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Quidel Reports Delay in OTC COVID-19 Antigen Test Claims, Pours Cold Water on M&A Rumors

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NEW YORK – Despite recording $1 billion in revenues for the first time in its history, Quidel on Thursday also reported a hiccup in its plans to submit an over-the-counter viral antigen test for regulatory authorization. The firm provided details on two anticipated product launches as well.

On a conference call reviewing its fourth quarter and full-year 2020 financial results, company executives also admonished investors to ignore unfounded M&A rumors.

The San Diego-based company broke through the $1 billion sales barrier during the year as it posted $1.67 billion in total revenues last year, or triple 2019's figure.

"2020 was a fantastic year for our company, and Q4 was phenomenal," said Quidel CEO Douglas Bryant in prepared remarks. The firm closed the year with $760 million in cash and very few remaining debt obligations, CFO Randy Steward said on the call.

In terms of potential mergers and acquisitions, Bryant promised investors in his scripted comments that Quidel "will not do anything stupid," likely referring to reports last week of a potential merger with Qiagen, but also citing unspecified "bold claims" by unnamed new competitors.

"Rumors can sometimes be fun ... but sometimes rumors can be annoying and time consuming," Bryant said. Quidel continues to "look at just about everything out there" for M&A and has found most options to be unsuitable. "We have cash and easy access to capital but are not compelled to acquire anything that isn't a great fit strategically," he said.

Regarding an eightfold year-over year growth in rapid immunoassay sales in 2020, Steward noted that the firm had previously pivoted to manufacturing a combination influenza A/B and COVID-19 viral antigen test — also called "Combo ABC" — on the advice of numerous public health and government reports, but since no flu season materialized this year, it has now pivoted back to making and selling more COVID-only tests. Immunoassay revenues include a $10 per test additional price on the millions of dual assays sold in 2020.

Steward further specified on the call that in Q4, Sofia products grew $573.8 million to $620.4 million, of which $587.6 million was due to Sofia SARS Antigen and Sofia Combo ABC product sales, and that the revenue mix was 46 percent Combo ABC test and 54 percent was SARS-CoV-2 viral antigen alone.

Regarding the potential impact of SARS-CoV-2 variants on the firm's antigen tests, Bryant said Quidel manufactured recombinant proteins in house to mirror the sequences in the nucleocapsid proteins of the virus seen in the B117 strain, tested them with Sofia and QuickVue, and "they both looked very good when testing against those proteins, even at low concentrations."

He further said that the firm tested antigen assays from three other unnamed companies against these home-brewed variants. "The good news is, two of the three actually looked fine," he said. "One other appears to be less useful at lower concentration," he said, adding that the firm expects to publish the study shortly and that the results make it clear antigen tests can indeed be impacted by variants.

OTC delay, new markets, and pipeline

Quidel's intended OTC rapid antigen test is expected to be a QuickVue assay that has already received Emergency Use Authorization for point-of-care use, but with an additional home-use clearance.

The submission to the FDA for OTC has been delayed because of a paucity of infections detected among the cohorts of asymptomatic people tested so far, Bryant said.

The FDA has previously guided that for an asymptomatic claim, cohorts need to be large enough to detect 20 positives, although a subsequent template for developers specified 10 positive samples in a cohort of no less than 150 enrolled in an "all comers" format, and that developers could also propose strategies to enrich for positives.

On the call, Bryant attributed the lack of positives among asymptomatic people to the firm testing a population that is already intensively screened. "It's harder to find positives when you go to sites that continually test frequently," he said.

Quidel will now submit for a prescription use-only claim for its QuickVue test, so it can at least support a number of studies it previously committed to using a blanket prescription.

The QuickVue and the Sofia analyzer tests apparently use similar base components. The firm has previously disclosed manufacturing targets of 240 million tests on Sofia and 600 million on QuickVue, but Bryant noted on the call that Quidel is not stockpiling inventory in anticipation of an OTC launch at this time. "It's kind of a nice thing, actually. I don't have to hold inventory waiting for [regulatory clearance], because I can use the product elsewhere," he said.

In terms of near-term launches, the rapid immunoassay analyzer formerly known as project Sniffles is now dubbed the Sofia Q and Quidel has validated the manufacturing processes for the instrument and will move to mass production this quarter, Bryant said. This will enable the firm to deliver as many as 100,000 instruments by the end of May.

The Sofia Q "could be applicable [to] retail pharmacies or at-home," he said, but added, "There are a number of locations where because of the smaller volume per site that the Sofia Q with its lower costs would be more applicable." He also noted, "If we've given you the impression that Sophia Q is strictly for at-home here in the US, that's not actually what we're thinking, or [we're] thinking that and several other use cases."

The firm will also submit a finger-stick, point-of-care serology assay on the Sofia analyzer before the end of this quarter and has begun a vaccine study tracking semi-quantitative antibody responses to N, S1, and S2 proteins over time from subjects that have received COVID-19 vaccines, Bryant said.

Quidel also expects to launch its long-awaited Savanna instrument this year. The firm first announced the instrument in 2015, and recently described plans for several small multiplex panel assays.

Savanna began clinical trials earlier this week for a panel targeting influenza A/B, SARS-CoV-2, and respiratory syncytial virus, and Bryant said the firm expects to have a limited launch in 2021. Quidel is expecting to manufacture about 1.2 million cartridges and 30,000 or so Savanna instruments, mainly for the clinical trials. It expects to submit an EUA in the second quarter, and that the product will "have a pretty meaningful impact in 2022," Bryant said.

The firm is also now scaling up to 11 assembly lines for its rapid SARS-CoV-2 viral antigen tests using funding support that includes $65 million from the National Institutes of Health RADx program.

"We have completed line seven, it's validated, [and] we demonstrated that to the satisfaction of the RADx team at the NIH," Bryant said, adding, "Line eight is actually running ahead of schedule, and lines 9, 10, and 11 will come right after that."

All told, Quidel expects these antigen test assembly lines to produce 70 million tests per month.

However, that unprecedented number will still barely make a dent in the demand that Bryant described in July of last year as "unfathomable."

The firm has been bombarded by demand in what Bryant called potential "new markets," including travel, entertainment, sports, and dining.

"From our Sofia launch in May through the fourth quarter we have been unable to begin to consider any of those opportunities," he said. "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," Bryant also said.

However, he also reiterated that the firm's current primary obligation is to the professional segment, particularly customers using Sofia analyzers.

"We're still placing analyzers, we're still gaining new customers, and I just want to make sure if we start somebody up that we don't immediately put them on backorder," Bryant said.

Nevertheless, manufacturing scale-ups give hope that Quidel can begin to address new market segments, and also "at-home testing through various vehicles, including retail pharmacy, as well as another couple of channels that we're looking at," he said.

Quidel's market research on at-home testing suggests 400 million potential customers and an estimated market size of 4.4 billion tests each year in the US. Specifically, one quarter of adults Quidel surveyed said they were interested in at-home COVID-19 testing for themselves and their family members.

"The opportunity is vast," he said.

Analysts weigh in

Stephen Mah at Piper Sandler described the OTC delay as "disappointing," but said that outside of COVID-19, his team believes Quidel's pipeline of products, larger Sofia install base, and entry into new sales channels positions the firm for "long-term growth post-pandemic." Accordingly, Piper Sandler maintained an Overweight rating on Quidel's stock with a $300 price target. "We would be buyers on any weakness," Mah said.

At JP Morgan, Tycho Peterson seemed less enthused. "We remain cautious on the stock, given tempered near-term expectations, a shift in focus to esoteric and OTC markets, the risk of inventory over-build and lingering questions around the long-term viability of COVID-19 antigen testing," Peterson said. He rated the firm's stock as Underweight and designated a Price Target of $170.00.

Brian Weinstein at William Blair said Quidel's call "showcased the unbelievable power of the COVID-19 testing market to transform its financial picture as well as the ever-increasing complexity of trying to decipher all of the dynamics in the COVID-19 testing market." The bank reiterated an Outperform rating.  

As of early afternoon on Friday, Quidel's stock on the Nasdaq was down 10 percent, to $187.24.

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