UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 0-10961
QUIDEL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2573850
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10165 MCKELLAR COURT, SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices)
(858) 552-1100
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of May 5, 2000, 24,635,214 shares of common stock were outstanding.
QUIDEL C0RPORATION
FORM 10-Q
QUARTERLY REPORT
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 14
ITEM 6. Exhibits and Reports on Form 8-K 14
Signature 15
2
QUIDEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31 DECEMBER 31,
(IN THOUSANDS) 2000 1999
--------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 6,396 $ 4,672
Accounts receivable, net 12,770 10,822
Inventories 8,636 8,327
Prepaid expenses and other 1,066 1,518
---------- ----------
Total current assets 28,868 25,339
Property and equipment, net 21,342 21,207
Intangible assets, net 10,519 11,096
Deferred tax asset 8,315 9,083
Other assets 1,396 1,315
---------- ----------
$ 70,440 $ 68,040
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,016 $ 3,560
Accrued payroll and related expenses 1,164 750
Accrued royalties 1,156 888
Line of credit 2,769 3,769
Current portion of long-term debt and obligations
under capital leases 478 553
Other current liabilities 3,334 3,336
---------- ----------
Total current liabilities 11,917 12,856
Long-term debt and obligations under capital leases 11,420 11,429
Stockholders' equity:
Common stock 24 24
Additional paid-in capital 119,417 117,386
Accumulated other comprehensive income (loss) 84 (81)
Accumulated deficit (72,422) (73,574)
---------- ----------
Total stockholders' equity 47,103 43,755
---------- ----------
$ 70,440 $ 68,040
========== ==========
See accompanying notes.
3
QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED MARCH 31,
------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999
----------------- -----------------
Net sales $ 22,068 $ 13,270
Cost of sales 10,691 7,100
----------------- -----------------
Gross profit 11,377 6,170
Operating Expenses
Sales and marketing 4,748 2,835
Research and development 2,133 1,926
General and administrative 2,499 1,562
----------------- -----------------
Total operating expenses 9,380 6,323
----------------- -----------------
Operating income (loss) 1,997 855
Other Income and Expense
Research contract, license fees and royalties 314 1,008
Interest and other income 15 168
Interest and other expense (406) (185)
----------------- -----------------
Total other income (expense) (77) (991)
----------------- -----------------
Income before benefit (provision) for income taxes 1,920 838
Benefit (provision) for income taxes (768) 6,575
----------------- -----------------
Net income $ 1,152 $ 7,413
================= =================
Basic earnings per share $ .05 $ .31
================= =================
Diluted earnings per share $ .04 $ .31
================= =================
Shares used in basic earnings per share calculation 24,404 23,806
================= =================
Shares used in diluted earnings per share calculation 26,703 23,816
================= =================
See accompanying notes.
4
QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED MARCH 31,
----------------------------------------
(IN THOUSANDS) 2000 1999
------------------- ---------------
OPERATING ACTIVITIES
Net income $ 1,152 $ 7,413
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,703 814
Deferred tax provision 768 (6,376)
Changes in operating assets and liabilities
Accounts receivable (1,948) 217
Inventories (309) 297
Prepaid expenses and other 452 (31)
Accounts payable (544) 443
Accrued payroll and related expenses 414 288
Deferred contract research revenue -- (881)
Accrued royalties 268 (64)
Other current liabilities (2) (708)
--------------- ------------
Net cash provided by (used in)
operating activities 1,954 (6,001)
INVESTING ACTIVITIES
Additions to equipment and improvements (1,204) (298)
Increase in intangibles assets (57) (528)
Increase in other assets (81) --
--------------- ------------
Net cash used for investing activities (1,342) (826)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock and warrants 2,031 72
Payment on line of credit (1,000) --
Payments on notes payable, long term debt and
obligations under capital leases (84) (48)
--------------- ------------
Net cash used for financing activities 947 24
--------------- ------------
Effect of exchange rate fluctuations on cash 165 --
--------------- ------------
Net increase in cash and cash equivalents 1,724 610
Cash and cash equivalents at beginning of period 4,672 6,012
--------------- ------------
Cash and cash equivalents at end of period $ 6,396 6,622
=============== ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 333 99
Cash paid during the period for income taxes -- 246
See accompanying notes.
5
Quidel Corporation
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited, condensed consolidated financial statements
have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission and, therefore, do not include all information and
footnote disclosures normally included in audited financial statements. The
Company is responsible for the unaudited financial statements included in
this report. These financial statements reflect all adjustments, consisting
of only normal recurring adjustments which, in the opinion of management,
are necessary to fairly present the consolidated financial position as of
March 31, 2000, and the consolidated results of operations and cash flows
for the three months ended March 31, 2000 and 1999. The results of
operations for the three months ended March 31, 2000 are not necessarily
indicative of the results to be expected for the year ended December 31,
2000. For more complete financial information, these financial statements,
and the notes thereto, should be read in conjunction with the consolidated
audited financial statements for the nine months ended December 31, 1999,
included in the Company's Form 10-K filed with the Securities and Exchange
Commission.
2. CHANGE IN FISCAL YEAR
During October 1999, the Company changed its fiscal year from a March 31
fiscal year-end to a December 31 fiscal year-end.
3. COMPUTATION OF EARNINGS PER SHARE
Basic earnings per share was computed by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share reflects the potential dilution that could occur
if the income were divided by the weighted-average number of common shares
and potentially dilutive common shares from outstanding stock options and
warrants. Potential dilutive common shares were calculated using the
treasury stock method and represent incremental shares issuable upon
exercise of the Company's outstanding options and warrants.
4. INVENTORIES
Inventories are recorded at the lower of cost (first-in, first-out) or
market and consist of the following:
MARCH 31, DECEMBER 31,
(IN THOUSANDS) 2000 1999
---------------- ----------------
(unaudited)
Raw materials $ 4,354 $ 3,835
Work-in-process 2,476 2,692
Finished goods 1,806 1,800
---------------- ----------------
$ 8,636 $ 8,327
=============== ===============
5. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 summarizes the SEC's view in applying
generally accepted accounting principles to revenue recognition in
financial statements. SAB No. 101 must be implemented no later than the
second fiscal quarter for all registrants with fiscal years beginning after
December 15, 1999 and before March 15, 2000. Management has reviewed the
impact of SAB No. 101 on the Company's financial statements and expects
to record a cumulative effect pre-tax charge of approximately $900,000
when the Company adopts the provisions of SAB No. 101 in the second
quarter of 2000.
6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FUTURE UNCERTAINTIES
This discussion contains forward-looking statements within the meaning of the
federal securities laws that involve material risks and uncertainties. Many
possible events or factors could affect our future financial results and
performance, such that our actual results and performance may differ materially.
As such, no forward-looking statement can be guaranteed. Differences in
operating results may arise as a result of a number of factors, including,
without limitation, seasonality, adverse changes in the competitive and economic
conditions in domestic and international markets, actions of our major
distributors, manufacturing and production delays or difficulties, adverse
actions or delays in product reviews by the United States Food and Drug
Administration ("FDA"), and the lower acceptance of our new products than
forecast. Forward-looking statements typically are identified by the use of
terms such as "may", "will", "should", "might", "expect", "anticipate",
"estimate" and similar words, although some forward-looking statements are
expressed differently. The risks described in this report and in other reports
and registration statements of Quidel Corporation (the "Company") filed with the
Securities and Exchange Commission from time to time should be carefully
considered. The following should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto included elsewhere in this
Form 10-Q.
OVERVIEW
The Company discovers, develops, manufactures and markets rapid diagnostic
products for point-of-care detection. These products provide simple, accurate
and cost-effective diagnoses for acute and chronic conditions. Products are sold
worldwide to professionals for use in the physician's office and clinical
laboratories, and to consumers through organizations that provide private label,
store brand products.
CHANGE IN FISCAL YEAR END
During October 1999, the Company changed its fiscal year from a March 31 fiscal
year-end to a December 31 fiscal year-end.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
For the three months ended March 31, 2000, income before taxes was $1.9 million,
or $.07 per diluted share, compared to income before taxes of $838,000, or $.04
per diluted share for the three months ended March 31, 1999. The most
significant difference in income before taxes for the three months ended March
31, 2000 compared to the three months ended March 31, 1999 was a 66% increase in
net sales, resulting from an increase in the demand for the Company's core
products, as well as the new products recently launched or acquired. These new
and acquired products resulted in net sales of approximately $3.7 million. In
addition, gross margins increased by approximately 5% in the current quarter as
compared to the same period last year.
For the three months ended March 31, 2000, net income was $1.2 million, or $.04
per diluted share, compared to a net income of $7.4 million, or $.31 per diluted
share for the three months ended March 31, 1999. A significant difference in net
income for the three months ended March 31, 2000 compared to the three months
ended March 31,1999 was the recording of a charge of $768,000 as a provision for
income taxes during the three months ended March 31, 2000, compared to a
deferred tax benefit of $6.6 million for the three months ended March 31, 1999.
This tax benefit in 1999 was associated with the Company's assessment of the
likelihood of its ability to realize its net tax operating loss carryforwards.
No income taxes were due or payable for the quarter ended March 31, 2000.
7
NET SALES TRENDS BY MAJOR SALES CHANNELS
Three months ended March 31,
-------------------------------------
(in thousands) 2000 1999
-------------- -------------
Domestic sales
Professional sales $ 13,894 $ 7,995
OTC, OEM and clinical lab sales 3,934 2,898
-------------- -------------
Total domestic sales 17,828 10,893
Percent of total sales 81% 82%
-------------- -------------
International sales
Export sales 2,774 1,565
European subsidiary sales 1,466 812
-------------- -------------
Total international sales 4,240 2,377
Percent of total sales 19% 18%
-------------- -------------
Total net sales $ 22,068 $ 13,270
================== =============
U.S. professional sales continue to account for the majority of the sales growth
as sales in the Company's core product areas of pregnancy, Strep A and H. pylori
continue to increase. International sales increased 78% over the prior year
period due primarily to the acquisition of both Metra Biosystems, Inc., and its
European subsidiaries, and Dade Behring's urine test strip business.
COST OF SALES AND GROSS PROFIT
Three months ended March 31,
-------------------------------------------------------
Percent Percent
of Net of Net
(in thousands) 2000 Sales 1999 Sales
----------- ---------- ----------- ----------
Net sales $ 22,068 100.0% $ 13,270 100.0%
Direct Costs - material, labor and other variable cost 6,916 31.3% 4,731 35.7%
Royalty Expense - patent licenses 1,252 5.7% 642 4.8%
----------- ----------
Total direct cost 8,168 37.0% 5,373 40.5%
Direct Margin - contribution per sales dollar 13,900 63.0% 7,897 59.5%
Manufacturing overhead cost 2,523 11.4% 1,727 13.0%
----------- ----------
Total cost of sales 10,691 48.4% 7,100 53.5%
----------- ----------
Gross profit $ 11,377 51.6% $ 6,170 46.5%
=========== ==========
Gross profit as a percentage of sales increased approximately 5% over the prior
year period due to higher manufacturing efficiencies experienced by moving to a
24 hour/7 day operating schedule, and from increased sales of the Company's
higher margin products, such as diagnostic tests for influenza A and B and
urinalysis. The Company is in the process of seeking to improve its procedures
for the procurement of raw materials in order to reduce overall product costs.
In addition, the Company is also reviewing its credit and rebate policy to
identify potential increases in product sale profitability.
8
OPERATING EXPENSES
Three months ended March 31,
--------------------------------------------------------------
Percent Percent
of Net of Net
(in thousands) 2000 Sales 1999 Sales
------------ ------------- ------------ -------------
Sales and marketing
Domestic $ 3,775 17.1% $ 2,017 15.2%
International 973 4.4% 818 6.2%
------------ ------------
Total sales and marketing 4,748 21.5% 2,835 21.4%
Research and development
Quidel research projects 1,945 8.8% 892 6.7%
Contract research - direct costs 188 0.9% 1,034 7.8%
------------ ------------
Total research and development 2,133 9.7% 1,926 14.5%
General and administrative 2,499 11.3% 1,562 11.8%
------------ ------------
Total operating expenses $ 9,380 42.5% $ 6,323 47.7%
============ ============
Total operating expenses, excluding contract
research direct costs $ 9,192 41.7% $ 5,289 39.9%
============ ============
Operating expenses, excluding cost of goods, increased to $9.4 million for the
three months ended March 31, 2000 from $6.3 million in the prior year. Sales and
marketing expenses increased 67% to $4.7 million, compared to $2.8 million in
the prior year, primarily due to investing in sales and marketing
infrastructure, as well as costs associated with the contract sales force
employed to help launch the influenza products during the flu season.
First quarter research and development expense increased 11% to $2.1 million,
compared to $1.9 million in the same quarter a year ago, primarily due to
continuing improvements to existing core products and the development of
point-of-care tests for Herpes Simplex Virus.
General and administrative expenses grew 60% to $2.5 million, as compared to
$1.6 million, reflecting further investments in business development. Other
expense increased to $391,000 primarily due to currency exchange rate
differences at the Company's subsidiaries in the United Kingdom, Germany and
Italy.
CHANGES IN FISCAL CONDITION
At March 31, 2000, the Company had cash and cash equivalents of $6.4 million
compared to $4.7 million at December 31, 1999. Cash and cash equivalents
increased in 2000, despite reducing its outstanding line of credit by $1.0
million, primarily due to increased sales and improved profit margins. The
increase in trade accounts receivable of approximately $2.0 million resulted
from an increase in sales activity during the quarter.
LIQUIDITY AND CAPITAL RESOURCES
The principal requirements for cash are for working capital, capital
equipment, and repayment of its outstanding line of credit. Cash requirements
are expected to be funded by the results of operations. The Company also
intends to continue to search for acquisition and technology licensing
candidates. As such, the Company may need to incur additional debt, or sell
additional equity, to successfully complete these acquisitions. Cash
requirements fluctuate as a result of numerous factors, such as progress in
research and development projects, competition and technological developments
and the time and expenditures required to obtain governmental approval of our
products. Based on the current cash position and the current assessment of
future operating results, we believe that the existing sources of liquidity
should be adequate to meet operating needs for the next twelve months.
9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quidel does not and did not invest in market risk sensitive instruments in
during 2000. Quidel had and has no exposure to market risk with regard to
changes in interest rates. Quidel does not and has not used derivative financial
instruments for any purposes, including hedging foreign currency risk or
mitigating interest rate risk.
BUSINESS RISKS
In this section, all reference to "we," "our," and "us" refer to Quidel.
OPERATING RESULTS MAY FLUCTUATE, WHICH WOULD HAVE A NEGATIVE EFFECT ON THE PRICE
OF OUR COMMON STOCK
Quidel has only been profitable for a limited time and we may not continue our
revenue growth or profitability. Operating results may continue to fluctuate, in
a given quarter or annual period, from prior periods as a result of a number of
factors, many of which are outside of our control, including:
- seasonal fluctuations in our sales of strep throat and influenza
tests which are generally highest in fall and winter,
- changes in the level of competition,
- changes in the economic conditions in both our domestic and
international markets,
- delays in shipments of our products to customers or from our
suppliers,
- manufacturing difficulties and fluctuations in our manufacturing
output, including those arising from constraints in our
manufacturing capacity,
- actions of our major distributors,
- adverse product reviews or delays in product reviews by regulatory
agencies,
- the timing of significant orders,
- changes in the mix of products we sell; and
- costs, timing and the level of acceptance of new products.
Fluctuations for any reason that decrease sales or profitability, including
those listed, could cause our growth or operating results to fall below the
expectations of investors and securities analysts, and our stock price to
decline.
OUR PRODUCTS AND MARKETS REQUIRE CONSIDERABLE RESOURCES TO DEVELOP, WHICH
RESOURCES MUST BE RECOUPED IN ADDITIONAL SALES
The development, manufacture and sale of diagnostic products requires a
significant investment of resources. Our increased investment in sales and
marketing activities, manufacturing scale-up and new product development is
continuing to increase our operating expenses, and our operating results would
be adversely affected if our sales and gross profits do not correspondingly
increase, or if our product development efforts are unsuccessful or delayed.
Development of new markets also requires a substantial investment of resources
and, if adequate resources, including funds, are not available, we may be
required to delay or scale back market developments.
DELAYS IN PRODUCT MANUFACTURING COULD REQUIRE CONSIDERABLE RESOURCES AND HARM
CUSTOMER RELATIONSHIPS
If we experience significant demand for our products, we may require additional
capital resources to meet such demands. If we are unable to develop necessary
manufacturing capabilities, our competitive position and financial condition
could be adversely affected. Failure to increase production volumes, if
required, in a cost-effective manner, or lower than anticipated yields or
production constraints encountered as a result of changes in the manufacturing
process, could result in shipment delays as well as increased manufacturing
costs, which could have a material adverse effect on our business, financial
condition and results of operations.
The majority of raw materials and purchased components used to manufacture our
products are readily available. However, certain of these materials are obtained
from a sole supplier or a limited group of suppliers. The reliance on sole or
limited suppliers and the failure to maintain long-term agreements with other
suppliers involves several risks, including the inability to obtain an adequate
supply of required raw materials and components and reduced control over
pricing, quality and timely delivery. Although we attempt to minimize our supply
risks by maintaining an inventory of raw materials and continuously evaluating
other sources, any interruption in supply could have a material adverse effect
on our business, financial condition and results of operations.
10
THE LOSS OF KEY DISTRIBUTORS OR AN UNSUCCESSFUL EFFORT TO DIRECTLY DISTRIBUTE
OUR PRODUCTS COULD SIGNIFICANTLY DISRUPT OUR BUSINESS
We rely primarily on a small number of key distributors to distribute our
products. The loss or termination of our relationship with any of these key
distributors could significantly disrupt our business unless suitable
alternatives can be found. Finding a suitable alternative may pose challenges in
the industry's competitive environment. Another suitable distributor, with whom
we can negotiate a new distribution or marketing agreement on satisfactory
terms, may not be found. We could expand our efforts to distribute and market
our products directly, however, this would require an investment in additional
sales and marketing resources, including hiring additional field sales
personnel, which would significantly increase our future selling, general and
administrative expenses. In addition, our direct sales, marketing and
distribution efforts may not be successful.
WE MAY NOT ACHIEVE EXPECTED MARKET ACCEPTANCE OF OUR PRODUCTS AMONG PHYSICIANS
AND OTHER HEALTH CARE PROVIDERS
Significant competitors for our products are clinical reference laboratories and
hospital-based laboratories, which provide the majority of diagnostic tests used
by physicians and other health-care providers. Our estimates of future sales
depend on, among other matters, the capture of sales from these laboratories,
and if we do not capture sales as expected our operating results may fall below
expectations. We expect that these laboratories will compete vigorously to
maintain their dominance of the testing market. Moreover, even if we can
demonstrate that our products are more cost-effective or save time, physicians
and other health care providers may resist changing their established source for
such tests.
INTENSE COMPETITION IN THE DIAGNOSTIC MARKET POSES CHALLENGES TO OUR
PROFITABILITY
The diagnostic test market is highly competitive. We have a large number of
multinational and regional competitors making investments in competing
technologies. If our competitors' products are more effective or more
commercially attractive than ours our business and financial results could be
adversely affected. Competition also negatively impacts our product prices and
profit margins.
A number of our competitors have a potential competitive advantage because they
have substantially greater financial, technical, research and other resources,
and larger, more established marketing, sales, distribution and service
organizations than ours. Moreover, some competitors offer broader product lines
and have greater name recognition than Quidel.
TO REMAIN COMPETITIVE WE MUST CONTINUE TO DEVELOP OR OBTAIN PROPRIETARY
TECHNOLOGY RIGHTS
Our operating results can be significantly affected by the phase out of older
products near the end of their product life cycles, as well as the success of
new product introduction. Our ability to compete successfully in the diagnostic
market depends upon continued development and introduction of new proprietary
technology and the improvement of existing technology.
Our competitive position is heavily dependent upon obtaining and protecting our
proprietary technology or obtaining licenses from others. If we cannot continue
to obtain and protect such proprietary technology our competitive position could
be adversely affected. Moreover, our current and future licenses may not be
adequate for the operation of our business.
Our ability to obtain patents and licenses, and their benefits, are uncertain.
We have a number of issued patents and additional applications are pending.
However, our pending patent applications may not result in the issuance of any
patents, or if issued, the patents may not have priority over others'
applications, or, may not offer protection against competitors with similar
technology. Moreover, any patents issued to us may be challenged, invalidated or
circumvented in the future. Also, we may not be able to obtain licenses for
technology patented by others or on commercially reasonable terms. A failure to
obtain necessary licenses could prevent us from commercializing some of our
products under development.
11
WE MAY BE INVOLVED IN INTELLECTUAL PROPERTY INFRINGEMENT DISPUTES WHICH ARE
COSTLY AND COULD LIMIT OUR ABILITY TO USE SOME TECHNOLOGIES IN THE FUTURE
There are a large number of patents and patent applications in our product
areas, and we believe that there may be significant litigation in our industry
regarding patent and other intellectual property rights. Our involvement in
litigation to determine rights in proprietary technology could adversely effect
our business and financial results because:
- it consumes a substantial portion of managerial and financial
resources;
- its outcome is inherently uncertain and a court may find the
third-party claims valid and that we have no successful defense to
such claims;
- an adverse outcome could subject us to significant liability;
- failure to obtain a necessary license upon an adverse outcome could
prevent us from selling our current products or other products we
may develop; and
- protection of our rights may not be available under the law or may
be inadequate.
THE UNCERTAINTY AND COST OF REGULATORY APPROVAL FOR OUR PRODUCTS MAY HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND OPERATIONS
The testing, manufacture and sale of our products are subject to regulation by
numerous governmental authorities, principally the FDA and corresponding state
and foreign regulatory agencies. Our estimates of future performance depend on,
among other matters, our estimates as to when and at what cost we will receive
regulatory approval for new products. However, complying with laws and
regulations of these regulatory agencies can be a lengthy, expensive and
uncertain process making the timing and costs of approvals difficult to predict.
Our operating results may be adversely affected by unexpected actions of
regulatory agencies, including delays in the receipt of or failure to receive
approvals or clearances, the loss of previously received approvals or
clearances, and the placement of limits on the use of the products.
We are also subject to numerous laws relating to such markers as safe working
conditions, manufacturing practices, environmental protection, fire hazard
control and disposal of hazardous or potentially hazardous substances. It is
also impossible to reliably predict the full nature and impact of future
legislation or regulatory developments relating to our industry. To the extent
the costs and procedures associated with meeting new requirements are
substantial, our business and results of operations could be adversely affected.
UNCERTAINTY RELATING TO THIRD PARTY REIMBURSEMENT AND POTENTIAL COST CONSTRAINTS
In the United States, health care providers that purchase diagnostic products,
such as hospitals and physicians, generally rely on third party payers,
principally private health insurance plans, federal Medicare and state Medicaid,
to reimburse all or part of the cost of the procedure. We believe that the
overall escalating cost of medical products and services has led to and will
continue to lead to increased pressures on the health care industry, both
foreign and domestic, to reduce the cost of products and services, including our
products. Given the efforts to control and reduce health care costs in the
United States in recent years, there can be no assurance that currently
available levels of reimbursement will continue to be available in the future
for Quidel's existing products or products under development. Quidel could be
adversely affected by changes in reimbursement policies of governmental or
private health care payers, particularly to the extent any such changes affect
reimbursement for procedures in which Quidel's products are used. Third party
reimbursement and coverage may not be available or adequate in either U.S. or
foreign markets, current reimbursement amounts may be decreased in the future
and future legislation, regulation or reimbursement policies of third-party
payers may adversely affect the demand for Quidel's products or its ability to
sell its products on a profitable basis.
IF WE ARE NOT ABLE TO MANAGE OUR GROWTH STRATEGY OUR BUSINESS AND RESULTS OF
OPERATIONS MAY BE ADVERSELY IMPACTED
We anticipate increased growth in the number of employees, the scope of
operating and financial systems and the geographic area of our operations as new
products are developed and commercialized. This growth may divert management's
attention from other aspects of our business, and will place a strain on
existing management, and operational, financial and management information
systems. To manage this growth, we must continue to implement and improve our
operational and financial systems and to train, motivate, retain and manage our
employees. Furthermore, we may expand into markets in which we have less
experience or incur higher costs. Should we encounter difficulties in managing
these tasks, our growth strategy may suffer and anticipated sales could be
adversely effected.
12
LOSS OF KEY PERSONNEL OR OUR INABILITY TO HIRE QUALIFIED PERSONNEL COULD
NEGATIVELY IMPACT OUR BUSINESS
Our future success depends in part on our ability to retain our key technical,
sales, marketing and executive personnel, and our ability to identify and hire
additional qualified personnel. Competition for such personnel is intense and if
we are not able to retain existing key personnel, or identify and hire
additional qualified personnel, our business could be negatively impacted.
WE ARE EXPOSED TO RISKS OF SIGNIFICANT PRODUCT LIABILITY, WHICH IF NOT COVERED
BY INSURANCE COULD HAVE AN ADVERSE EFFECT ON OUR PROFITABILITY
There is a risk of product liability claims against us arising from our testing,
manufacturing and marketing of medical diagnostic devices, both those currently
being marketed, as well as those under development. Potential product liability
claims may exceed the amount of our insurance coverage or may be excluded from
coverage under the terms of our policy. Furthermore, if we are held liable, our
existing insurance may not be renewed at the same cost and level of coverage as
presently in effect, or may not be renewed at all. If we are held liable for a
claim against which we are not indemnified or for damages exceeding the limits
of our insurance coverage, that claim could have a material adverse effect on
our business, financial condition and result of operations.
WE MAY EXPERIENCE DIFFICULTIES INTEGRATING ACQUIRED COMPANIES OR TECHNOLOGIES
AFTER THE ACQUISITION
We may experience difficulties integrating our operations with those of
companies or technologies we may acquire, and there can be no assurance that we
will realize the benefits and cost savings that we believe the acquisition will
provide or that such benefits will be achieved within the time frame we
anticipate. The acquisitions may distract management from day-to-day business
and may require other substantial resources. We may incur restructuring and
integration costs from combining other operations or technologies with ours.
These costs may be substantial and may include costs for employee severance,
relocation and disposition of excess assets and other acquisition related costs.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Quidel received a letter dated April 24, 1992 from the United States
Environmental Protection Agency (the "EPA") notifying Quidel that it is a
potentially responsible party for cleanup costs at a federal Superfund site, the
Marco of Iota Drum Site (the "Marco Site"), near Iota, Louisiana. Documents
gathered in response to such letter indicate that Quidel sent a small amount of
hazardous waste to facilities in Illinois. It is possible that subsequently,
such waste could have been shipped to the Marco Site. The EPA letter indicates
that a similar notice regarding the Marco Site was sent by the EPA to over 500
other parties. At this time, Quidel does not know how much of its waste may have
reached the Marco Site, the total volume of waste at the Marco Site or the
likely site remediation costs. There is, as in the case of most environmental
litigation, the theoretical possibility of joint and several liability being
imposed upon Quidel for damages that may be awarded.
Quidel is involved in litigation matters from time to time in the ordinary
course of business. Management believes that any and all such actions, in the
aggregate, will not have a material adverse effect on Quidel. Quidel maintains
insurance, including coverage for product liability claims, in amounts which
management believes appropriate given the nature of Quidel's business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Exhibit
------ -------
27* Financial Data Schedule
* Attached hereto.
(b) Reports on Form 8-K filed in the first quarter of 2000
On January 21, 2000, Quidel filed a Form 8-K to report that the common
stock underlying its publicly-traded warrants (QDELW) is in the
process of being registered, pursuant to registration rights in the
Warrant Agreement, to allow the warrantholders the ability to exercise
such warrants.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUIDEL CORPORATION
Date: May 12, 2000 /s/ Charles J. Cashion
---------------------------
Charles J. Cashion
Senior Vice President,
Corporate Operations,
Chief Financial Officer and
Secretary
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