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Quidel Provides Update on Triage Acquisition, Legacy Business

This story has been updated to include pro forma financial information of the combined Quidel and Triage businesses.

NEW YORK (360Dx) – In an amended 8K filed with the US Securities and Exchange Commission late yesterday, Quidel provided detail on its acquisition of the Alere Triage and BNP businesses from Abbott, and provided updates on its legacy business and recent influenza testing tracking.

There have been "no significant surprises" regarding the acquisition, Quidel CEO Douglas Bryant said this morning during a conference call following the filing. "There's a lot to feel good about and we're extremely excited about the potential for the combined businesses."

The company declined to comment further on the lawsuit filed by Danaher regarding the Beckman Coulter BNP assays, except to reiterate that it is confident the agreement with Abbott is enforceable. "We believe strongly in our position and are prepared to vigorously defend our right to sell the Triage BNP assay exclusively on the Beckman platforms," Bryant said.

The integration of the Triage business is also proceeding well, Bryant said, with Quidel welcoming 472 US-based employees from Abbott. The firm has "right sized" sales territories to be more responsive and efficient, and Quidel is now taking orders and invoicing for the Triage and BNP products from US customers and ex-US third party distributors, as well as restocking orders for Alere affiliates, he added.

"We now feel confident in achieving a $10 million run rate in annualized synergies by the end of 2018," Bryant said.

The company noted that it plans to sell one of the manufacturing facilities acquired from Abbott — the former Alere Summers Ridge manufacturing facility located in San Diego, California — and will then lease it back from the buyer. The firm estimated the value of the Summers Ridge campus at $147.3 million, Quidel CFO Randy Steward said on the call. "We are in final negotiations [for the sale] with a third party and are optimistic they will consummate a transaction within the next 30 days at approximately this value," he added.

The firm plans to apply $110 million of the proceeds from the sale to pay down debt from its senior credit facility, and will apply the remaining cash toward the April 2018 contingent and differed consideration payment, Steward said. The debt paydown would reduce the firm's interest debt expense by approximately $6 million and add approximately that same amount in annual operating expense, he added.

During the call, the firm also presented data from its cloud-based Virena system, which tracks outcomes of its influenza tests to give feedback on the flu season, and provided updates on its legacy business.

Initial Virena data suggests a strong flu season has begun, and shows that increases in positive flu tests are occurring in certain key states and are tracking about three weeks to six weeks earlier than last year, Bryant said. Specifically, Arkansas and Florida are showing flu test positivity rates of 21 and 15 percent, respectively, two to three weeks earlier than 2016, while Texas and Arizona have rates of 22 and 28 percent, respectively, two to three months ahead of last year. Mississippi is currently showing the highest positivity rate thus far at 33 percent.

"In terms of influenza revenue, we are on pace to generate about $30 million in the fourth quarter, compared with about $23 million in flu revenue in Q4 of 2016," Bryant said.

Quidel also launched its Sofia2 immunoassay analyzer this year, and Bryant said that the Sofia program overall is going "extremely well." The firm had placed more than 2,100 original Sofia analyzers last year prior to the launch of the next generation version. Since the Sofia2 launch, the firm placed 5,500 more, achieving just over 25,300 total global Sofia placements. "We now anticipate reaching the 30,000 instrument [placement] milestone in 2018, a couple years ahead of our original projection," Bryant said.

He further noted that Quidel is making progress with its molecular franchise, particularly its Solana program, and said that this has been driven in recent weeks by an uptick in influenza and Group A Strep testing.

The firm also said that its current tax rate is in the 21 percent to 24 percent range but that it expects this to drop to the 15 percent to 17 percent range after tax reforms are enacted.

Additionally included in the SEC filing were pro forma combined consolidated financial statements for financial year 2016 as well as for the first nine months of 2017 for the company.

"We reported the historical results for Quidel, adding the Triage and BNP businesses per the historical financials, and made adjustments to reflect the impact of the acquisition as if the transaction occurred on January 1, 2016," Steward explained during the call.

The Triage and BNP businesses had $245.9 million in FY16 revenues, while Quidel reported $191.6 million, bringing the combined revenues to $437.5 million.

The revenue split for the Triage and Beckman-Coulter BNP business was approximately $147 million and $99 million, respectively, for the 12 months ended December 2016, Steward said. Net revenues for the new businesses in excess of direct expenses was $75.6 million, while Quidel's net loss for the period was $13.8 million.

For the nine months ended Sept. 30, 2017, Quidel reported total revenues of $162.9 million. The revenue split for Triage and BNP was $109 million and $82 million respectively, bringing the combined total to $353.7 million.

Going forward, Quidel estimates the consolidated gross profit margin to be in the range of 58 percent to 60 percent. The combined R&D spend in 2018 is expected to be in the range of $50 million to $52 million, incorporating some synergy cost opportunities, while spending on sales and marketing will be in the range of $100 million to $105 million, Steward said.

Quidel's stock was up more than 6 percent to $45.46 in afternoon trading on the Nasdaq.