profit was due to the greater product sales of QuickView at Home OTC COVID-19 test. The decrease in gross margin was driven by a shift in product mix from higher margin Sophia SARS test to lower margin QuickView SARS test. And this is partially offset by improved manufacturing absorption. On the spend side of the business, we continue to invest in R&D and specifically our Savannah platform. We're also spending in support of our longer-term initiatives, such as new SOFIA assays that can leverage our larger installed base of instruments and new markets, next-generation platforms, and SOFIA Q, to name a few. In the first quarter of 2022, R&D expense increased 13% to $26.4 million. Sales and marketing expense for the quarter increased to $65.4 million, resulting from higher freight expense due to higher sales volume, higher production promotional spend associated with a quickly at-home OTC test, and higher compensation costs driven by increased headcount. This year, we will continue to invest in people and resources to expand our reach, as well as increase our spending in marketing, product promotion, and corporate partnerships in support of existing and new markets. G&A expense in the quarter increased by $5 million to $24.5 million, primarily due to higher compensation costs driven by outstanding performance during the current period. As it relates to the provision for income taxes, we recorded $140.7 million in income tax expense resulting in an effective tax rate of approximately 23%. The higher tax expense for the quarter compared to the same period last year is a result of an increase in pre-tax profits and a decrease in tax deductions from stock-based compensation. As of March 31st, we had $1,275,000,000 in cash and cash equivalents. In the quarter, the company invested approximately $22 million in capital expenditures. In April, we made our scheduled $48 million payment to Abbott for the Allure asset, leaving one final payment of $40 million due to Abbott in April 2023. From a use of cash perspective in the second quarter, we expect to use the majority of the cash on a balance sheet to help fund the cash payment to the ortho shareholders at close. After close of the transaction, Joe Buskey will be stepping in as the CFO for the combined companies. And Joe will be an incredibly strong contributor going forward. I'll still be involved with Clydell, but going forward more in the background to ensure continuity and health as appropriate. It's been an incredible journey over the last 10 plus years, and I am truly blessed to be a part of this great Quidel story. The company is in the strongest position it has ever been in numerous ways. I've built friendships that will last for the rest of my life and would like to think that along the way I've provided some value that will drive Quidel to even greater achievements going forward. Thank you very much for all of your support over the last 10 plus years. And with that, we conclude our formal comments for today. Operator, we're now ready to open the call for questions.
spk05: Great, thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by 2 again to ask a question for star 1. As a reminder, if you are using a speaker phone, please remember to pick up your hands up before asking your question. We'll pause here briefly if questions are registered. The first question comes from Alex Nowak with Craig Hallam. Let's proceed.
spk02: Great. Good afternoon, everyone. And Randy, enjoyed working with you. A metric we were watching on the go forward for COVID testing is the low watermark per month. In spring of 2021, it was 20 to 25 million of COVID test sales per month. Last quarter was said to be higher, but we didn't exactly know that figure. Do we have a new low watermark for the back half of the year to think about?
spk11: You know, Alex, it's very, very challenging to really identify a low watermark just because of government participation and the prevalence of, you know, the virus here or as we go forward. So the current time, I would say what we had stated previously probably is as good as anything we can see at this point. I will say, though, that we're not forecasting a significant amount of COVID revenue in the back half of the year.
spk02: Okay, understood. And then maybe expand a bit more on the day 30 and maybe the day 90 plans after closing your deal. Maybe highlight some of the first action items you're going to be undertaking.
spk11: Well, I think initially, you know, we're getting to close. We've done a lot of strategic planning, but it's really hard to really get into the execution mode until after close. You know, within 30 days after close, we have to file our first queue as a combined entity. So we're very focused on, you know, really the first 90 days or actually through the end of the year to really focus on just driving both businesses. making sure that we're performing the expected performance requirements. And then we really get into kind of more of the combined entity execution here entering into 2023. And certainly, we will be planning during that whole time period, looking at cost synergies and revenue synergies as well.
spk02: And just one more here. Maybe expand a bit more on the menu expansion for Sophia and QuickView at home, just when we get started to see these new products hit the market.
spk11: I'm sorry, Alex. You were asking about additional OTC products in the OTC market?
spk02: OTC and standard Sophia for professional, just the menu expansion timeline there and what to expect.
spk00: Yeah, I'll jump in on that one, Alex. I would just say that the R&D guys would tell you they've got a number of products in development on SOFIA. And so we see that as a major growth engine moving forward. The instrument placements out there at greater than 75,000 certainly represents a huge opportunity for further development in that space. And, you know, overall, I think on the OTC side, it's more about putting together the clinical trials necessary to get these products over the OTC performance hurdles. And so, you know, more specifics moving forward. Clearly, as we have phase zero, phase one, et cetera, identified for SOFIA, we will be in a position when we do our next analysis to talk about things in more detail, but obviously at this stage that would be premature. But rest assured, we moved from 20 R&D projects per year to over 50 that we're working on in any given year, and most of those, for the most part, are SOFIA.
spk01: All right. Thanks for the update. Thanks. Sure. Thank you, Alex.
spk05: Thank you. The next question comes from Brian Weinstein with William Blair. Please proceed.
spk03: Hey guys, this is Dustin online for Brian. Um, just to start with ortho, um, I'm wondering since it's been about five and a half months since you announced the deal, uh, has there been any change into how you see the value of the asset and where the combined company could play in this space?
spk00: Yeah, I would say the key change is as we get to know the team over there, we're increasingly impressed by both the executive team and the management team. And I actually see more value than we probably had anticipated. Of course, until you get to know people, and at the end of the day, it's putting people together. Until you understand the people that you're working with more and more, it's really hard to... pre-deal understand the value. I would just say personally, I look at more of the people side of things as everybody in our company knows and I would say I'm super impressed by the talent in that organization. I think Chris Smith and the executives there have brought on board a lot of really good people and I think that that's going to be helpful moving forward. Other than that, we don't see anything. There's no detraction from the critical path on anything that we're working on and For the most part, I would say it's all super positive.
spk03: That's good to hear. In terms of flu, we're wondering if you guys have any more visibility there, wondering about inventory levels and anything you're seeing in the channel kind of as we prepare for next season.
spk11: Yeah, no, inventory levels are pretty consistent with what we've seen over the last couple of years relating to all of our core products. As you know, coming out of flu, inventory distribution is managed pretty tightly, so no buildup on that at all. We did see a little bit of increase on our COVID revenue inventory, but that's obvious since we're in COVID. you know, pretty high demand going into the quarter. But overall, I think on average, we're somewhere between three and four weeks of inventory at distribution. So we're in good shape with that statistic.
spk03: Okay, great. And just one last one for us. We're wondering what was the ex-COVID, ex-flu rapid revenue in the quarter, and what kind of pull-through are you guys seeing there? Thank you.
spk11: Well, the pull through, I guess, I'll follow up with you relating to the exact number. But the pull through actually in the quarter on all of the core revenue is very strong. We saw a significant increase with stress, with RSV, as well as with our pregnancy test. So really across the board, we saw growth versus Q1 of 2021. And I'll get back with what the actual number was on that.
spk08: Thank you.
spk05: The next question comes from Casey Woodring with JPMorgan.
spk09: Please proceed.
spk10: Hi, guys. Thanks for taking my question. On the incremental government COVID contracts passed with 35 million tests in 2Q, You know, how conversations around stockpiling evolved since the beginning of the year? Is that something that you think is still realistic for the second half of this year or even in 2023?
spk00: We're in consistent and weekly conversations on that topic, whether it's stockpiling or manufacturing, et cetera. And I would, without being too specific, I would say that we can expect to see some level of orders. And as I think... You know, I've said and Randy has said, as we learn exactly what the numbers are going to be, we'll certainly let everybody know. Yes, we are in conversations. Yes, we've had discussions about some specifics. But, you know, just as late as just a couple hours ago, we were having a discussion on a response that we were making on a certain request. But you're going to want to – Casey, I know you're going to want more detail than that, but – We'll provide that when we have more firm commitment. And we'll be transparent about it for sure.
spk10: Got it. Okay. And then on Sophia ABC, you know, how should we think about that test in an endemic COVID environment? Was that ABC number you called out for this quarter largely Omicron driven? And, you know, should we assume kind of similar volumes between the ABC test and the flu standalone test moving forward?
spk00: Well, I think it's fair to say we did see an uptick in flu in the quarter, and that drove a lot of the ABC. But you're right. It's certainly interesting that the Omicron variant in many folks manifested itself in symptoms that were very much flu-like. And a lot of people, including myself, would have described it as sort of a mild flu. And so I can see how that would drive physician behavior to make sure that we understand whether it's flu or COVID.
spk10: Gotcha. And then just last one for me. You talked about Savannah launching in the U.S. in the back half of the year. Can you remind us of the margin profile of both the instrument and consumables there on Savannah? How do they compare to Sophia? And also, how do they compare to the combined company's margin profile? Thank you.
spk00: Thanks, Casey.
spk11: Yes. On Savannah, the nice thing is the instrument cost is very reasonable, so we're estimating that a lot of it's going to be on a reagent rental agreement. So we'll do it over a three- to five-year contract is what we're currently estimating in the U.S. The margin profile, when we're at volume with our cartridge manufacturing, certainly our target is to be incremental to our kind of overall 65%, so we're looking at margins probably in the below 70% margins here as we get traction going into 2023. Got it, thanks.
spk10: You're welcome.
spk05: Thank you. The next question comes from Jack Nehan from Nefron Research. Please proceed.
spk13: Good afternoon. First, Randy, just wanted to say it's been both fun and great working with you over the years. I also have a feeling this won't be the end. Hopefully, see you around in San Diego or elsewhere in the future. Sounds good.
spk10: Wanted to start just back on Sophia. The install base is
spk13: know just kind of reflecting over the last couple years it's expanded a lot 79 000 instruments now in the field can you just give us a mark to market on what the mix looks like today between physician office hospital urgent care versus non-traditional sites that might have scaled up for covid yeah it's uh interesting jack we have seen a little shift and we're now seeing
spk11: you know placements we're now seeing about a little over 15 percent of the placements are in urgent care uh we're seeing hospitals at about 25 percent and then pol is around 50 percent but in the hospital setting you're now seeing an increase in uh per hospital uh usage around six instruments versus what we had said was four before so i think the growth you're seeing is uh Yeah, really, and current customers adding hospitals and additional placements as well as expanded into urgent care, as we've talked about previously.
spk13: And I know, like, obviously the visibility and the kind of future COVID demand isn't great for anybody, but was just curious, you know, maybe what you're hearing from your SOFIA customers around that. kind of what the ongoing utilization of these instruments is going to look like, whether it be for COVID or some of the other assays under development?
spk01: Yeah, that's a good question, Jack.
spk00: We're going to have to see what we see moving forward. You know, we're projecting and we're hypothesizing that we're going to be, you know, we call it post-COVID, but Effectively, this is just another virus that presents itself from year to year, it seems. That's the answer on that side, I think. Moving forward, obviously, we're forecasting and we're putting together business development plans around these new app phase. I think there's a strong chance that we've identified the things that are important to our customers moving forward. I'm speaking, obviously, Jack, specifically about the things we have in development.
spk13: Mm-hmm. Got it. And then on Savannah, so submitting under UA, then you have the 510K submission coming in July. Can you just talk about, like, what the approval pathway looks like? Do you think you'll get UA approval? You know, what is the 510K on top of that? And just, you know, what's the timeline look like for kind of full approval of Savannah?
spk00: Well, in the pre-COVID situation, I would have been able to speculate with some degree of certainty around the timeline with the FDA. I think it's safe to say that, particularly on 510Ks, that, you know, prevalence is driving the clinical trial, but then the approval process is depending on the value of the particular product, it's not quite as short as it used to be. So in the old days, we would have said 90 days for most things, and it's entirely possible that that goes out another month or so.
spk13: Okay. And then final question, on the cardiometabolic business, the triage sales were up one percent year over year, it's probably a little lighter than, you know, I think the way you've described revenue in a given quarter in the past. Just were there any headwinds that you saw? Just any additional color on triage specifically would be great.
spk11: Yeah, Jack. You know, the shortfall was really all U.S.-based. And looking into a little bit more, I think it's more just kind of a sell-in versus a sell-through because we looked at the sell-through data in U.S. and it was up, I think, in high single digits. So I think it was more an inventory situation than it was really a demand for the product. So that would have put the growth more in the mid-single digits, you know, considering that issue. So it's more of a Just timing issue than it was a sell-through issue.
spk13: Maybe for you or for Doug, any thoughts on high sensitivity troponin, just how the feedback is from the field on that, and just any revenue contribution you can call out at this point?
spk00: Well, I think we had good success in launching in Europe in particular markets. And, you know, we continue with the clinical trials here in the U.S. I think the feedback from KOLs in particular who have looked at the product has been quite good. So we're not quite there yet in terms of the clinical trials, but we expect to be there shortly.
spk01: Super. Thank you. Thanks, Jack.
spk05: Thank you. The next question. The next question comes from Andrew Cooper with Raymond James. Please proceed.
spk04: Hey, guys. Thanks for the questions. And, Randy, after everybody else's sentiment, it's been fun to watch everything over the last many years and wish you the best if we don't see you quite as often anymore. Maybe just first on Savannah, you know, we just listened to Ortho call out. Some chip issues, far from the only ones. I think, Doug, you commented in the past that's been a little bit of a challenge for the instrument side. So are you able to build some inventory for as we head into this U.S. launch? And then once you close the deal, is there any thinking of, hey, you might get a little bit more leverage with some of those chip suppliers? Anything to look out on that front?
spk00: That's a very interesting question, Andrew, and I would say that we've had challenges that we've sorted through for the most part. We're not in a position where we're building a ton of inventory, but at the same time we're making progress. We're building enough instruments to put more instruments in the R&D organization. We're building more instruments that can supply the European launch and certainly We're anticipating having some level of inventory as we launch. It's a great question, though, because worldwide supply chain issues are pretty big across the board. But I do think that we have an opportunity in combining the company to explore things that we can jointly do together. Certainly, Ortho purchases a lot of products that go into in their instrumentation, and that could be helpful, but that's something to work on and explore, and I'm hopeful that that's the case, because at the end of the day, I see the only constraint with the launch, honestly, being our ability to get enough instruments into the market as quickly as possible, as well as our ability to manufacture cartridges at very, very high volumes. We've learned a lot about hyperscaling. I've got an organization that's got a lot of strength now that we didn't have before in terms of supply chain. Phil McClellan and the team in operations have done a phenomenal job so far. So a lot of work to be done, but I'm pretty confident in the team, and I've got some talented folks that are working on it.
spk04: Okay, great. And maybe just one more. I think you commented, I think the number was 87 projects from the cross-functional teams. Can you give us a sense for, you know, how much of the $90 million of cost synergies maybe come from those projects? What's, you know, fully identified and fully baked versus, hey, we've identified something but don't quite have the plan really put together? Just sort of where are we in trying to capture that $90 million right away?
spk00: Well, we're aimed in what we're going to achieve in 2023, and we expect to have a roadmap that we can help describe for you in terms of all that. I would say that for the most part, the things that we had identified were possible. Reductions are certainly there, and there are others that give us great confidence that the number that we've called out is not over-projected. So year one, 2023 is what we're aimed at right now. I would just say based on what I know right now, I'm pretty confident.
spk07: Great. I'll stop there. Thanks for the question.
spk09: Thank you. If you need to ask a question, press star 1.
spk05: There are no additional questions. I'm sorry. We do have a follow-up from Andrew Cooper. Please proceed.
spk04: I was trying to be generous and let other people ask, but I'll fire one more at you guys. Just in terms of Sophia Q, you know, it came up a couple times in the call, but trying to get a sense for, you know, what their hurdles are to get that product to market a little bit more aggressively and what you're looking for before we can expect, you know, you know, more concrete commentary and a broader launch.
spk00: Yeah, I like the question, Andrew. The product performed exceedingly well with the COVID product that we had, but we made a determination that launching into the market with one product was not a great idea. And so we're working on what other menu items would go on that. We have manufacturers. There's a situation where we've got inventory, so we're looking at what other products that we'd want to put on that. And specifically, I think it's probably a pretty good product for the professional market, but obviously could be a candidate for an OTC product as well.
spk07: Okay, great. Thanks again.
spk05: Thank you. That is all the time we have today. Please proceed with your presentation or any closing remarks.
spk00: Well, I'll conclude just simply by saying it was a great quarter. The team really stepped up and rose to the challenge and I appreciate it very much. I don't want to sign off before saying that I know you all appreciate very much the way that you've dealt and and communicate with Randy over the years. And, um, he's still going to be around. We're going to, we're going to try to keep him in the game. Um, he's got that place in Santa Fe that he can't wait to get to, but, uh, we're still, we're, we're still trying to, to, to dangle the carrot out there to keep him involved. And he's got a wealth of experience and, uh, you know, in addition, you know, he's collegial, he's determined, he's optimistic. And, uh, and we're still going to keep him around for a while, but he's going to be very helpful as we move through the integration. You know, there's not too many people in our space that have his sets of experiences. He's a little bit feisty from time to time, but, you know, that's a good thing. So I'll just say on behalf of you all and our company that we appreciate Randy, everything that you've done and, And with that, I would say thanks everybody for your interest in Quidel, and I hope you enjoy the rest of the day.
spk09: Ladies and gentlemen, we thank you for your participation and ask that you disconnect your lines.
Disclaimer