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Quidel Updates Dx and MDx Commercial Strategies, Pipelines

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NEW YORK – Quidel has begun to brand itself as one of the few remaining pure play diagnostics companies at the point of care. The company has expanded its offerings in recent years to mitigate lumpiness from a business dominated by seasonal flu testing. It has nearly completed integration of the cardiac and toxicology business it acquired from Alere two years ago, for example, and has launched a new immunoassay analyzer while continuing to build up its molecular diagnostics business.

Although the San Diego, California-based diagnostics maker usually sees a dip in earnings in the second quarter at the tail end of the flu season, on a conference call to discuss the earnings, CEO Douglas Bryant said that this was the firm's first profitable Q2 since the influenza pandemic 10 years ago.

"Moving forward, we would expect every single quarter to be profitable, and it is a pretty important milestone for us," Bryant said at the conclusion of the call, adding jokingly, "I think we should probably make a cake or something."

In order to sustain this cake-worthy achievement, the company outlined a number of strategies during the call, including positioning its existing immunoassay products in new ways and finally bringing to fruition a years-long development project for a new point-of-care molecular instrument.

Quidel segments its business into immunoassays, molecular diagnostics, cardiac immunoassays, and specialized diagnostics. 

According to the firm's Q2 investor factsheet, the rapid immunoassay segment comprises the QuickVue immunoassay tests, the instrumented Sofia and Sofia II immunoassays, and the firm's eye health business acquired in 2017. Quidel claimed more than 35,000 placements and $118 million in revenues within this business segment in 2018, and noted that the 10 percent expected growth is "flu-dependent." 

A 5 percent revenue growth overall in the second quarter of 2019 was bolstered by a 30 percent jump in immunoassay sales. This included flu immunoassays, which, as recently reported, still dominate the market in general over more accurate yet more costly point-of-care molecular testing.

The firm said the immunoassay jump was due in part to a $6.2 million year-over-year increase in influenza revenue. Specifically, during the call Bryant said that, "Clearly the prolonged influenza season was a tailwind."

The firm had earlier estimated flu revenues in the $6 million to $10 million range in the quarter, but total revenue for flu instead came in at $13.1 million, "driven mainly by influenza test sales on existing and new Sofia instrument placements," Bryant said. "Our forecast was a bit off as we may have misunderstood the impact that the new Sofia placements would have." 

Bryant said the Sofia instrument base "is an asset that provides incredible revenue and margin opportunity in the near- to medium-term," adding that the firm has 11 assays in development for the instrument. "Nearest to launch are Sofia C. difficile and five other [gastrointestinal] assays," he said, noting that the firm expects these to be cleared in the US around the first half of 2020.

Bryant said that Sofia placements continue to grow, aided somewhat by the launch of Sofia Lyme, although he added that the firm is still in the early stages of creating patient and physician awareness for CLIA-waived point-of-care Lyme disease testing. 

Specifically, Bryant said there have been some cross-selling advantages, with approximately 80 percent of the Sofia contracts for Lyme testing also including other waived assays, such as the firm's flu, Group A Strep, or respiratory syncytial virus tests.

But, "The real incremental growth will come as both patients and physicians become aware that the product is available," Bryant said. "It is the world's first CLIA-waived Lyme test," he said, so Quidel has a program in place to create awareness, and has already seen some success partnering with urgent care centers. 

"We're spending a bit of time, effort, and money on a word-of-mouth marketing campaign in the Northeast" for Sophia Lyme, Bryant also said, adding that Quidel has also partnered with one of its key distribution partners in the Northeast to run "a growth program."

"We have the physician side covered with our distribution partner and our sales people, and I think we'll see increasing pull-through from the patient perspective as we create word of mouth over the next several quarters," he said. "We're not converting a market, we're creating a market, so I'm trying to be a little bit patient."

In the molecular business segment, Quidel sells AmpliVue tests, Lyra test kits, and its Solana molecular diagnostics instrument with a menu of 10 tests. This segment brought in $19 million in revenues last year, and the firm projects high growth, albeit off a small base.

During the call, CFO Randy Steward said that the 7 percent increase in molecular diagnostics revenue in Q2 was driven by a 26 percent growth in Solana assay revenue, adding "AmpliVue revenue continues to decline as we migrate the C. difficile and [herpes simplex virus] assays over to Solana."

Quidel has also been developing its Savanna instrument since 2011. The MDx system was initially outlined in 2013 as a durable instrument for low-resource settings funded with money from the Gates Foundation, and a demo version was unveiled in 2014.

Quidel later transitioned to position Savanna for point-of-care molecular diagnostic testing in decentralized spaces, and said it was developing the system to run individual analytes as well as small panel tests.

By the firm's Q4 2016 earnings call, Bryant said Quidel was continuing to finalize adjustments to the Savanna cartridge to enable high volume manufacturing, and had begun the development of assays in a mini-panel format, "so that we can deliver 20 or more analytes at or near instrument launch in 2018."

In the first quarter of 2018, the firm said it had achieved a milestone with Savanna by "locking down the design of the multiplex cartridge for use in the point-of-care molecular segment," Bryant said at the time. 

A few months later, the firm debuted a smaller, streamlined version of the Savanna instrument and Bryant commented that Quidel planned to introduce the product in Q4 2019 in Europe and in the first half of 2020 in the US. Bryant also began asserting that having a breadth of menu was so important to sales that the firm would not launch Savanna until it had at least four US Food and Drug Administration-cleared assays. 

And, in the firm's Q4, 2018 call Bryant claimed Quidel was finishing the Savanna cartridge design to make it more efficient for manufacturing. The company would then need to manufacture "tens of thousands of cartridges" for the clinical trials, he said, and the timing of the launch would be "highly dependent" on conducting multiple clinical trials simultaneously, obtaining CE mark, and then successfully completing review by the FDA, yet he reaffirmed a projected US launch of Savanna sometime in 2020.

In a recent analyst day presentation, Quidel showed a Savanna assay pipeline with panels for GI pathogens, sexually transmitted infections, respiratory viruses, pharyngitis, and vaginitis, as well as assays for HIV and methicillin-resistant Staphylococcus aureus. In the presentation, the system was described as a low-cost, fully integrated "sample-to-answer" molecular diagnostic system, with target cartridge cost of less than $5 and target instrument cost of $10,000. The system is being designed for low-volume and potentially CLIA-waived settings, and can run either traditional PCR or the firm's HDA chemistry for sample types that don't require extraction.

Yesterday, Bryant provided another update on Savanna, saying "Our confidence that we have a high-performing cartridge that can be reliably manufactured in the millions at very high yields has never been higher."  He added that the assay development team in Beverly, Massachusetts, is "running ahead of all the other teams and the development of menu will clearly not be a constraining factor."

He noted that the firm's third-party instrument manufacturer is "engaged," and added, "We still believe that we will achieve FDA clearance on the instrument by year-end 2020, and will launch in the US with a significant menu in the first half of 2021."

Quidel anticipates more spending in R&D to support instrument development and clinical trials in the second half of this year, Bryant said. "We're down to a decision to be made very shortly on the final cartridge design, and from there we'll begin the process of increasing the number of cartridges that we'll be making in advance of the clinical trial," he said.

The clinical trials will most likely start in the fourth quarter of this year and first quarter of next year, he said. "I think the assays will be ready to go. As long as we can get the instruments made and the cartridges made in sufficient quantities, we'll be in good shape," Bryant said.

In Q2, Quidel's cardiac immunoassay revenue — which includes revenue from the Triage, Triage Toxicology, and Beckman BNP products — totaled $68.0 million, down 3 percent from a year ago.

The cardiac immunoassay business was acquired from Alere in 2017. Specfically, it consists of the Triage and BC BNP instruments and assays, and it pulled in $267 million in revenues last year from more than 16,000 placements, with a projected growth rate of 4 to 5 percent.

During the quarter, Quidel received FDA clearance on its Triage toxicology assay, and began shipping product to distribution partners earlier this week, Bryant said.

It is also now shipping the TriageTrue High Sensitivity Troponin I Test, a CE marked high-sensitivity point-of-care troponin assay, to a limited number of European customers. The firm expects publication later this year of a study called Advantageous Predictors of Acute Coronary Syndromes Evaluation, or APACE, which could "generate excitement for the product and accelerate our launch as we expand more broadly in Europe," Bryant said, although the study seems to be explicitly evaluating high-sensitivity troponin I and high-sensitivity troponin T using the Architect platform from Abbott and Elecsys platform from Roche, respectively.

Quidel also noted that the firm saw 16 percent growth in Triage revenues in China and expects growth to continue. Bryant attributed this in part to the increased expansion of so-called chest pain centers in China.

"The Chinese people would tell you that there are a lot of people there with cardiac issues, and there is growing awareness that using biomarkers to diagnose cardiac disease is the way to go," Bryant said, adding, "There is quite a bit of growth [and] the government is spending a lot of money on chest pain centers, so in every community there will eventually be a chest pain center where [testing for] these markers will be performed."

Steward also noted that Quidel has "cut out a middle tier in distribution" in China, which also boosted the revenues year-over-year somewhat.

The firm also eliminated Abbott from the distribution of the Triage products, Bryant said. "That's now done solely by us from our expanded distribution center here in San Diego," he said. "Within the first month we actually shipped over 1,800 instruments from the new warehouse both domestically and internationally, so we're in good shape from an integration perspective [and] we're nearly done."

The firm's R&D spending declined 11 percent to $11.7 million from $13.2 million, driven primarily by lower compensation costs, offset by higher spending on Sofia assay development and the Savanna platform. On yesterday's call, Quidel reiterated its estimate of full-year R&D spend between $53 million dollars and $55 million dollars. 

Finally, Bryant noted on the call that the firm is in the process of paying down its debt and will be positioned again for M&A activity. "We have three to five targets among many that we've looked at, that we continue to look at," Bryant said, but declined to comment further.

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