<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---- SECURITIES EXCHANGE ACT OF 1934
For quarter ended December 31, 1996
OR
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)
Registrant's telephone number, including area code (619) 552-1100
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
--- ---
The number of shares outstanding of the Registrant's Common Stock as of
December 31, 1996 was 21,823,815.
<PAGE> 2
QUIDEL CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Numbers
-------
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1996 and March 31, 1996........................................ 3
Condensed Consolidated Statements of Income
Three months ended December 31, 1996 and 1995............................... 4
Condensed Consolidated Statements of Income
Nine months ended December 31, 1996 and 1995................................ 5
Condensed Consolidated Statements of Cash Flows
Nine months ended December 31, 1996 and 1995................................ 6
Notes to Unaudited Condensed Consolidated
Financial Statements........................................................ 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................... 8 - 12
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.................................................................. 12
ITEM 2. Changes in Securities.............................................................. 12
ITEM 3. Defaults upon Senior Securities.................................................... 12
ITEM 4. Submission of Matters to a Vote of Security Holders................................ 12
ITEM 5. Other Information.................................................................. 12
ITEM 6. Exhibits and Reports on Form 8-K................................................... 12
Signatures...................................................................................... 13
</TABLE>
2
<PAGE> 3
QUIDEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1996 1996
------------ -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,393,000 $ 2,538,000
Accounts receivable, net 8,333,000 7,602,000
Inventories, at lower of cost (first-in, first-out) or market:
Raw materials 2,119,000 1,899,000
Work in process 1,238,000 1,014,000
Finished goods 866,000 578,000
------- -------
4,223,000 3,491,000
Prepaid expenses and other current assets 564,000 555,000
------- -------
Total current assets 16,513,000 14,186,000
Property and equipment, net 14,000,000 13,727,000
Intangible assets, net 5,004,000 5,161,000
Other assets 225,000 260,000
------- -------
$35,742,000 $33,334,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,579,000 $ 1,361,000
Accrued payroll and related expenses 1,128,000 772,000
Note payable to bank under line of credit 62,000 441,000
Deferred contract research revenue 70,000 337,000
Current portion of long-term debt and obligations
under capital leases 330,000 683,000
Other current liabilities 627,000 532,000
------- -------
Total current liabilities 3,796,000 4,126,000
Long-term debt and obligations under capital leases 3,249,000 3,490,000
Stockholders' equity:
Common stock 22,000 22,000
Additional paid-in capital 110,827,000 110,054,000
Accumulated deficit (82,152,000) (84,358,000)
----------- -----------
Total stockholders' equity 28,697,000 25,718,000
----------- -----------
$ 35,742,000 $ 33,334,000
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended December 31,
1996 1995
----------- ----------
<S> <C> <C>
Revenues:
Net sales $11,727,000 $ 9,044,000
Research contracts, license fees and royalties 710,000 209,000
------- -------
Total revenues 12,437,000 9,253,000
Costs and expenses:
Cost of sales 5,358,000 4,248,000
Research and development 1,595,000 1,014,000
Sales and marketing 2,560,000 2,612,000
General and administrative 997,000 866,000
------- -------
Total costs and expenses 10,510,000 8,740,000
Operating income 1,927,000 513,000
Other income and expense:
Interest income 36,000 39,000
Interest expense (106,000) (130,000)
-------- --------
Income before income taxes 1,857,000 422,000
Provision for income taxes 52,000 --
-------- --------
Net income $ 1,805,000 $ 422,000
========== ==========
Net income per share $ .08 $ .02
========== ==========
Shares used in computing net income per share 22,374,000 23,056,000
========== ==========
</TABLE>
See accompanying notes.
4
<PAGE> 5
QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended December 31,
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Net sales $29,676,000 $25,654,000
Research contracts, license fees and royalties 2,141,000 479,000
--------- -------
Total revenues 31,817,000 26,133,000
Costs and expenses:
Cost of sales 13,870,000 11,883,000
Research and development 5,044,000 2,991,000
Sales and marketing 7,680,000 7,994,000
General and administrative 2,691,000 2,542,000
--------- ---------
Total costs and expenses 29,285,000 25,410,000
Operating income 2,532,000 723,000
Other income and expense:
Interest income 110,000 129,000
Interest expense (353,000) (406,000)
-------- --------
Income before income taxes 2,289,000 446,000
Provision for income taxes 83,000 --
-------- --------
Net income $ 2,206,000 $ 446,000
========== ==========
Net income per share $ .10 $ .02
========== ==========
Shares used in computing net income per share 22,604,000 22,550,000
========== ==========
</TABLE>
See accompanying notes.
5
<PAGE> 6
QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended December 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,206,000 $ 446,000
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Depreciation and amortization 1,793,000 1,505,000
Changes in assets and liabilities:
Accounts receivable (731,000) (317,000)
Inventories (732,000) 656,000
Prepaid expenses and other current assets (9,000) 254,000
Accounts payable 218,000 (651,000)
Accrued payroll and related expenses 356,000 (2,000)
Accrued acquisition expenses -- (591,000)
Deferred contract research revenue (267,000) --
Other current liabilities 95,000 (752,000)
------ --------
Net cash flows from operating activities 2,929,000 548,000
Cash flows used for investing activities:
Additions to equipment and improvements (1,513,000) (2,119,000)
Increase in other assets (361,000) (135,000)
-------- --------
Net cash flows used for investing activities (1,874,000) (2,254,000)
Cash flows provided by (used for) financing activities:
Net proceeds from issuance of common stock 773,000 943,000
Payments on notes payable, long-term debt and
obligations under capital leases (973,000) (340,000)
-------- --------
Net cash flows provided by (used for)
financing activities (200,000) 603,000
Net increase (decrease) in cash and cash equivalents 855,000 (1,103,000)
Cash and cash equivalents at beginning of period 2,538,000 3,878,000
--------- ---------
Cash and cash equivalents at end of period $ 3,393,000 $ 2,775,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 329,000 $ 368,000
=========== ===========
</TABLE>
See accompanying notes.
6
<PAGE> 7
QUIDEL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
QUIDEL Corporation (the "Company") discovers, develops, manufactures and
markets diagnostic products for human health care. The unaudited financial
information included herein is condensed and has been prepared in
accordance with generally accepted accounting principles applicable to
interim periods; consequently it does not include all generally accepted
accounting disclosures required for complete annual financial statements.
The condensed financial information contains, in the opinion of management,
all adjustments, consisting of normal recurring adjustments, necessary to
state fairly the Company's financial position, results of operations and
cash flows. The Company's results of operations for the three and nine
months ended December 31, 1996 are not necessarily indicative of the
results to be expected for the full year.
Management suggests that these condensed financial statements be read in
conjunction with the financial statements and notes thereto for the year
ended March 31, 1996, included in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
NET INCOME PER SHARE - Net income per share has been computed using the
weighted average number of common shares and dilutive common stock
equivalents outstanding during each period presented.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Financial results for the Company's third quarter ended December 31, 1996
increased significantly over the same period of the prior year. Sales increased
30% driven by growth in the domestic professional sales channel to an all-time
high of $11,727,000 which resulted in record net income of $1,805,000.
NET SALES TRENDS BY MAJOR SALES CHANNELS
<TABLE>
<CAPTION>
INCREASE INCREASE
PERIODS ENDED DECEMBER 31, THREE MONTHS (DECREASE) NINE MONTHS (DECREASE)
(IN THOUSANDS) 1996 1995 % 1996 1995 %
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic sales:
Professional sales $ 7,379 $ 3,921 88% $17,856 $11,276 58%
OTC sales 501 1,165 (57%) 1,238 2,560 (52%)
Clinical lab sales 328 307 7% 1,038 934 11%
OEM sales 150 267 (44%) 612 874 (30%)
------------------------------------------------------------------------------
Total domestic sales 8,358 5,660 48% 20,744 15,644 33%
- ----------------------------------------------------------------------------------------------------------------------------
International sales:
Export sales 2,041 2,288 (11%) 5,888 6,781 (13%)
European subsidiary sales 1,328 1,096 21% 3,044 3,229 (6%)
------------------------------------------------------------------------------
Total international sales 3,369 3,384 -- 8,932 10,010 (11%)
- ----------------------------------------------------------------------------------------------------------------------------
Total net sales $11,727 $ 9,044 30% $29,676 $25,654 16%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Domestic professional sales continue to increase significantly over the prior
year periods. This growth is primarily related to increased sales of the
Company's strep throat products which have been enhanced by the March 1996
receipt of CDC CLIA waived classification status of the QuickVue(R) In-Line
One-Step Strep A Test and the introduction of the CARDS(R) QS(R) and Concise(R)
Performance Plus(TM) Strep A tests not present in the prior year. Sales of these
strep products are seasonal and occur primarily within the fall and winter
quarters. Sales of the Company's QuickVue(R) One-Step H. Pylori test, a test for
bacterium that causes most stomach ulcers, also increased in the current
quarter. This is our second infectious disease test to receive CDC CLIA waived
categorization status, which occurred in October 1996. Management believes there
is the potential for significant growth in H. pylori test sales as this market
expands. Our efforts to increase H. Pylori product sales include the
co-promotion agreement announced in January 1997 with Procter & Gamble Company
("P&G"), whereby the P&G 300-person sales force will promote the use of QUIDEL's
H. pylori test when making calls on physicians to communicate the benefits of
their Helidac(R) Therapy.
QUIDEL's domestic OTC home testing products have been distributed through Ansell
Consumer Products ("Ansell") since January 1996. The reduction in OTC
8
<PAGE> 9
sales reflects lower unit sales prices to Ansell versus the previous direct
sales to retail drug stores. This arrangement has allowed the Company to reduce
its level of OTC sales and marketing expense (see the Operating Expense section
below).
International export sales in both the current quarter and year-to-date periods
reflect lower pregnancy product sales in Europe and Asia and a reduction in
allergy test sales in Germany, resulting from a change in the authorized
reimbursement level. This decline more than offsets the growth in Strep A and
H. pylori test sales.
Sales from the Company's four European subsidiaries improved in the current
quarter. In the current year the Company has focused on the sale of QUIDEL
branded products only; non-QUIDEL branded sales amounted to $849,000 in the
prior year-to-date period.
REVENUE FROM RESEARCH CONTRACTS, LICENSE FEES AND ROYALTIES
<TABLE>
<CAPTION>
PERIODS ENDED DECEMBER 31, THREE MONTHS NINE MONTHS
(IN THOUSANDS) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contract research and development $672 $ -- $2,083 $ --
License Fees -- 161 -- 361
Royalty income 38 48 58 118
-------------------------------------------
Total $710 $209 $2,141 $479
- -------------------------------------------------------------------------------------
</TABLE>
Contract research revenue in the current quarter and nine month period is
principally related to the Glaxo influenza program which commenced in March 1996
and is equal to the sum of the program direct research cost (see operating
expenses below) and allocated support service cost.
COST OF SALES AND GROSS PROFIT
<TABLE>
<CAPTION>
PERIODS ENDED DECEMBER 31, THREE MONTHS NINE MONTHS
(IN THOUSANDS) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Direct Cost - material, labor and other
variable cost $4,248 $3,237 $10,619 $ 8,886
As a percentage of sales 36% 36% 36% 34%
--------------------------------------------------
Direct Margin - contribution per
sales dollar 64% 64% 64% 66%
--------------------------------------------------
Manufacturing overhead cost 1,110 1,011 3,251 2,997
As a percentage of sales 10% 11% 11% 12%
--------------------------------------------------
Total cost of sales 5,358 4,248 13,870 11,883
--------------------------------------------------
Gross profit $6,369 $4,796 $15,806 $13,771
As a percentage of sales 54% 53% 53% 54%
- --------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
Gross profit increased 33% in the current quarter over the prior year due to the
30% increase in sales volume and the relatively fixed level of manufacturing
overhead cost.
The year-to-date direct margin as a percentage of sales has declined from the
comparable prior year period due to the shift in the mix of product sales toward
higher sales of strep throat tests which provide a slightly lower direct margin
percentage. In addition, the decline in OTC product sales prices to Ansell,
discussed above, has reduced the gross profit percentage.
<TABLE>
<CAPTION>
OPERATING EXPENSES
PERIODS ENDED DECEMBER 31, THREE MONTHS NINE MONTHS
(IN THOUSANDS) 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Research and development
Quidel research projects $1,103 $1,014 $ 3,369 $ 2,991
Contract research-- direct costs 492 -- 1,675 --
---------------------------------------------------
Total research and development 1,595 1,014 5,044 2,991
As a percentage of sales 14% 11% 17% 12%
---------------------------------------------------
Sales and marketing
Domestic professional sales and marketing 1,458 1,217 4,352 3,536
Domestic OTC sales and marketing 89 369 426 1,246
International sales and marketing 1,013 1,026 2,902 3,212
---------------------------------------------------
Total sales and marketing 2,560 2,612 7,680 7,994
As a percentage of sales 22% 29% 26% 31%
---------------------------------------------------
General and administrative 997 866 2,691 2,542
As a percentage of sales 8% 10% 9% 10%
- ---------------------------------------------------------------------------------------------------------
Total operating expenses $5,152 $4,492 $15,415 $13,527
As a percentage of sales 44% 50% 52% 53%
- ---------------------------------------------------------------------------------------------------------
Total operating expenses excluding
contract research $ 4,660 $ 4,492 $13,740 $13,527
As a percentage of sales 40% 50% 46% 53%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Research and Development. New product clinical trial costs account for the
increase in the QUIDEL project category shown above. Approximately 30% of total
research and development is in contract research, principally associated with
the direct research cost of the Glaxo influenza diagnostic product development
program which is funded by the contract research revenue shown above.
Sales and Marketing. The efficiency of domestic professional sales and marketing
increased significantly in the current quarter. The expense declined to
approximately 20% of the domestic professional sales from 31% of sales in the
10
<PAGE> 11
same quarter of the prior year. Domestic OTC sales and marketing expense has
been reduced related to the Ansell distribution agreement discussed above.
General and Administrative. General and administrative expenses increased 15%
and 6% in the current quarter and year-to-date periods versus the prior year
respective periods. These increases are in part related to increased information
systems staffing and legal expenses.
Net Income. Net income improved to $1,805,000 ($.08 per share) in the current
quarter from $422,000 ($.02 per share) in the prior year quarter as a result of
a $2,683,000 or 30% increase in sales. Net income for the nine months ended
December 31, 1996 improved to $2,206,000 ($.10 per share) from $446,000 ($.02
per share) in the comparable prior year period.
These results exemplify that the Company's profitability is significantly
impacted by the level of sales achieved. This is due to the high operating
leverage associated with the current direct margin rate and fixed cost
structure. At today's cost structure, once the quarterly sales breakeven level
of approximately $9.1 million has been reached, net income is generated at a
rate in excess of 50% of sales above this level. The Company's breakeven sales
level is subject to change in the future due to pricing or sales mix effects on
the direct margin rate, and/or changes in expense levels. These changes can
significantly impact the amount of net income generated.
The Company's operating results may continue to fluctuate on a quarter-to
- -quarter basis as a result of a number of factors, including the competitive
and economic factors affecting the Company's markets, actions of our major
distributors, adverse actions or delays in product reviews by the United
States Food and Drug Administration, the degree of acceptance that our new
products achieve during the year, and seasonality.
Liquidity and Capital Resources. At December 31, 1996, the Company had cash and
cash equivalents of $3,393,000, compared to $2,538,000 at March 31, 1996. During
the nine months ended December 31, 1996, the Company generated $2,929,000 in
cash from operating activities. Cash flow provided from profitable operations
and increases in accounts payable and accrued payroll more than offset increases
in accounts receivable and inventory and reduction in deferred contract revenue.
Cash used for investment activities of $1,874,000 related primarily to capital
expenditures for equipment associated with increased production capacity,
equipment supporting scientific research, capitalized patent costs and the
purchase of the remaining interest in our Spanish subsidiary. All subsidiaries
are now wholly owned.
Cash used in financing activities totaled $200,000 and reflects the repayment of
debt and capital lease liabilities offset by the proceeds from the exercise of
employee stock options and the exercise of warrants issued in January 1991.
11
<PAGE> 12
The Company has a domestic accounts receivable-secured bank line of credit in an
amount up to $3,000,000 which provides for interest at the bank's prime rate
plus two percent. The line of credit expires August 5, 1998. As of December 31,
1996, there were no outstanding borrowings under this line of credit. The note
payable to bank shown on the balance sheet is related to Spanish bank debt
secured by receivables of the Company's subsidiary in Spain.
QUIDEL's principal capital requirements are for working capital. These
requirements fluctuate as a result of numerous factors, such as the extent to
which the Company uses or generates cash in operations, progress in research and
development projects, competition and technological developments and the time
and expenditures required to obtain governmental approval of its products. Based
on its current cash position and its current assessment of future operating
results, management believes that its existing sources of liquidity should be
adequate to meet its operating needs.
Except for the historical information contained herein, the matters discussed in
this report are by their nature forward-looking. For the reasons stated in this
report or in the Company's Securities and Exchange Commission filings, or for
various unanticipated reasons, actual results may differ materially.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS None
ITEM 2. CHANGES IN SECURITIES None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS None
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Exhibit
------ -------
27 Financial Data Schedule
(b) Reports on Form 8-K None
12
<PAGE> 13
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
-----------------------
(Registrant)
Date: January 23, 1997 /s/ STEVEN C. BURKE
------------------------
Steven C. Burke
Chief Accounting Officer
Signed both as a duly authorized
officer to sign on behalf of the
Registrant and as Chief Accounting
Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,393
<SECURITIES> 0
<RECEIVABLES> 8,333
<ALLOWANCES> 967
<INVENTORY> 4,223
<CURRENT-ASSETS> 16,513
<PP&E> 21,350
<DEPRECIATION> 7,350
<TOTAL-ASSETS> 35,742
<CURRENT-LIABILITIES> 3,796
<BONDS> 3,249
0
0
<COMMON> 22
<OTHER-SE> 28,675
<TOTAL-LIABILITY-AND-EQUITY> 35,742
<SALES> 29,676
<TOTAL-REVENUES> 31,817
<CGS> 13,870
<TOTAL-COSTS> 29,285
<OTHER-EXPENSES> (110)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 353
<INCOME-PRETAX> 2,289
<INCOME-TAX> 83
<INCOME-CONTINUING> 2,206
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,206
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
