QUIDEL CORP /DE/, 10-K, 1999-06-29

QUIDEL CORP /DE/
10-K, 1999-06-29
IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10 - K

__X__ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934

For fiscal year ended March 31, 1999

OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-10961

QUIDEL CORPORATION
(Exact name of Registrant as specified in its charter)

DELAWARE 325900 94-2573850
(State or other jurisdiction (Standard Industrial (I.R.S. Employer
or incorporation or organization) Classification) Identification No.)

10165 McKellar Court,
San Diego, California
(Address of principal 92121
executive offices) (zip code)

Registrant's telephone number, including area code (619) 552-1100
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the
Act: Common Stock, $0.001 par value

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 __ ___

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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by nonaffiliates of the
Registrant was approximately $57,632,421 based upon the closing sales price of
the Registrant's comon stock on June 18, 1999 as reported on the Nasdaq National
Market. For the purposes of this calculation, shares owned by directors and
officers have been deemed to be owned by affiliates.

The number of shares outstanding of the Registrant's Common Stock as of June 18,
1999 was 23,822,491.

DOCUMENTS INCORPORATED BY REFERENCE

Registrant's Proxy Statement for the Annual Meeting of Stockholders scheduled to
be held on July 27, 1999 (the "Proxy Statement"), which will be filed with the
Securities and Exchange Commission no later than 120 days after the close of the
Registrant's fiscal year ended March 31, 1999 ("Fiscal 99"), is incorporated by
reference as provided in Part III.

FORWARD-LOOKING STATEMENTS

This report 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.
Difference 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 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 under "Business Risks" and in other
sections of this report and in other reports and registration statements of
Quidel filed with the Securities and Exchange Commission from time to time
should be carefully considered.

PART I

Item 1. BUSINESS

Quidel discovers, develops, manufactures and markets point-of-care ("POC") rapid
diagnostics for detection of human medical conditions and illnesses. These
products provide simple, accurate and cost-effective diagnoses for acute and
chronic conditions in the areas of women's

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health and infectious diseases. Quidel's products are sold to professionals
for use in the physician's office and clinical laboratory, and to consumers
through organizations that provide private, store brand products.

Quidel commenced its operations in 1979 and launched its first products,
dipstick-based pregnancy tests, in 1984. The product base has expanded through
internal development and acquisitions of other products in the areas of
pregnancy and ovulation, infectious disease, allergy and autoimmune products for
professional research and home use. Quidel markets its products worldwide
through a network of national and regional distributors, supported by a direct
sales force in the United States.

On June 10, 1998, the Board of Directors announced that Andre de Bruin, Vice
Chairman of the Board, and then a part-time employee, had been appointed
President and Chief Executive Officer. Additional changes to the management team
were made in September 1998 when Darryll Getzlaff, Vice President of Human
Resources, Glenn Holmes, Vice President of Sales and Marketing and Steven Burke,
Vice President of Finance and Administration and Chief Financial Officer
resigned from the Company. The Company then formed two separate and distinct
business units, Women's Health and Infectious Diseases, to more effectively
capitalize on the core competencies of the Company. To oversee the two business
units, Donna McGill was hired as Vice President, Women's Health, and Dr. Charles
Bowden, was hired as Chief Medical Officer and Vice President, Infectious
Diseases. In addition, Robert Buchs was hired as Vice President, Sales and
Distribution Management and Charles Cashion was hired as Senior Vice President,
Corporate Operations, Chief Financial Officer and Secretary.

International subsidiary losses led to the decision in fiscal 1998 to
discontinue the operations of certain European subsidiaries and continue sales
in these areas through distributors. As a result, a charge of approximately
$440,000 in restructuring costs was recorded in the first quarter of fiscal
1999.

During the second quarter of fiscal 1999, a product rationalization program was
completed. Existing product lines were assessed for profitability and ongoing
strategic contribution. Unprofitable or low volume products were discontinued or
considered for sale. A charge of approximately $397,000 was recorded in the
second quarter to account for this program, as well as expenses associated with
management changes and organizational restructuring.

In the second half of fiscal 1999, Quidel developed a new strategic plan. This
plan focused on improving the financial performance of the existing operations,
as well as identifying licensing and acquisition opportunities, and forming
additional collaborations with pharmaceutical and other health care companies.
The mission for fiscal 2000 and beyond is to establish the Company as a leader
in POC rapid diagnostics for women's health and infectious diseases at the POC.

The implementation of a more sophisticated enterprise-wide computer operating
system began

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during fiscal 1999. With this new system, the operations of the
business are expected to become more efficient due to the streamlining of
processes and procedures, many of which are currently being performed manually.
The information to be provided from this system will assist management with
day-to-day operating decisions.

In June 1999, the Company announced that it signed a definitive agreement to
acquire Metra Biosystems, Inc. ("Metra") for approximately $22.9 million, or
$1.78 per share based upon 12,852,248 shares outstanding, including vested
options, in an all cash tender offer. Metra is a world leader in the diagnosis
and detection of bone loss for the management of osteoporosis and other bone
diseases. Completion of the tender offer is expected by the end of July 1999,
and is subject to 90% of the shares being tendered, execution of retention
agreements by key employees, a minimum cash balance at closing and other
customary closing conditions. At the close of the tender offer, it is
anticipated that the total consolidation and transaction costs to the Company
will be approximately $8 million, net of Metra's estimated cash of approximately
$19 million. The tender offer will be financed from our cash reserves, proceeds
from a short-term bank loan and proceeds from a revolving line of credit. The
short-term bank loan will be repaid with the Metra cash acquired, while the line
of credit will be repaid with the proceeds of the contemplated sale and
leaseback of the Quidel corporate facility.

The Company's executive offices are located at 10165 McKellar Court, San Diego,
California 92121 and its telephone number is (619) 552-1100.

DIAGNOSTIC TEST KIT INDUSTRY OVERVIEW
THE OVERALL MARKET FOR IN-VITRO DIAGNOSTICS

The worldwide market for IN-VITRO Diagnostic ("IVD") products is segmented by
the application of the underlying technology involved in a test, with the
largest segments being clinical chemistry and immunodiagnostics, accounting for
about 25% and 30% of the total IVD market, respectively. Geographically, North
America accounts for approximately 40% of the IVD market, while Europe, Japan
and the rest of the world account for approximately 33%, 13% and 14% of the IVD
market respectively.

The customers for IVD products are varied, but are dominated by large
centralized laboratories, either independent or in a hospital. In the U.S.,
central laboratories represent only 10% of total number of testing facilities,
but account for 70% of test volume and 80% of revenues.

From a health care provider's standpoint, the diagnostic testing process
typically involves obtaining a specimen sample of blood, urine or other
substance from the patient and sending the sample to a central laboratory.
Typically, the health care provider receives the results several hours or even
days after seeing the patient. The result of this process is that the diagnostic
test is generally disconnected from the immediate care and dialogue between a
health care provider and a patient.

Three basic factors have driven the market for central laboratory testing: 1)
technical requirements for accurate testing often require sophisticated and
expensive equipment; 2) the

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cost to run a test on these large scale instruments
is low; and 3) the Clinical Laboratory Improvement Amendments of 1988 ("CLIA")
and subsequent Health Care Financing Administration regulations subject all
laboratories, regardless of size, to strict standards. Many physicians and
smaller laboratories found these regulations prohibitively expensive and stopped
testing in the early 1990's. Together, these factors have led to the current
dominance of centralized laboratories in diagnostic testing.

The over-the-counter ("OTC") market for self-testing has been affected by these
trends. The U.S. OTC market was estimated to be approximately $1.9 billion in
1998 and is estimated to grow to $3.5 billion in five years. Two test
categories, pregnancy and glucose monitoring for diabetes, dominate this market.

THE POINT-OF-CARE MARKET

Point-of-care testing for certain diagnostic parameters is rapidly becoming an
accepted adjunct to central laboratory and self-testing. The POC market is
comprised of two general segments: hospital testing and decentralized testing in
non-institutional settings. Hospital POC testing is a growing practice and is
generally an extension of the hospital's central laboratory. A number of
diagnostic tests are conducted in the hospital and are more effectively
completed at the patient bedside, laboratory or in the emergency room . Examples
of rapid turnaround diagnostics include strep throat tests and pregnancy tests.

Decentralized testing consists of physician's office laboratories, nursing
homes, pharmacies and other non-institutional, ambulatory settings in which
health care providers perform diagnostic tests. The decentralized POC market
encompasses a large variety of IVD products ranging from sophisticated
instrumented diagnostic systems serving larger group practices to single-use,
disposable tests for physician's office. POC testing in both the hospital and
decentralized segments are increasing in popularity due to their clinical
benefit and cost-effectiveness.

Overall, the POC market worldwide was estimated to be about $900 million in
1998, with 60% of the market in the United States, 30% in Europe and 5% in
Asia/Japan. The growth in POC testing is in part the result of evolving
technological improvements creating easy-to-use, high quality tests capable of
being excluded from CLIA regulations ("waived"), and thereby available to the
estimated 36,000 office laboratories approved to conduct CLIA waived tests. In
1997, 93% of family practice physicians reported having laboratories in their
offices for POC tests and the number of physicians using the CLIA waived POC
tests is increasing by approximately 500 laboratories a year.

BUSINESS STRATEGY

Quidel believes that the trend among health care providers to adopt POC testing
is increasing, and demographic changes and reimbursement policies will increase
growth in this diagnostic category. More and more employers, health plans, and
payers are recognizing that POC is a primary focal point for improving the
quality of care, patient satisfaction and cost effectiveness

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of health care delivery. Further, improvements in technology are resulting in
a growing number of diagnostic tests that combine high levels of accuracy
with rapid, easy to use product formats. It is Quidel's mission to establish
a significant global leadership position in POC rapid diagnostics for women's
health and infectious diseases. In order to accomplish this mission, Quidel
has defined the following strategic goals:

- - Focusing on expanding market share in core business segments of women's
health and infectious diseases and divesting unrelated products,
- - Improving profit margins through improved product pricing and operational
efficiencies,
- - Securing a stronger product pipeline from internal research and
development,
- - Pursuing licensing and acquisitions opportunities, when financially and
strategically attractive, such as the recently announced cash tender offer
to purchase Metra Biosystems, Inc., (as further discussed in Management's
Discussion and Analysis of Financial Condition and Results of Operations),
- - Launching influenza and herpes simplex virus ("HSV") POC rapid diagnostic
tests on a worldwide basis in conjunction with our development partner,
Glaxo Group, Ltd., ("Glaxo Wellcome") a wholly owned subsidiary of Glaxo
Wellcome, PLC,
- - Expanding development and marketing collaborations with large
pharmaceutical and other health care companies to promote the Test and
Treat(TM) strategy, whereby Quidel's rapid diagnostics are used with
another company's therapeutic to facilitate immediate intervention, thereby
reducing cost and improving patient care,
- - Expanding international sales through external alliances and
collaborations.

TECHNOLOGY

Quidel incorporates antibody technology and biochemistry into uniquely designed
and engineered products. Quidel has developed or licensed four primary delivery
system formats: dipsticks, flow-through cassettes, microwell tests and a
one-step lateral flow delivery system. Although each is based on the same
general antibody-antigen based approach, the four formats differ in terms of
speed, ease-of-use and sensitivity, and, as a result, address the particular
needs of different end-user markets. The general antibody-antigen based approach
used in Quidel's products uses commercially produced protein molecules called
antibodies, which react with or bind to specific antigens, such as viruses,
bacteria, hormones, drugs, and other antibodies. The antibodies produced in
response to a particular antigen bind specifically to that antigen. This
characteristic allows antibodies to be used in a wide range of diagnostic
applications.

The ability to detect the binding of antibodies to target antigens forms the
basis for immunoassay testing used in Quidel's products. In immunoassays,
antibodies are typically deposited onto a particle or solid surface. A chemical
label is then either incorporated onto the solid substrate or added separately
once the solid substrate has been exposed to the test sample. If the target
antigen is present in the test sample, the chemical label produces a visually
identifiable color change in response to the resulting antibody reaction with
the antigen. This provides a clear color endpoint for easy visual verification
of the test results without the need for instrumentation.

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PRODUCTS

Quidel provides rapid point-of-care diagnostic tests under the following brand
names: Q-TEST(R), QUICKVUE(R), OVUQUICK(R), CONCEIVE(R), CARDS(R), OVUKIT(R) AND
RAPID VUE(R). Quidel's rapid POC diagnostic tests are directed at the following
medical and wellness product markets:

- - PREGNANCY TESTS. The early detection of pregnancy allows the physician and
patient to institute proper prenatal care, helping to ensure the health of
both the developing embryo and the mother. Pregnancy tests are also used to
"rule out" pregnancy before conducting certain clinical procedures or
administering certain medications. Pregnancy test sales, including tests
sold to physicians, other health care organizations and through private
store brand labels, represented approximately 40% of total net sales in
fiscal 1999.
- - OVULATION PREDICTION. Tests in this category are for women affected by
infertility or the desire to control the timing of their pregnancies. These
tests predict or confirm the occurrence of ovulation and are used by
primary care physicians, fertility specialists and the consumer. Ovulation
prediction test sales, including tests sold OTC, to physicians, and to
other health care organizations, represented approximately 8% of fiscal
1999 net sales.
- - GROUP A STREPTOCOCCI. Each year millions of people in the United States are
tested for Group A streptococcal infections, commonly referred to as "strep
throat." Group A streptococci are bacterium that typically cause illnesses
such as tonsillitis, pharyngitis and scarlet fever which, if left
untreated, can progress to complications such as rheumatic fever. Sales of
strep A products represented approximately 30% of fiscal 1999 net sales.
- - H. PYLORI. HELICOBACTER PYLORI ("H. PYLORI") is the bacterium believed to
be associated with 80% of the five million ulcers in the United States. H.
PYLORI is implicated in chronic gastritis and is recognized by the World
Health Organization as a Class 1 carcinogen that may increase a person's
risk of developing stomach cancer. Once the H. PYLORI infection is
detected, antibiotic therapy is administered to kill the organism and
promote a cure of the ulcer condition. Quidel's rapid test utilizes whole
blood samples from a finger prick. It is a serological test that measures
antibodies circulating in the blood caused by the H. PYLORI infection.
Quidel's H. PYLORI test, which was the first to receive CLIA-waived status,
has progressively increased in sales and accounted for approximately 9% of
total net sales in fiscal 1999.
- - OTHER INFECTIOUS DISEASE PRODUCTS INCLUDING CHLAMYDIA AND INFECTIOUS
MONONUCLEOSIS. The chlamydia organism is responsible for the most
widespread sexually transmitted disease in the United States. Over one-half
of infected women do not have symptoms and left untreated, chlamydia can
cause sterility. Infectious mononucleosis can be severely debilitating to
immune-suppressed groups, including the elderly, if it is not diagnosed and
treated promptly. Quidel's other infectious disease products represented
approximately 5% of fiscal 1999 net sales.
- - OTHER PRODUCTS. The remaining 8% of fiscal 1999 net sales include allergy
screening tests, clinical laboratory tests used in the measurement of
circulating immune complexes and veterinary products produced under outside
contracts.

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PRODUCTS UNDER DEVELOPMENT

- - INFLUENZA A/B. This diagnostic test is under development through a
fully-funded collaboration with Glaxo Wellcome for the diagnosis and
treatment of influenza at POC. The test is a rapid, single step, diagnostic
test for the detection of influenza A and B, the two most common types of
the virus. Using Quidel's test and treat approach, this influenza test is
expected to be used in conjunction with a Glaxo Wellcome therapeutic
product. The test was filed for FDA clearance in May 1999, and pending
clearance, it is scheduled to launch worldwide in the fall of 1999.

- - HERPES SIMPLEX VIRUS ("HSV") 1 AND 2. The HSV 1 and 2 tests, also being
developed under a fully-funded collaboration with Glaxo Wellcome, will
detect the presence of the HSV antibody in the blood, as well as the
presence of the antigen directly from the genital or oral lesion. HSV is
epidemic, spreading at an estimated rate of a half million people per year.
One in six people in the United States between the ages of 15 and 74 is
infected with HSV type 2, the virus commonly associated with genital
herpes. The HSV diagnostic tests are designed to be used in conjunction
with a Glaxo Wellcome therapeutic product and applications for FDA
clearance for both the antibody and antigen tests are expected to be filed
in 2000.

PRODUCT LIFE CYCLES

Quidel's 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
timing and success of new product introductions. The ability to compete
successfully in the rapid diagnostics market depends on the continual
development and introduction of new products and the improvement of existing
products.

SEASONALITY

Sales levels for several products are affected by seasonal demand trends.
Group A strep tests, for example, are used primarily in the fall and winter.
As a result of these demand trends, Quidel generally achieves lower operating
results in the first and second quarters and higher operating results in the
third and fourth quarters of the fiscal year.

RESEARCH AND DEVELOPMENT

Quidel is focusing its research and development efforts on two areas: 1) the
creation of improved products and new products for its existing markets and
2) products developed under pharmaceutical company and other collaborations
for new markets. These collaborations were undertaken with the goal of
creating differential diagnostics for use in identifying patients most likely
to benefit from the therapeutic product provided by the pharmaceutical
company. With this test and treat approach, it is believed that costs related
to inappropriate therapy can be avoided, while increasing the effectiveness
of patient treatment.

Quidel's most significant research collaborations are focused on the
development of an influenza A and B diagnostic test and tests to detect HSV,
both of which are funded under an agreement

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with Glaxo Wellcome. If these programs are successfully completed, the
resulting diagnostics tests will be sold under the Quidel brand name. In
return for funding this development, Glaxo Wellcome will receive royalties on
the sales of these products.

MARKETING AND DISTRIBUTION

In contrast to the central laboratory market, the domestic POC market is
highly fragmented, with many small customers, rather than a few large
customers. Quidel has designed its business around serving the unique needs
of this market segment. To reach these customers, a network of national and
regional distributors is utilized, which are supported by Quidel's sales
force.

Quidel has developed priority status with many of the major distributors in
the United States, resulting in many of its products being the preferred
products these distributors offer.

Internationally, the use of rapid POC diagnostic tests, the acceptance of
testing outside the central laboratory and the consumer interest in OTC and
self-test products differ considerably. Quidel's international sales are
substantially lower than domestic sales as a percentage of its total
business. Some of this difference is due to the fact that the POC market is
more developed in the United States relative to the overall IVD market in
other countries. Also, Quidel's ability to address the international markets
is reduced due to limited resources and capital.

MANUFACTURING

Quidel's manufacturing facilities, located in San Diego, California, consist
of laboratories devoted to tissue culture and immunochemistry, and production
areas dedicated to assembly and packaging. In the manufacturing process,
biological, chemical and packaging supplies and equipment are used, which are
generally available from several competing suppliers.

Quidel's manufacturing is conducted in compliance with the Quality System
Requirements ("QSR") (formerly Good Manufacturing Practices) of the FDA
governing the manufacture of medical devices. The manufacturing facility has
been registered with the FDA and the Department of Health Services of the
State of California, and has passed routine federal and state inspections
confirming compliance with the QSR regulatory requirements for IVD diagnostic
products.

The manufacture of medical diagnostic products is difficult, particularly
with respect to the stability and consistency of complex biological
components. Because of these complexities, manufacturing difficulties
occasionally occur that delay the introduction of products, result in excess
manufacturing costs or require the replacement of products already introduced
into the distribution channel.

GOVERNMENT REGULATION

The testing, manufacture and sale of Quidel's products are subject to
regulation by numerous

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governmental authorities, principally the FDA and corresponding state and
foreign regulatory agencies. Pursuant to the Federal Food, Drug, and Cosmetic
Act, and the regulations promulgated thereunder, the FDA regulates the
preclinical and clinical testing, manufacture, labeling, distribution and
promotion of medical devices. A company will not be able to commence
marketing or commercial sales in the United States of new products under
development until it receives clearance or approval from the FDA, which can
be a lengthy, expensive and uncertain process. Noncompliance with applicable
requirements can result in, among other things, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant premarket clearance or
premarket approval for devices, withdrawal of marketing clearances or
approvals and criminal prosecution. The FDA also has the authority to request
a recall, repair, replacement or refund of the cost of any device
manufactured or distributed.

In the United States, medical devices are classified into one of three
classes (Class I, II or III) on the basis of the controls deemed necessary by
the FDA to reasonably ensure their safety and effectiveness. Class I devices
are subject to general controls (e.g., labeling, premarket notification and
adherence to the QSR; Class II devices are subject to special controls (e.g.,
performance standards, premarket notification, postmarket surveillance,
patient registries and FDA guidelines). Generally, Class III devices are
those which must receive premarket approval by the FDA to ensure their safety
and effectiveness (e.g., life sustaining, life supporting and implantable
devices or new devices which have been found not to be substantially
equivalent to legally marketed devices).

Before a new device can be introduced in the market, the manufacturer must
generally obtain FDA clearance through clearance of a premarket notification
("510(k)") submission or approval of a premarket approval ("PMA")
application. A PMA application must be filed if a proposed device is a new
device not substantially equivalent to a legally marketed Class I or Class II
device, or if it is a pre-amendment Class III device for which the FDA has
called for a PMA, or if the device raises new questions of safety and
effectiveness. A 510(k) premarket clearance will be granted if the submitted
information establishes that the proposed device is "substantially
equivalent" to a legally marketed Class I or Class II medical device or to a
pre-amendment Class III medical device for which the FDA has not called for a
PMA. The FDA recently has been requiring more rigorous demonstration of
substantial equivalence than in the past, including in some cases, requiring
submission of extensive clinical data. It generally takes from three to 12
months from submission to obtain 510(k) premarket clearance, but may take
longer. The FDA may determine that a proposed device is not substantially
equivalent to a legally marketed device or that additional information is
needed before a substantial equivalence determination can be made. A "not
substantially equivalent" determination, or a request for additional
information, could prevent or delay the market introduction of new products
that fall into this category. For any devices that are cleared through the
510(k) process, modifications or enhancements that could significantly affect
safety or effectiveness, or constitute a major change in the intended use of
the device, will require new 510(k) submissions, although there can be no
assurance that the FDA will not determine that Quidel must adhere to the more
costly lengthy and uncertain PMA approval process for any of the products in
development. A PMA application must be supported by valid scientific evidence
to demonstrate the safety and effectiveness of the device, typically

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including the results of clinical investigations, bench tests, laboratory and
animal studies. The PMA application must also contain a complete description
of the device and its components and a detailed description of the methods,
facilities and controls used to manufacture the device. In addition, the
submission must include the proposed labeling, advertising literature and any
training materials. The PMA approval process can be expensive, uncertain and
lengthy, and a number of devices for which FDA approval has been sought by
other companies have never been approved for marketing.

The Company may not be able to obtain the necessary regulatory approvals or
clearances for its products on a timely basis, if at all. Delays in receipt
of or failure to receive such approvals or clearances, or failure to comply
with existing or future regulatory requirements would have a material adverse
effect on the business, financial condition and results of operations.

Before the manufacturer of a device can submit the device for FDA approval or
clearance, it generally must conduct a clinical investigation of the device.
Although clinical investigations of most devices are subject to the
investigational device exemption ("IDE") requirements, clinical
investigations of IVD tests, such as all of the Company's products and
products under development, are exempt from the IDE requirements, including
the need to obtain the FDA's prior approval, provided the testing is
noninvasive, does not require an invasive sampling procedure that presents a
significant risk, does not intentionally introduce energy into the subject,
and is not used as a diagnostic procedure without confirmation by another
medically established test or procedure. In addition, the IVD must be labeled
for research use only ("RUO") or investigational use only ("IUO"), and
distribution controls must be established to assure that IVDs distributed for
research or clinical investigation are used only for those purposes.

Quidel intends to conduct clinical investigations of its products under
development, which will entail distributing them in the United States on an
IUO basis. The FDA may not agree that Quidel's IUO distribution of its IVD
products under development will meet the requirements for IDE exemption.
Furthermore, failure by Quidel or the recipients of its products under
development to maintain compliance with the IDE exemption requirements could
result in enforcement action by the FDA, including, among other things, the
loss of the IDE exemption or the imposition of other restrictions on
distribution of its products under development, which would adversely affect
Quidel's ability to conduct the clinical investigations necessary to support
marketing clearance or approval.

Any devices manufactured or distributed by Quidel pursuant to FDA clearance
or approvals are subject to pervasive and continuing regulation by FDA and
certain state agencies. Manufacturers of medical devices for marketing in the
United States are required to adhere to QSR, which includes testing, control,
documentation, and other quality assurance requirements. Manufacturers must
also comply with Medical Device Reporting ("MDR") requirements that a
manufacturer report to the FDA any incident in which its product may have
caused or contributed to a death or serious injury, or in which its product
malfunctioned and, if the malfunction were to recur, it would be likely to
cause or contribute to a death or serious injury. Labeling and promotional
activities are subject to scrutiny by the FDA and, in certain circumstances,
by the Federal Trade Commission. Current FDA enforcement policy prohibits the
marketing of

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approved medical devices for unapproved uses.

Quidel is subject to routine inspection by the FDA and certain state agencies
for compliance with QSR requirements, MDR requirements and other applicable
regulations. The recently finalized QSR requirements include the addition of
design controls that will likely increase the cost of compliance. Changes in
existing requirements or adoption of new requirements could have a material
adverse effect on Quidel's business, financial condition and results of
operations. Quidel may incur significant costs to comply with laws and
regulations in the future, and the laws and regulations may have a material
adverse effect upon the business, financial condition and results of
operations.

Quidel also is subject to numerous federal, state and local laws relating to
such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. Quidel may incur significant costs to
comply with laws and regulations in the future, and such laws or regulations
may have a material adverse effect upon the business, financial condition and
results of operations.

Quidel's products are also subject by CLIA and related federal and state
regulations which provide for regulation of laboratory testing. The scope of
these regulations includes quality control, proficiency testing, personnel
standards and federal inspections. CLIA categorizes tests as "waived,"
"moderately complex" or "highly complex," on the basis of specific criteria.
Future amendment of CLIA or the promulgation of additional regulations
impacting laboratory testing may have a material adverse effect on the
ability to market products and may have a material adverse effect upon
Quidel's business, financial condition or results of operations.

PATENTS AND TRADE SECRETS

Because of the length of time and the expense associated with bringing
healthcare products through development and government approval to the
marketplace, the health care industry has traditionally placed considerable
importance on obtaining and maintaining patent and trade secret protection
for significant new technologies, products and processes. Quidel and other
companies engaged in research and development of new diagnostic products
using advanced biomedical technologies are actively pursuing patents for
their technologies, which they consider novel and patentable. However,
important legal issues remain to be resolved as to the extent and scope of
available patent protection in the United States and in other important
markets worldwide. The resolution of these issues and their effect upon the
long-term success of Quidel and other biotechnology firms cannot be
determined.

It has been Quidel's policy to file for patent protection in the United
States and other countries with significant markets, such as Western European
countries and Japan, if the economics are deemed to justify such filing and
Quidel's patent counsel determines that a strong patent position can be
obtained. No assurance can be given that patents will be issued to Quidel
pursuant to its patent applications in the United States and abroad or that
patent portfolio will provide Quidel

12
<PAGE>

with a meaningful level of commercial protection.

A large number of individuals and commercial enterprises seek patent
protection for technologies, products and processes in fields related to
Quidel's areas of product development. To the extent such efforts are
successful, Quidel may be required to obtain licenses in order to exploit
certain of its product strategies. Licenses may not be available to Quidel at
all, or if so, on acceptable terms.

Quidel is aware of certain issued and filed patents, issued to various
developers of diagnostic products with potential applicability to Quidel's
diagnostic technology. Quidel has licensed certain rights from companies such
as Syntex and Becton Dickinson. There can be no assurance that Quidel would
prevail if a patent infringement claim were to be asserted against Quidel.

Quidel seeks to protect its trade secrets and nonproprietary technology by
entering into confidentiality agreements with employees and third parties
(such as potential licensees, customers, joint ventures and consultants). In
addition, Quidel has taken certain security measures in its laboratories and
offices. Despite such efforts, no assurance can be given that the
confidentiality of Quidel's proprietary information can be maintained. Also,
to the extent that consultants or contracting parties apply technical or
scientific information independently developed by them to Quidel projects,
disputes may arise as to the proprietary rights to such data.

Under certain of its distribution agreements, Quidel has agreed to indemnify
the distributor against costs and liabilities arising out of any patent
infringement claim by a third party relating to products sold under those
agreements. In some cases, the distributor has agreed to share the costs of
defending such a claim and will be reimbursed for the amount of its
contribution if the infringement claim is found to be valid.

COMPETITION

Quidel believes that the competitive factors in the rapid diagnostic market
include convenience, price and product performance as well as the
distribution, advertising, promotion and brand name recognition of the
marketer. Quidel's success will depend on its ability to remain abreast of
technological advances, to introduce technologically advanced products, and
to attract and retain experienced technical personnel, who are in great
demand. Competition in the development and marketing of diagnostic products
is intense, and diagnostic technologies have been subject to rapid change.
The majority of diagnostic tests used by physicians and other health care
providers are performed by independent clinical reference laboratories.
Quidel expects that these laboratories will continue to compete vigorously to
maintain their dominance of the testing market. In order to achieve market
acceptance for its products, Quidel will be required to demonstrate that its
products provide cost-effective and time saving alternatives to tests
performed by clinical reference laboratory procedures. This will require
physicians to change their established means of having these tests performed.

Many of Quidel's current and prospective competitors, including several large
pharmaceutical

13
<PAGE>

and diversified health care companies, have substantially greater financial,
marketing and other resources than Quidel. These competitors include Abbott
Laboratories, Beckman Coulter Primary Care, and Becton Dickinson. Quidel's
competitors may succeed in developing or marketing technologies or products
that are more effective or commercially attractive than Quidel current or
future products, or that would render Quidel's technologies and products
obsolete. Moreover, Quidel may not have the financial resources, technical
expertise or marketing, distribution or support capabilities to compete
successfully in the future. In addition, competitors, many of which have made
substantial investments in competing technologies, may be more effective than
Quidel's technologies, or may prevent, limit or interfere with Quidel's
ability to make, use or sell its products either in the United States or in
international markets.

HUMAN RESOURCES

As of March 31, 1999, Quidel had 309 employees, none of whom are represented
by a labor union. Quidel has experienced no work stoppages and believes that
employee relations are good.

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 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.

14
<PAGE>

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 and
testing 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.

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 and we have a large number
of multinational and regional competitors making investments in competing
technologies. Such competition is expected to continue and 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.

15
<PAGE>

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.

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.

16
<PAGE>

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
payors, 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 payors, 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 payors 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
with the acquisition, if completed, of Metra, and 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

17
<PAGE>

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.

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 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 METRA AFTER THE ACQUISITION

We may experience difficulties integrating our operations with those of
Metra, 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 currently anticipate. The
acquisition may distract management from day-to-day business of the combined
company and require other substantial resources. We expect to incur
restructuring and integration costs from combining Metra's operations 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.

Item 2. PROPERTIES

Quidel's executive, administrative, manufacturing and research and
development facility is located in San Diego, California. Quidel owns the
73,000 square-foot facility and is currently reviewing proposals to sell and
leaseback the facility in order to increase working capital. Quidel also
leases a 7,245 square-foot research facility in San Diego, California, which
it will vacate in August, 1999 and move current operations back to the
headquarters facility.

18
<PAGE>

Item 3. 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 transshipped 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

19
<PAGE>

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

COMMON STOCK PRICE RANGE

Quidel's common stock is traded on the Nasdaq National Market System under the
symbol "QDEL". The following table sets forth the range of high and low closing
prices for the Company's common stock for the periods indicated since April 1,
1997.

QUARTER ENDED LOW HIGH
- ---------------------------------------------------------------------------
<S> <C> <C>
March 31, 1999...................................... 1.75 3.06
December 31, 1998................................... 1.88 2.84
September 30, 1998.................................. 2.50 3.59
June 30, 1998....................................... 2.94 3.63

March 31, 1998...................................... 2.81 3.59
December 31, 1997................................... 3.06 4.93
September 30, 1997.................................. 3.12 5.12
June 30, 1997....................................... 2.62 4.37

</TABLE>

No cash dividends have been paid on the common stock and Quidel does not
anticipate paying any dividends in the foreseeable future. As of March 31, 1999,
the Company had 1,007 stockholders of record.

<PAGE>

Item 6. SELECTED FINANCIAL DATA

The following selected financial data is derived from the financial statements
of Quidel Corporation and should be read in conjunction with the consolidated
financial statements, related notes and other financial information included
herein.

YEARS ENDED MARCH 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA
Revenues:
Quidel branded sales...........................$ 42,327 $ 44,910 $ 41,086 $ 33,532 $ 28,782
OEM Sales...................................... 4,836 811 833 949 2,285
-----------------------------------------------------------------
Total net sales............................ 47,163 45,721 41,919 34,481 31,067
Other revenues................................. 4,333 3,758 2,803 572 470
-----------------------------------------------------------------
Total revenues.............................. 51,496 49,479 44,722 35,053 31,537
Gross profit...................................... 21,057 21,473 22,250 18,448 14,925
Research and development.......................... 7,942 7,940 6,700 4,130 3,728
Purchased in-process research
and development*............................ -- -- -- -- 1,423
Sales and marketing............................... 9,701 10,625 10,744 10,451 10,470
General and administrative........................ 6,115 5,107 3,534 3,483 3,271
Write down and closure of
European subsidiaries....................... 440 3,058 -- -- --

Income (loss) before benefit (provision)
for income taxes............................... 1,394 (1,521) 3,672 579 (4,035)
Benefit (provision) for income taxes.............. 6,267 2,631 (123) -- --

Net income (loss).................................$ 7,661 $ 1,110 $ 3,549 $ 579 $ (4,035)
Net income (loss) diluted per share...............$ 0.32 $ 0.05 $ 0.16 $ 0.03 $ (0.21)

BALANCE SHEET DATA
Cash and cash equivalents.........................$ 6,622 $ 9,720 $ 10,096 $ 2,538 $ 3,878
Working capital................................... 16,547 16,790 19,444 10,060 9,757
Total assets...................................... 52,606 47,782 42,261 33,334 34,524
Long-term obligations............................. 2,828 3,002 3,203 3,490 4,145
Stockholders' equity.............................. 44,706 36,889 35,158 25,718 23,938
Stockholders' equity per share....................$ 1.88 $ 1.55 $ 1.49 $ 1.19 $ 1.14
Common shares outstanding......................... 23,822 23,749 23,546 21,550 20,983

</TABLE>

*RESULTING FROM THE ACQUISITION OF PACIFIC BIOTECH, INC.

<PAGE>

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION

OVERVIEW

Quidel Corporation ("the Company") discovers, develops, manufactures and markets
rapid diagnostic products for point-of-care detection in the areas of women's
health and infectious diseases. These products provide simple, accurate and
cost-effective diagnoses for acute and chronic conditions. Our products are sold
worldwide to professionals in the physician's office and clinical laboratories,
and to consumers through organizations that provide private label, store brand
products.

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. Difference 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
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 under "Business Risks" and in other sections
of this report and in other reports and registration statements of Quidel
filed with the Securities and Exchange Commission from time to time should be
carefully considered. The following should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in
this Form 10-K.

NEW EXECUTIVE MANAGEMENT TEAM

During fiscal 1999, major changes were made to the executive management team. In
addition to his role as Vice Chairman of the Board of Directors, Andre de Bruin
was appointed President and Chief Executive Officer. Charles J. Cashion joined
the Company as Senior Vice President, Corporate Operations, Chief Financial
Officer and Secretary. Donna McGill and Charles H. Bowden, M.D., were recruited
as Vice Presidents to lead the Women's Health and Infectious Diseases business
units, respectively. In addition, Mark Paiz was promoted to Vice President of
Operations. The intent of these changes was to realign Company resources for
improved operating performance in the future.

ENTERPRISE COMPUTING SYSTEM

In addition to those changes, the implementation of a more sophisticated
enterprise-wide computer operating system began during the year. With this new
system, the operations of the business are expected to become more efficient due
to the streamlining of processes and procedures, many of which are being
performed manually. The information to be provided from this system will assist
management with day-to-day operating decisions.

RESULTS OF OPERATIONS

NET INCOME For the year ended March 31, 1999, net income was $7.7 million, or
$.32 per share, compared to a net income of $1.1 million, or $.05 per share, for
the year ended March 31, 1998. Net income for the three months ended March 31,
1999 was $7.4 million, or $.31 per share, compared to a net loss of $107,000 for
the three months ended March 31, 1998. The most

<PAGE>

significant difference in net income for the fiscal year 1999 compared to the
fiscal year ended March 31, 1998 was a deferred tax benefit of $6.4 million
recorded in the fourth quarter of 1999 associated with the accumulated tax
benefit of prior operating losses. A similar tax benefit of $2.7 million was
recorded in fiscal 1998. The amount of the net deferred tax asset estimated
to be recoverable was based on our assessment of the likelihood of near-term
operating income and that the realization of net operating loss carryforward
was more likely than not.

Operating income for the year ended March 31, 1999 was approximately $1.2
million, or $.05 per share, compared to an operating loss of approximately $1.5
million, or $.06 per share, for fiscal 1998. Included in the results of
operations for fiscal 1999 and 1998 were charges of $440,000 and $3.1 million,
respectively, associated with the write down and closure of certain European
subsidiaries.

NET SALES TRENDS BY MAJOR PRODUCT BRANDS

Percent increase
Years ended March 31, (decrease)
(IN THOUSANDS ) 1999 1998 1997 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC SALES
Professional sales $ 29,221 $ 30,418 $ 25,891 (4%) 17%
Over the counter (OTC) sales 1,407 1,900 1,383 (26%) 37%
Clinical laboratory sales 1,241 1,271 1,295 (2%) (2%)
Original equipment
manufacture (OEM) sales 4,836 811 833 496% (3%)
------------------------------------------
Total domestic sales 36,705 34,400 29,402 7% 17%
------------------------------------------

INTERNATIONAL SALES
Export sales 6,864 6,774 8,060 1% (16%)
European subsidiary sales 3,594 4,547 4,457 (21%) 2%
------------------------------------------
Total international sales 10,458 11,321 12,517 (8%) (10%)
------------------------------------------
Total net sales $ 47,163 $ 45,721 $ 41,919 3% 9%
------------------------------------------
------------------------------------------

</TABLE>

Our OEM product sales increased dramatically in fiscal 1999 due to the
distribution of our veterinary products for the full year compared to only a few
months in fiscal 1998, as well as to the launch of a new partnered retail store
brand program for distribution of pregnancy tests.

In fiscal 1998, we reassessed our international sales strategy and in fiscal
1999, completed the closure of European subsidiaries located in France, the
Netherlands and Spain. As a result international sales declined except sales in
the German subsidiary increased $983,000 in fiscal 1999 to approximately $2.7
million due to new distributor programs in Europe.

<PAGE>

REVENUE FROM RESEARCH CONTRACTS, LICENSE FEES AND ROYALTIES

Percent
Increase (Decrease)
Years ended March 31, (IN THOUSANDS) 1999 1998 1997 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract research and development $ 4,070 $ 3,483 $ 2,654 17% 31%
License fee income 166 100 25 66% 300%
Royalty income 97 175 124 (45%) 41%
------------------------------------------
Total $ 4,333 $ 3,758 $ 2,803 15% 34%
------------------------------------------
------------------------------------------
</TABLE>

Contract research and development revenue is principally related to funding
provided by Glaxo Wellcome for two separate multi-year rapid diagnostic test
development programs for influenza A and B, which commenced in March 1996, and
the development of two point-of-care diagnostic tests to detect herpes simplex
virus ("HSV"), which commenced in October 1997. In May 1999, a 510(k)
application was filed with the Food and Drug Administration ("FDA") for
marketing clearance of the influenza A and B point-of-care test. The anticipated
filing of a 510(k) application for clearance for the HSV tests is expected to be
during 2000. The revenue recognized under the Glaxo Wellcome programs is equal
to the sum of the program direct research costs (see Operating Expenses, below)
and allocated support service costs. License fee income generally relates to
one-time fees received for the right to distribute our products.

COST OF SALES AND GROSS PROFIT

As a percentage of sales 36% 37% 36%

Royalty expense - patent licenses 2,304 2,067 291 11% 610%
As a percentage of sales 5% 5% 1%

Total direct cost 19,460 18,943 15,246 2% 24%
As a percentage of sales 41% 41% 36%

Direct Margin -
contribution per sales dollar 59% 59% 64%

Manufacturing overhead cost 6,647 5,305 4,423 25% 20%
As a percentage of sales 14% 12% 11%
------------------------------------------

Total cost of sales 26,107 24,248 19,669 7% 23%
------------------------------------------

Gross profit $ 21,057 $ 21,473 $ 22,250 (3%) (3%)
As a percentage of sales 45% 47% 53%
- --------------------------------------------------------------------------------------

</TABLE>

<PAGE>

Gross profit declined approximately two percentage points to 44.6% of sales in
fiscal 1999 from the prior year level. The shift in product mix toward sales of
our OEM pregnancy tests, which provide a lower direct margin contribution, has
increased direct cost as a percent of sales. Manufacturing overhead cost
increases in fiscal 1999 related to increased production capacity, the purchase
of automation equipment, and the addition of purchasing and engineering support
staff.

OPERATING EXPENSES

Percent
Increase (Decrease)
Years ended March 31, (IN THOUSANDS) 1999 1998 1997 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESEARCH AND DEVELOPMENT
Quidel research projects......................$ 4,137 $ 4,903 $ 4,539 (16%) 8%
As a percentage of sales...................... 9% 11% 11%
Contract research - direct costs.............. 3,805 3,037 2,161 25% 41%
As a percentage of sales...................... 8% 6% 5%
------------------------------------------
Total research and development............ 7,942 7,940 6,700 -- 19%
As a percentage of sales.................. 17% 17% 16%
------------------------------------------

SALES AND MARKETING
Domestic professional sales
and marketing............................. 6,687 6,793 6,322 (2%) 7%
Domestic OTC sales and marketing.............. 218 304 519 (28%) (41%)
International sales and marketing............. 2,797 3,528 3,903 (21%) (10%)
------------------------------------------
Total sales and marketing................. 9,701 10,625 10,744 (9%) (1%)
As a percentage of sales.................. 21% 23% 26%

GENERAL AND ADMINISTRATIVE......................... 6,115 5,107 3,534 20% 45%
As a percentage of sales...................... 13% 11% 8%

Write down and closure of
European Subsidiaries......................... 440 3,058 -- (86%) --
As a percentage of sales...................... 1% 7% --
------------------------------------------

Total operating expenses...........................$ 24,198 $ 26,730 $ 20,978 10% 27%
As a percentage of sales........................... 51% 58% 50%
Total operating expenses, excluding
contract research and write down
of subsidiary investment......................$ 19,953 $ 20,635 $ 18,817 (3%) 10%
As a percentage of sales...................... 42% 45% 45%
- --------------------------------------------------------------------------------------------------------------------------------

</TABLE>

Research and development remained constant in fiscal 1999 compared to 1998 as we
continued our efforts in several collaborative product development programs. The
Glaxo Wellcome influenza A and B and HSV programs, previously discussed, are the
largest of these projects. Contract research expense represented 48% of the
Company's total research and development investment in fiscal 1999.

<PAGE>

Sales and marketing efficiencies continued to improve in fiscal 1999 as the
overall cost declined to 21% of sales. Domestic OTC and OEM sales and marketing
expenses continue to decline as these expenses are assumed by outside
distributors. These savings partially offset the lower margin on domestic
OTC/OEM products from reduced sales prices under these distribution agreements.

International sales and marketing expenses declined due to the closure of our
European subsidiaries and now represent approximately 27% of total international
sales.

General and administrative expenses increased significantly in fiscal 1999. This
increase contained $1.3 million of non-recurring restructuring costs including
employee severance costs, legal fees and consulting costs. Without these
non-recurring costs, general and administrative costs would have decreased by
approximately $300,000 from fiscal 1998.

LIQUIDITY AND CAPITAL RESOURCES At March 31, 1999, we had cash and cash
equivalents of $6.6 million compared to $9.7 million at March 31, 1998. Cash and
cash equivalents declined in fiscal 1999 primarily due to our investments in
implementing an enterprise-wide computer system to assist in operating our
business more efficiently, as well as to investments in improved technology to
increase efficiencies in manufacturing operations.

The principal requirements for cash are for working capital, including capital
equipment. Cash requirements are expected to be funded by the results of
operations. In addition, cash is anticipated to be raised during fiscal 2000
through the sale and leaseback of the corporate headquarters facility, a portion
of which will be used to repay the $3.0 million real estate loan balance and the
line of credit associated with the acquisition of Metra Biosystems, Inc. (see
Subsequent Event below). Cash requirements fluctuate as a result of numerous
factors, such as the extent to which we use or generate cash in operations,
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 during fiscal 2000.

YEAR 2000 COMPLIANCE

The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of our computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.

OUR PROGRAM

We established a Year 2000 Compliance Team in 1998. This team consists of
members from each functional area of the Company. The implementation of a full
Year 2000 Compliance Program is ongoing. Our Chief Financial Officer is the
officer responsible for the Year 2000 Compliance Program and the individual who
leads the Year 2000 Compliance Team reports

<PAGE>

directly to the Chief Financial Officer. Our Audit Committee and Board of
Directors provides supervisorial oversight of our efforts relating to Year
2000 readiness.

We presently believe that the Year 2000 issue can be mitigated through testing
designed to confirm readiness. However, if such testing refutes readiness, the
Year 2000 issue could have a material impact on the operations of the Company.

Our plan to resolve the Year 2000 issue involves the following four phases:
assessment, renovation, validation and implementation. To date, we have fully
completed assessment of all systems that could be significantly affected by the
Year 2000. The completed assessment indicated that most of our significant
systems are ready for the Year 2000. Accordingly, we do not believe that the
Year 2000 presents a material exposure as it relates to our operations. In
addition, we have gathered information about the Year 2000 compliance status of
our significant suppliers and subcontractors and we continue to monitor their
compliance.

We have completed the assessment phase of all of our operations and business
activities. We have determined that our products are Year 2000 ready. During the
assessment phase, we identified several business systems which were not Year
2000 compliant. We have since converted some of those business systems to be
fully Year 2000 ready, such as our telephone system, and we are now in the
process of converting our business enterprise software. We anticipate that
conversion and testing of the enterprise software will be completed by the end
of the second quarter of 1999 and that we will be operating on this system by
the end of the third quarter of 1999.

Furthermore, as a result of our assessment of other, less critical systems which
are not year 2000 compliant, we believe we have identified adequate remedies to
make those systems Year 2000 ready. Specific examples of "non-compliant" systems
we have identified include certain desktop personal computers and applications
software where compliant versions are readily available from current suppliers
as well as others. We expect to complete renovation of our less critical systems
by October 1999. Completion of the testing phase for all significant systems is
expected by December 1999. To date, approximately 70% of our systems have been
tested and found to be compliant.

THIRD PARTIES AND THE YEAR 2000

We have queried our significant suppliers and subcontractors that do not share
information systems with us (external agents). To date, we have not become aware
of any external agent with a Year 2000 issue that would materially impact our
results of operations, liquidity, or capital resources. However, we have no
means of ensuring that external agents will be Year 2000 ready. To further
assess the stability of our supply chain, we are continuing to communicate with
suppliers regarding their programs. The inability of external agents to complete
their Year 2000 resolution process in a timely fashion could materially impact
us. The effect of non-compliance by external agents is not determinable.

27
<PAGE>

YEAR 2000 RENOVATION COSTS

We will utilize both internal and external resources to reprogram or replace,
test, and implement the software and operating equipment for Year 2000
modifications. The total cost of the Year 2000 project is estimated at
$400,000 and is being funded through operating cash flows primarily to be
incurred in the second half of 1999. The actual amount we spend may differ
materially from our estimates due to a variety of factors including the
availability of trained personnel and other resources, and our ability to
identify, assess and test all relevant systems.

RISKS

Management believes it has an effective program in place to test and confirm
Year 2000 readiness in a timely manner. The final phases of the Year 2000
program have not yet been completed. In the event that we do not complete the
testing phase to confirm readiness, and if the systems believed to be ready
are not, we may be unable to manufacture and distribute products and may be
unable to use our financial and operating systems. Such a scenario could
result in loss of revenues which could cause a material adverse impact to our
operations, liquidity, capital resources or financial results. In addition,
disruptions in the economy generally resulting from Year 2000 issues could
also materially adversely affect us. We could be subject to litigation for
computer systems product failure, for example, equipment shutdown or failure
to properly date business records. We cannot reasonably estimate the amount
of potential liability and lost revenue we could experience in that event.

CONTINGENCY PLANS

We have developed contingency plans to address failure of renovation
activities as applied to internal systems and external agents. We have
identified specific contingency plan options related to our supply chain
management process. For example, in assessing our critical suppliers, we have
prioritized these business relationships and are developing plans to provide
for the continuance of product availability through accelerated purchasing
should adequate assurances regarding a specific entity's ability to become
ready for the Year 2000 not be obtained. We expect that our contingency plans
will be developed by July 1999. However, there can be no guarantee that the
plans or the implementation of the plans will be adequate to protect against
adverse impacts to our operations, liquidity, capital resources or financial
results.

SUBSEQUENT EVENT

TENDER OFFER - METRA BIOSYSTEMS, INC.

In June 1999, the Company announced that it signed a definitive agreement to
acquire Metra Biosystems, Inc. ("Metra") for approximately $22.9 million, or
$1.78 per share based upon 12,852,248 shares outstanding, including vested
options, in an all cash tender offer. Metra is a world leader in the
diagnosis and detection of bone loss for the management of osteoporosis and
other bone diseases. Completion of the tender offer is expected by the end of
July 1999, and is subject to 90% of the shares being tendered, execution of
retention agreements by key employees, minimum cash balance at closing and
other customary closing conditions. At the close of the tender offer, it is
anticipated that the total consolidation and transaction costs to the Company
will be approximately $8 million, net of Metra's estimated cash of
approximately $19

28
<PAGE>

million. The tender offer will be financed from our cash reserves, proceeds
from a short-term bank loan and proceeds from a revolving line of credit. The
short-term bank loan will be repaid with the Metra cash acquired, while the
line of credit will be repaid with the proceeds of the contemplated sale and
leaseback of the corporate facility.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quidel does not and did not invest in market risk sensitive instruments in
fiscal 1999. 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 or mitigating
interest rate risk.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and supplementary data of the Company
required by this item are set forth at the pages indicated in Item 14(a)(1).

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item (with respect to Directors) is
incorporated by reference from the information under the captions "Election
of Directors" and "Other Matters" contained in the Company's Proxy Statement
to be filed with the Securities and Exchange Commission.

EXECUTIVE OFFICERS OF THE REGISTRANT

The names, ages and positions of all executive officers of Quidel as of May
31, 1999 are listed below, followed by a brief account of their business
experience during the past five years. Officers are normally appointed
annually by the Board of Directors at a meeting of the directors immediately
following the Annual Meeting of Stockholders. There are no family
relationships among these officers, nor any arrangements or understandings
between any officer and any other person pursuant to which an officer was
selected. None of these officers has been involved in any court or
administrative proceeding within the past five years adversely reflecting on
the officer's ability or integrity.

Andre de Bruin, 52, was appointed President and Chief Executive Officer of
Quidel on June 9, 1998. Since June 23, 1997, Mr. de Bruin has been Vice
Chairman of the Board and a part-time employee of the Company. Prior to
joining Quidel, Mr. de Bruin was President and Chief Executive Officer of
Somatogen, Inc., a biopharmaceutical company, since July 1994. He was elected
Chairman of the Board of Somatogen in January 1996. Baxter International,
Inc.,

29
<PAGE>

acquired Somatogen in May 1998. Prior to joining Somatogen, Mr. de Bruin was
Chairman, President and Chief Executive Officer of Boehringer Mannheim
Corporation, a U.S. subsidiary of Corange Ltd., a private, global health care
corporation. He held that position since 1989. Mr. de Bruin serves on the
Board of Directors of Diametrics Medical, Inc., a public company that
manufactures and markets proprietary critical care blood and tissue analysis
systems, and Metabolex, Inc., a privately held company founded to develop
therapeutics for diabetes and related metabolic diseases. He has been
involved in the global health care industry for more than twenty-eight years
in pharmaceuticals, devices and diagnostics.

Charles J. Cashion, 48, Senior Vice President, Corporate Operations, Chief
Financial Officer, Secretary, joined Quidel on December 14, 1998. Mr. Cashion
has more than twenty years of general management experience in the health
care industry and was most recently Senior Vice President, Finance,
Secretary, Treasurer and Chief Financial Officer of The Immune Response
Corporation, a biopharmaceutical company. Mr. Cashion previously held
positions at Smith Laboratories, Inc., Baxter International, Inc., and
Motorola, Inc. Mr. Cashion received his M.B.A. and B.S. from Northern
Illinois University.

Charles H. Bowden, M.D., 46, Chief Medical Officer and Vice President,
Infectious Diseases joined Quidel in September 1998. Dr. Bowden has more than
fifteen years of operational and consulting experience in the health care
industry. Prior to joining Quidel, Dr. Bowden was Vice President, Business
Development at Nellcor, Incorporated, and most recently, a private investor
and medical industry consultant. Dr. Bowden is a graduate of Rice University
and Baylor College of Medicine and completed specialty training as a
pediatrician.

Mark E. Paiz, 37, Vice President, Operations, joined Quidel in December 1997
as Senior Director, Manufacturing and was appointed Vice President in June
1998. Mr. Paiz has fourteen years experience in manufacturing, quality
assurance and product development. From 1995 to 1997, Mr. Paiz served as
Director of Research and Development and Project Manager at Medtronic
Interventional Vascular, responsible for the development and manufacture of
catheter and coronary stent delivery devices. From 1992 to 1995, he served as
a manager at Hybritech, Inc. with various responsibilities including quality
engineering, materials management, supplier development and inspection. Mr.
Paiz received his B.S. degree in Engineering from the University of Colorado
and his M.B.A. from West Coast University.

John D. Tamerius, Ph.D., 53, Vice President, Research & Development, was
appointed to this position in August 1998. Dr. Tamerius joined Quidel in
August 1989 as Vice President of Clinical and Regulatory Affairs. In 1994,
Dr. Tamerius assumed responsibility as Vice President of Quidel's Clinical
Laboratory Business (including R&D, manufacturing and sales). Dr. Tamerius
received his M.S. and Ph.D. degrees in Microbiology and Immunology from the
University of Washington.

Robin G. Weiner, 43, Vice President, Clinical Development and Regulatory
Affairs, joined Quidel in March 1982. Ms. Weiner has over fourteen years
experience in regulatory affairs and has held numerous management positions
at Quidel in operations, clinical/regulatory and quality assurance. From
December 1992 to July 1995, Ms. Weiner was Senior Director of Clinical,
Regulatory and Quality Systems. Ms. Weiner received her B.A. degree in
Biochemistry from the University of California, San Diego and her M.B.A. from
National University.

30
<PAGE>

Item 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from the
information and under the caption "Compensation of Executive Officers and
Directors" contained in the Company's Proxy Statement to be filed with the
Securities and Exchange Commission.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference from the
information under the caption "Stock Ownership of Certain Beneficial Owners
and Management" contained in the Proxy Statement to be filed with the
Securities and Exchange Commission.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference from the
information under the caption "Certain Transactions" contained in the Proxy
Statement to be filed with the Securities and Exchange Commission.

<PAGE>

PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) Financial Statements

The consolidated financial statements required by this item are submitted in
a separate section beginning on page F-1 of this report.

CONSOLIDATED FINANCIAL STATEMENTS OF QUIDEL CORPORATION

Report of Ernst & Young LLP, Independent Auditors F-1

Consolidated Balance Sheets at
March 31, 1999 and 1998 F-2

Consolidated Statements of Operations for the
three years ended March 31, 1999 F-3

Consolidated Statements of Stockholders' Equity
for the three years ended March 31, 1999 F-4

Consolidated Statements of Cash Flows for the
three years ended March 31, 1999 F-5

Notes to Consolidated Financial Statements F-6

(2) Financial Statement Schedules Schedules have been omitted
because of the absence of conditions under which they are required or because
the required information is included in the financial statements or the notes
thereto.

(3) Exhibits with each management contract or compensatory plan
or arrangement required to be filed identified. See paragraph (c) below.

(b) Reports on Form 8-K

There were no reports on Form 8-K filed by the Company during the fourth
quarter of the fiscal year ended March 31, 1999.

3.1 Certificate of Incorporation, as amended. (Incorporated by
reference to Exhibit 3.1 to the Registrant's Current Report on
Form 8-K dated February 26, 1991.)

3.2 Amended and Restated Bylaws. (Incorporated by reference to Exhibit
3.2 to the Registrant's Current Report on Form 8-K dated June 16,
1995.)

32
<PAGE>

10.1 Registrant's 1983 Employee Stock Purchase Plan, as amended.
(Incorporated by reference to Exhibit 10.1 to the Registrant's
Current Report on Form 8-K dated February 26, 1991.)

10.2 Form of Indemnification Agreement - Corporate Officer.
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Form 10-K dated March 31, 1995.)

10.2.1 Form of Indemnification Agreement - Corporate Director.
(Incorporated by reference to Exhibit 10.2.1 to the Registrant's
Form 10-K dated March 31, 1995.)

10.3 Form of Warrant Agreement between Registrant and American Stock
Transfer & Trust Company. (Incorporated by reference to Exhibit
10.3 to the Registrant's Form 10-K dated March 31, 1995.)

10.4 Registrant's 1990 Employee Stock Option Plan. (Incorporated by
reference to Exhibit 10.3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1990.)

10.5 Registrant's 1990 Director Option Plan. (Incorporated by reference
to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1990.)

10.6 Registrant's Amended 1981 Stock Option Plan, as revised.
(Incorporated by reference to Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1990.)

10.8 Registrant's Amended and Restated 1982 Incentive and Nonstatutory
Stock Option Plans, including Form of Option Agreement.
(Incorporated by reference to Exhibit 10.28 to the Registrant's
Registration Statement No. 33-38324 on Form S-4 filed on December
20, 1990.)

10.9 Form of Registration Rights Agreement of the Registrant.
(Incorporated by reference to Appendix C to the final Joint Proxy
Statement/Prospectus dated January 4, 1991 included within
Amendment No. 2 to the Registrant's Registration Statement No.
33-38324 on Form S-4 filed on January 4, 1991.)

10.11 Assumption Agreement dated January 31, 1991. (Incorporated by
reference to Exhibit 10.52.1 to the Registrant's Current Report on
Form 8-K dated February 26 1991.)

10.15 Trademark License Agreement dated October 1, 1994 between the
Registrant and Becton Dickinson and Company regarding the Q-Test
trademark. (Incorporated by reference to Exhibit 10.15 to the
Registrant's Form 10-K dated March 31, 1995.)

10.16 Warrant to Purchase 275,000 Shares of Common Stock issued to
Genesis Merchant Group Securities on May 16, 1995 at an initial
exercise price of $4.50 per share. Warrant expires January 15,
2000. (Incorporated by reference to Exhibit 10.17 to the
Registrant's Form 10-K dated March 31, 1995.)

<PAGE>

10.17 Stock Purchase Agreement dated January 5, 1995 between Registrant
and Eli Lilly & Company for the sale of all the outstanding
capital stock of Pacific Biotech, Inc. (Incorporated by reference
to Exhibit 2.1 to the Registrant's Form 8-K dated January 5,
1995.)

10.18 Settlement Agreement effective April 1, 1997 between the
Registrant and Becton Dickinson and Company.

10.19 Campbell License Agreement effective April 1, 1997 between the
Registrant and Becton Dickinson and Company

10.20 Rosenstein License Agreement effective April 1, 1997 between the
Registrant and Becton Dickinson and Company.

10.23 Employment agreement dated June 9, 1998 between the Registrant and
Andre de Bruin. (Incorporated by reference to Exhibit 10.23 to the
Registrant's Form 10-Q dated June 30, 1998.)

10.24 Stock option agreement dated June 9, 1998 between the Registrant
and Andre de Bruin. (Incorporated by reference to Exhibit 10.24 to
the Registrant's Form 10-Q dated June 30, 1998.)

10.25 Employment agreement dated December 14, 1998 between the
Registrant and Charles J. Cashion. (Incorporated by reference to
Exhibit 10.28 to the Registrants Form 10-Q dated December 31,
1998.)

10.26* Employment agreement dated September 1, 1998 between the
Registrant and Charles Bowden.

21.1* Subsidiaries of the Registrant

23.1* Consent of Ernst & Young LLP, Independent Auditors

27* Financial Data Schedule

* Filed Herewith

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: June 29, 1999 By: /S/ CHARLES J. CASHION
------------------------------------------
Charles J. Cashion
Senior Vice President, Corporate Operations,
Chief Financial Officer and Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.

Date: June 29, 1999

/S/ ANDRE DE BRUIN /S/ CHARLES J. CASHION
- --------------------------------- -------------------------------------
Andre de Bruin Charles J. Cashion
President and Chief Executive Officer Senior Vice President
(Principal Executive Officer); Corporate Operations
Vice Chairman of the Board Chief Financial Officer and Secretary
(Principal Financial Officer and
Principal Accounting Officer)

/S/ RICHARD C. E. MORGAN /S/ JOHN D. DIEKMAN
- --------------------------------- -------------------------------------
Richard C. E. Morgan John D. Diekman, Director
Chairman of the Board

/S/ THOMAS A. GLAZE /S/ MARGARET G. MCGLYNN
- --------------------------------- -------------------------------------
Thomas A. Glaze, Director Margaret G. McGlynn, Director

/S/ MARY LAKE POLAN /S/ FAYE WATTLETON
- --------------------------------- -------------------------------------
Mary Lake Polan, Director Faye Wattleton, Director

<PAGE>

REPORT OF ERNST & YOUNG L.L.P., INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Quidel Corporation

We have audited the accompanying consolidated balance sheets of Quidel
Corporation as of March 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended March 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Quidel
Corporation at March 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1999, in conformity with generally accepted accounting principles.

/s/ ERNST & YOUNG L.L.P.

San Diego, California
May 14, 1999

F-1
<PAGE>

QUIDEL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

March 31, (IN THOUSANDS) 1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................................................$ 6,622 $ 9,720
Accounts receivable, net of allowances of $587 ($802 in 1998)................................. 8,388 8,524
Inventories, at lower of cost (first-in, first-out) or market:
Raw materials.............................................................................. 2,935 3,190
Work in process............................................................................ 1,935 1,420
Finished goods............................................................................. 941 1,287
------------- ------------
5,811 5,897
Prepaid expenses and other current assets..................................................... 798 540
------------- ------------
Total current assets.................................................................... 21,619 24,681

Property and equipment, at cost
Equipment, furniture and fixtures............................................................. 17,343 14,002
Building and improvements..................................................................... 10,996 10,162
Land.......................................................................................... 1,080 1,080
------------- ------------
29,419 25,244
Less accumulated depreciation and amortization............................................. (11,200) (8,447)
------------- ------------
Net property and equipment.............................................................. 18,219 16,797
Intangible assets, net of accumulated amortization
of $1,574 ($6,332 in 1998)................................................................. 3,084 3,466
Deferred tax asset................................................................................ 9,083 2,707
Other assets...................................................................................... 601 131
------------- ------------
$ 52,606 $ 47,782
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..............................................................................$ 2,283 $ 3,246
Accrued payroll and related expenses.......................................................... 1,013 1,261
Current portion of long-term debt and obligations under capital leases........................ 174 199
Deferred contract research revenue............................................................ 592 1,690
Accrued royalties............................................................................. 659 622
Other current liabilities .................................................................... 351 873
------------- ------------
Total current liabilities............................................................ 5,072 7,891

Long-term debt and obligations under capital leases............................................... 2,828 3,002
Commitments
Stockholders' equity:
Preferred stock, $.001 par value; 5,000 shares authorized, none issued
or outstanding................................................................................ -- --
Common stock, $.001 par value; 50,000 shares authorized, 23,822
shares issued and outstanding (23,749 in 1998)................................................ 24 24
Additional paid-in capital........................................................................ 116,720 116,564
Accumulated deficit............................................................................... (72,038) (79,699)
------------- ------------
Total stockholders' equity........................................................... 44,706 36,889
------------- ------------
$ 52,606 $ 47,782
============= ============
</TABLE>
SEE ACCOMPANYING NOTES.

F-2
<PAGE>

QUIDEL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Years ended March 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
----------- ------------ ---------
<S> <C> <C> <C>
REVENUES
Net sales......................................................................$ 47,163 $ 45,721 $ 41,919
Research contracts, license fees and royalties................................. 4,333 3,758 2,803
----------- ------------ ---------
Total revenues......................................................... 51,496 49,479 44,722

COSTS AND EXPENSES
Cost of sales.................................................................. 26,106 24,248 19,669
Research and development....................................................... 7,942 7,940 6,700
Sales and marketing ........................................................... 9,701 10,625 10,744
General and administrative..................................................... 6,115 5,107 3,534
Write down and closure of European subsidiaries................................ 440 3,058 --
----------- ------------ ---------
Total costs and expenses............................................... 50,304 50,978 40,647

Operating income (loss).............................................................. 1,192 (1,499) 4,075

OTHER INCOME AND EXPENSE
Interest and other income...................................................... 526 474 191
Interest and other expense..................................................... (324) (496) (594)
----------- ------------ ---------
Income (loss) before benefit (provision) for income taxes............................ 1,394 (1,521) 3,672
Benefit (provision) for income taxes................................................. 6,267 2,631 (123)
----------- ------------ ---------
Net income...........................................................................$ 7,661 $ 1,110 $ 3,549
=========== ============ =========

Basic and diluted earnings per share.................................................$ .32 $ .05 $ .16
=========== ============ =========

Shares used in basic per share calculation........................................... 23,782 23,649 21,976
=========== ============ =========

Shares used in diluted per share calculation......................................... 23,804 23,857 22,791
=========== ============ =========
</TABLE>
SEE ACCOMPANYING NOTES.

F-3
<PAGE>

QUIDEL CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK Additional
------------------- paid-in Accumulated
THREE YEARS ENDED MARCH 31, 1999 Shares Amount capital deficit Total
(IN THOUSANDS)
------------------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
Balance at March 31, 1996..................................... 21,550 $ 22 $ 110,054 $ (84,358) $ 25,718

Issuance of common stock for cash under
stock options and stock purchase plans............... 134 -- 391 -- 391
Issuance of common stock upon exercise
of warrants.......................................... 1,862 2 5,498 -- 5,500
Net income............................................... -- -- -- 3,549 3,549
------------------- ------------ ------------- ----------
Balance at March 31, 1997..................................... 23,546 24 115,943 (80,809) 35,158

Issuance of common stock for cash under
stock options and stock purchase plans............... 203 -- 621 -- 621
Net income............................................... -- -- -- 1,110 1,110
------------------- ------------ ------------- ----------
Balance at March 31, 1998..................................... 23,749 24 116,564 (79,699) 36,889

Issuance of common stock for cash under
stock options and stock purchase plans............... 73 -- 156 -- 156
Net income............................................... -- -- -- 7,661 7,661
------------------- ------------ ------------- ----------
Balance at March 31, 1999..................................... 23,822 $ 24 $ 116,720 $ (72,038) $ 44,706
=================== ============ ============= ==========
</TABLE>

SEE ACCOMPANYING NOTES.

F-4

<PAGE>

QUIDEL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, (IN THOUSANDS) 1999 1998 1997
------------- ----------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income......................................................................$ 7,661 $ 1,110 $ 3,549
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Depreciation and amortization................................................ 3,296 3,135 2,533
Write down of investment of European subsidiaries............................ -- 3,058 --
Deferred tax asset........................................................... (6,376) (2,707) --
Changes in assets and liabilities:
Accounts receivable....................................................... 136 (140) (782)
Inventories............................................................... 86 (2,113) (293)
Prepaid expenses and other current assets................................. (258) 540 (525)
Accounts payable.......................................................... (963) 1,114 771
Accrued payroll and related expenses...................................... (248) 138 351
Deferred contract research revenue........................................ (1,098) 1,690 (337)
Accrued royalties......................................................... 37 538 (1)
Other current liabilities................................................. (522) 345 (69)
------------- ----------- ----------
Net cash flows provided by operating activities....................... 1,751 6,708 5,197

INVESTING ACTIVITIES
Additions to property and equipment............................................. (4,202) (5,082) (1,878)
Increase in other assets and intangibles........................................ (604) (2,438) (424)
------------- ----------- ----------
Net cash flows used for investing activities.......................... (4,806) (7,520) (2,302)

FINANCING ACTIVITIES
Net proceeds from issuance of common stock and warrants......................... 156 621 5,891
Payments on obligations under capital leases.................................... (41) (42) (43)
Repayments of debt.............................................................. (158) (143) (744)
Repayments of line of credit.................................................... -- -- (441)
------------- ----------- ----------
Net cash flows provided by (used for) financing activities............ (43) 436 4,663
------------- ----------- ----------
Net increase (decrease) in cash and cash equivalents................................. (3,098) (376) 7,558
Cash and cash equivalents at beginning of year....................................... 9,720 10,096 2,538
------------- ----------- ----------
Cash and cash equivalents at end of year.............................................$ 6,622 $ 9,720 $ 10,096
============= =========== ==========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest..........................................$ 330 $ 333 $ 415
Cash paid during the year for income taxes...................................... 332 16 122

</TABLE>

SEE ACCOMPANYING NOTES.

F-5

<PAGE>

QUIDEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1999

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Quidel Corporation (the "Company") discovers, develops, manufactures and markets
rapid diagnostic products for point-of-care detection in the areas of women's
health and infectious diseases. The following is a summary of the Company's
significant accounting policies.

CONSOLIDATION The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

CASH AND CASH EQUIVALENTS Cash equivalents consist of short-term, highly
liquid investments with insignificant interest rate risk. These investments
include certificates of deposit, commercial paper, bankers acceptances and
money market fund investments with original maturities of three months or
less. The Company accounts for its investments in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." All investments are stated at
cost, which approximates market value. The Company has established practices
relative to diversification and maturities for safety and liquidity purposes.
These practices are periodically reviewed and modified to take advantage of
trends in yields and interest rates. The Company has not experienced any
losses on its cash equivalents and short-term investments.

CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the
Company to significant credit risk consist principally of cash equivalents and
accounts receivable. The Company invests in a variety of financial instruments
and, by policy, limits the amount of credit exposure with any one issuer. The
Company sells products to medical product distribution companies and physicians
worldwide. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company has established provisions
for potential credit losses that are expected to be incurred. No one customer
accounted for more than 10% of net sales in 1999, 1998 or 1997.

DEPRECIATION AND AMORTIZATION Depreciation and amortization of building and
equipment are provided on the straight-line method over the following estimated
useful lives: building - 40 years; equipment - 3 to 10 years; building
improvements - life of asset; furniture and fixtures - 3 to 10 years.
Amortization of trademarks and distribution agreements is provided on the
straight-line method over 10 years. Capitalized patent costs and patent license
agreements are amortized on the straight-line method over the useful life of the
patent.

REVENUE RECOGNITION Revenue from product sales are recorded net of estimated
returns at the time the product is shipped. Revenues from contracts to perform
research and development and license fees are recorded as earned based on the
performance requirements of the agreements. Payments in excess of amounts earned
are deferred. Revenue from the licensing of distribution rights is recorded when
earned under the terms of the related license agreements.

F-6

<PAGE>

QUIDEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1999

EARNINGS PER SHARE Earnings per share are computed in accordance with SFAS No.
128, "Earnings per Share". Basic earnings per share are computed using the
weighted average number of common shares outstanding during each period. Diluted
earnings per share include the dilutive effect of common shares issuable upon
the exercise of stock options.

The following table reconciles the shares used in computing basic and diluted
earnings per share in the respective years:

YEARS ENDED MARCH 31, (IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares used in basic earnings per share
(weighted average common shares outstanding)................................. 23,782 23,649 21,976
Effect of dilutive stock options and warrants................................... 22 208 815
-------------------------------------
Shares used in diluted earnings per share calculation........................... 23,804 23,857 22,791
-------------------------------------
-------------------------------------
</TABLE>

FOREIGN OPERATIONS Foreign currency translation and transaction gains and losses
were not significant in the periods presented.

IMPAIRMENT OF LONG-LIVED ASSETS Effective April 1, 1996, the Company adopted
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the estimated undiscounted cash flows to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. In
April 1998, the Company's Board of Directors approved a plan under which the
operations of certain of the Company's foreign subsidiaries would be disposed of
through abandonment. In accordance with SFAS No. 121, management assessed the
recoverability of those assets by comparing the expected cash flows to be
generated by those assets to their carrying amounts. This analysis concluded
that the carrying amounts of the assets were not recoverable. Accordingly, in
1998, the Company wrote down the assets to their fair value, which was
determined to be minimal.

SEGMENT AND RELATED INFORMATION In June 1997, the Financial Accounting Standards
Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information", which the Company adopted for fiscal 1999 financial
statements. This statement establishes standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Under SFAS No. 131,
operating segments are to be determined consistent with the way that management
organizes and evaluates financial information internally for making operating
decisions and assessing performance. The Company determined that it operates as
one business segment.

F-7

<PAGE>

QUIDEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1999

COMPREHENSIVE INCOME In April 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". This statement requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income and other
comprehensive income, including foreign currency translation adjustments and
unrealized gains and losses on investments, shall be reported, net of their
related tax effect, to arrive at comprehensive income. There was no difference
between comprehensive income and net income in 1998 or 1999.

USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

NOTE 2. INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
MARCH 31, (IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Distribution agreement with European subsidiary......... $ -- $ 4,461
License agreements...................................... 2,300 2,300
Patent costs and trademarks............................. 2,358 2,257
Other investment in European subsidiaries............... -- 780
---------------------------
4,658 9,798
Less accumulated amortization........................... (1,574) (6,332)
---------------------------
$ 3,084 $ 3,466
---------------------------
---------------------------
</TABLE>

The fiscal 1998 accumulated amortization included an approximately $2.8 million
write-off of the remaining net book value of the Company's long-lived assets
related to European subsidiaries shown above. This expense is included within
the total write down of investment in European subsidiaries of approximately
$3.1 million shown in the Consolidated Statements of Operations.

Certain patent filing costs are capitalized and amortized upon the issuance of
the related patent.

F-8

<PAGE>

QUIDEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1999

NOTE 3. EXPORT SALES AND FOREIGN OPERATIONS

Export sales were as follows:

YEARS ENDED MARCH 31, (IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Europe........................................................................ $ 4,757 $ 4,309 $ 4,275
Asia.......................................................................... 964 1,637 3,047
Other international........................................................... 1,143 828 738
-------------------------------------------
$ 6,864 $ 6,774 $ 8,060
-------------------------------------------
-------------------------------------------

Sales and operating income (loss) for the three years ended March 31, 1999 and
identifiable assets at the end of each of those years, classified by geographic
area, were as follows:

YEARS ENDED MARCH 31, (IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers from:
United States............................................................ $ 43,569 $ 41,174 $ 37,462
Europe................................................................... 3,594 4,547 4,457
-------------------------------------------
$ 47,163 $ 45,721 $ 41,919
Operating income (loss):
United States............................................................ $ 914 $ 1,066 $ 3,679
Europe................................................................... 278 (2,565) 396
-------------------------------------------
$ 1,192 $ (1,499) $ 4,075
Long-lived assets:
United States............................................................ $ 30,940 $ 22,945 $ 18,740
Europe................................................................... 47 156 177
-------------------------------------------
$ 30,987 $ 23,101 $ 18,917
-------------------------------------------
-------------------------------------------
</TABLE>

Intercompany sales to affiliates totaled approximately $1.4 million, $2.4
million and $2.3 million in the three years ended March 31, 1999, 1998 and 1997,
respectively. Intercompany sales prices are established with consideration of
each entity's contribution to the overall gross profit generated. Intercompany
gross profit in inventory is eliminated upon consolidation.

NOTE 4. LEASE COMMITMENTS

Rent expense under operating leases totaled $294,000, $247,000 and $152,000 for
the years ended March 31, 1999, 1998 and 1997, respectively.

Cost and accumulated depreciation of equipment under capital leases in the
accompanying balance sheets at March 31, 1999 are $181,000 and $124,000,
respectively, and at March 31, 1998 are $181,000 and $95,000, respectively.
Depreciation of equipment under capital lease agreements is included in
depreciation expense in the accompanying financial statements.

F-9

<PAGE>

QUIDEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1999

NOTE 5. LONG-TERM DEBT AND CAPITAL LEASES

Long-term debt and capital leases consist of the following:

MARCH 31, (IN THOUSANDS) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
9.4% note secured by deed of trust on San Diego facility,
principal and interest of $37 payable monthly through November 2009........................ $ 3,002 $ 3,160
Obligations under capital leases................................................................ -- 41
-------------------------
3,002 3,201
Less current portion of long-term debt and obligations under capital leases..................... 174 199
-------------------------
$ 2,828 $ 3,002
-------------------------
-------------------------

Future principal debt payments for fiscal years ended after March 31, 1999 are
as follows (in thousands):

2000 $ 174
2001 191
2002 209
2003 230
2004 251
Thereafter 1,947
-------
$ 3,002
-------
-------
</TABLE>

NOTE 6. STOCKHOLDERS' EQUITY

COMMON STOCK WARRANTS. Outstanding warrants to purchase shares of common stock
are as follows:

<TABLE>
<CAPTION>
EXERCISE NUMBER
ISSUE DATE TERM PRICE OF SHARES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
April 1992............................................................... 10 years $7.50 950,000
January 1995............................................................. 5 years $3.00 12,500
January 1995............................................................. 5 years $2.50 50,000
April 1995...............................................................4 yrs, 9 mos $4.50 275,000
May 1995................................................................. 5 years $4.75 - $8.50 50,000
------------
1,337,500
------------
------------
</TABLE>

STOCK OPTIONS The Company has stock options outstanding which were issued under
various stock option plans to certain employees, consultants and directors. The
options have terms ranging up to ten years, have exercise prices ranging from
$1.88 to $5.50, and generally vest over four years. In fiscal 1997, the number
of shares authorized to be issued under the Company's 1990 Employee Stock Plan
was increased by 750,000 to a total of 2,500,000 shares of common stock, under
incentive stock rights, stock options, stock

F-10

<PAGE>

QUIDEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1999

appreciation rights and stock purchase rights. Also in fiscal 1997, the
Company's stockholders authorized the establishment of the 1996 Non-Employee
Directors Stock Option Plan ("1996 Plan") which provides for the grant of
options to purchase up to 400,000 shares of common stock.

In fiscal 1999, the Company's stockholders authorized the establishment of the
1998 Stock Incentive Plan which provides for the grant of options to purchase up
to 3,000,000 shares of common stock. In addition, the shareholders also
authorized an amendment to the Company's 1996 Non-Employee Directors Stock
Option Plan which increased the total number of shares reserved for issuance
under the plan by 80,000 shares.

The following table summarizes option activity in terms of thousands of shares
and the weighted average exercise per share:

For the years ended March 31, 1999 1998 1997
(IN THOUSANDS) SHARES PRICE SHARES PRICE SHARES PRICE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............................ 2,710 $ 3.81 2,131 $ 3.94 1,748 $ 4.03
Granted..................................................... 2,560 3.01 850 3.25 818 3.77
Exercised................................................... (21) .73 (165) 2.48 (87) 2.41
Cancelled................................................... (1,401) 3.70 (106) 3.88 (348) 4.33
-------- ------- ------
Outstanding at end of year 3,848 3.34 2,710 3.81 2,131 3.94
-------- ------- ------
-------- ------- ------
</TABLE>

At March 31, 1999, there were 1,212,430 shares exercisable, with a weighted
average remaining contractual life of 7.86 years. At March 31, 1999, 2,235,523
shares remained available for grant under the plans.

The Company has elected to follow Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees", and related Interpretations,
in accounting for its employee stock options, because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, "Accounting
for Stock-Based Compensation", requires the use of option valuation models which
were not developed for use in valuing employee stock options. Under APB No. 25,
because the exercise price of the Company's employee stock options equals the
estimated market price of the underlying stock on the date of grant, no
compensation has been recognized.

The estimated weighted average fair value of options granted during 1999, 1998
and 1997 was $2.16, $2.01 and $2.53, respectively. The fair value of each option
grant was estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants in 1999,
1998 and 1997, respectively: risk-free interest rate of 5.0%, 6.0% and 6.6%
expected option life of 5.8, 5.0 and 5.7 years, expected volatility of .72, .75
and .65 , and a dividend rate of zero for all three years.

The Black-Scholes option-pricing model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. Because the Company's employee

F-11

<PAGE>

QUIDEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1999

stock option plans have characteristics significantly different from those of
traded options, and because SFAS No. 123 has not been applied to options granted
prior to April 1, 1996, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.

Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant date for awards in fiscal 1999, 1998 and 1997
consistent with the provisions of SFAS 123, the Company's net income and income
per share would have been as indicated below:

For the years ended March 31, 1999 1998 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income - as reported.................................... $ 7,661 $ 1,110 $ 3,549
Net income - pro forma...................................... 6,223 219 3,135
Basic and diluted earnings per share - as reported.......... .32 .05 .16
Basic and diluted earnings per share - pro forma............ .26 .01 .14
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

EMPLOYEE STOCK PURCHASE PLAN In fiscal 1998, the number of shares authorized to
be issued under the Employee Stock Purchase Plan ("the Plan") was increased by
100,000 to a total of 600,000 shares of common stock. Under the Plan, full-time
employees are allowed to purchase common stock through payroll deductions (which
cannot exceed 10% of the employee's compensation) at the lower of 85% of fair
market value at the beginning or end of each six-month option period. As of
March 31, 1999, 470,927 shares had been sold under the Plan, leaving 129,073
shares available for future issuance.

At March 31, 1999, approximately 7.6 million shares of common stock were
reserved for the exercise of stock options and warrants.

NOTE 7. INCOME TAXES

For financial reporting purposes, income before income taxes includes the
following components:

F-12

<PAGE>

QUIDEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1999

Significant components of the provision for income taxes attributable to
continuing operations are as follows:

YEARS ENDED MARCH 31, (IN THOUSANDS) 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Current:
Federal..................................................... $ 100 $ 51
Foreign..................................................... (6) 5
State....................................................... 15 20
-------------------------
109 76
Benefit of operating loss carryforwards........................... (6,376) (2,707)
-------------------------
Provision for income taxes $ (6,267) (2,631)
-------------------------
-------------------------
</TABLE>

Significant components of the Company's deferred tax assets as of March 31 are
shown below. During the year ended March 31, 1999, the Company decreased the
valuation allowance for deferred tax assets by approximately $11.8 million. Of
this amount, approximately $6.4 million resulted from the determination that the
realization of net operating loss carryforwards was more likely than not and the
remainder related to other decreases in deferred tax assets.

YEARS ENDED MARCH 31, (IN THOUSANDS) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards........................................................... $ 22,113 $ 24,589
Tax credit carryforwards................................................................... 1,407 1,841
Other-net.................................................................................. 859 3,343
---------------------------
Total deferred tax assets....................................................................... 24,379 29,773
Valuation allowance for deferred tax assets..................................................... (15,296) (27,066)
---------------------------
Net deferred tax assets $ 9,083 $ 2,707
---------------------------
---------------------------
</TABLE>

At March 31, 1999, the Company had Federal and California income tax net
operating loss carryforwards of approximately $63.0 million and $1.1 million
respectively. The federal income tax net operating loss carryforwards will begin
to expire in fiscal 2000 and the California income tax net operating loss
carryforwards will continue to expire in fiscal 2000 (approximately $1.2 million
expired in fiscal 1999).

The difference between the Federal and California tax loss carryforwards is
primarily attributable to the capitalization of research and development
expenses for California tax purposes and the 50% limitation on California loss
carryforwards, as well as the shorter five year carryforward period allowed by
California (the Federal carryforward period is 15 years). The Company also has
federal investment tax, research and development and alternative minimum tax
credit carryforwards of approximately $1.1 million and California research and
development, manufacturers' investment and alternative minimum tax credit
carryforwards of $439,000 which will begin to expire in fiscal 2000 if not
previously utilized.

F-13

<PAGE>

QUIDEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1999

The reconciliation of income tax computed at the federal statutory rate to the
provision for income taxes is as follows:

YEARS ENDED MARCH 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory tax rate $ 474 $ (517) $ 1,248
Utilization of valuation allowance (617) 508 (1,151)
Reduction in valuation allowance (6,376) (2,707) --
State taxes net of federal benefit 15 12 22
Other 237 73 4
--------------------------------------------
$ (6,267) $ (2,631) $ 123
--------------------------------------------
--------------------------------------------
</TABLE>

In accordance with Internal Revenue Code Sections 382 and 383, a change in
ownership of greater than 50% of a corporation within a three year period may
limit the Company's ability to utilize its existing net operating losses and tax
credit carryforwards. As a result of the 1991 merger with Monoclonal Antibodies,
Inc., the Company succeeded to the tax carryforwards, which were generated by
Monoclonal and Quidel prior to the merger. Such loss carryforwards totaled
approximately $68.0 million and $8.0 million for Federal and California
purposes, respectively. The Company believes that, as a result of the merger,
such a change in ownership has occurred. However, the Company does not believe
application of Section 382 and 383 will materially impact the utilization of its
net operating losses and tax credits.

NOTE 8. COMMITMENTS

RESEARCH AND DEVELOPMENT AGREEMENTS

During 1998 and 1997, the Company entered into agreements to perform research
and development with Glaxo Wellcome PLC ("Glaxo Wellcome"). Under these
agreements, specified costs related to the performance of research and
development for certain diagnostic test products are reimbursed by Glaxo
Wellcome. The agreements provide for total funding up to approximately $12.1
million. The Company recorded revenue equal to the sum of the direct costs
incurred under the agreements, plus a permitted overhead surcharge, of
approximately $4.0 million, $3.2 million and $2.5 million in fiscal 1999, 1998
and 1997, respectively. In exchange for the funding provided by Glaxo Wellcome
under these agreements, upon successful completion of the planned products, the
Company will be required to pay royalties on sales of the developed products to
Glaxo Wellcome, as defined in the agreements.

NOTE 9. EMPLOYEE BENEFIT PLAN

The Company has a defined contribution 401(k) plan (the "Plan") covering all
employees who are eligible to join the Plan upon employment. Employees may
contribute up to 20% of their compensation per year (subject to a maximum limit
by federal law). The Company did not match contributions to the Plan.

G-14

<PAGE>

QUIDEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 1999

NOTE 10. BECTON DICKINSON LICENSE AGREEMENT

In June 1997, the Company entered into a license agreement with Becton Dickinson
and Co. ("BD") in exchange for a cash license fee, a royalty on net sales of
certain of its pregnancy and ovulation products, and a license of the Company's
Q-Laboratory technology back to BD (with a royalty on future net sales). The
license fee paid of $2.3 million was capitalized and is being amortized over 7.5
years. Royalty expense applicable to this agreement totaled approximately $1.9
million in fiscal 1999.

NOTE 11. SUBSEQUENT EVENT (UNAUDITED)

In June 1999, the Company announced that it signed a definitive agreement to
acquire Metra Biosystems, Inc. ("Metra") for approximately $22.9 million, or
$1.78 per share based upon 12,852,248 shares outstanding, including vested
options, in an all cash tender offer. Metra is a world leader in the diagnosis
and detection of bone loss for the management of osteoporosis and other bone
diseases. Completion of the tender offer is expected by the end of July 1999,
and is subject to 90% of the shares being tendered, execution of retention
agreements by key employees, minimum cash balance at closing and other customary
closing conditions. At the close of the tender offer, it is anticipated that the
total consolidation and transaction costs to the Company will be approximately
$8 million, net of Metra's estimated cash of approximately $19 million. The
tender offer will be financed from our cash reserves, proceeds from a short-term
bank loan and proceeds from a revolving line of credit. The short-term bank loan
will be repaid with the Metra cash acquired, while the line of credit will be
repaid with the proceeds of the contemplated sales and leaseback of the
corporate facility.

NOTE 12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following is a summary of unaudited quarterly results for the years ended
March 31, 1999 and 1998. (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
Gross Net Income Net Income
Year ended March 31, 1999 Revenues Profit (Loss) Per Share
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31...................................................$ 14,278 $ 6,233 $ 7,413 $.31
December 31................................................. 14,927 5,776 946 .04
September 30................................................ 11,420 4,270 (716) (.03)
June 30..................................................... 10,871 4,778 18 .00
- ------------------------------------------------------------------------------------------------------------------------------
Year ended March 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------
March 31...................................................$ 14,681 $ 5,841 $ (107) $(.00)
December 31................................................. 13,442 6,256 1,704 .07
September 30................................................ 11,987 5,346 304 .01
June 30..................................................... 9,369 4,030 (791) (.03)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Basic and diluted net income per share are the same for all quarterly periods.
The net profit for the quarter ended March 31, 1999 and 1998 included an income
tax benefit of approximately $6.6 million and $2.7 million, respectively.

<PAGE>

EXHIBIT 10.26

CONFIDENTIAL DISCUSSION
EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and entered into as of
September 1, 1998 (the "EFFECTIVE DATE"), by and between QUIDEL CORPORATION,
a Delaware corporation (the "COMPANY"), and CHARLES BOWDEN, an individual
("BOWDEN").

1. EMPLOYMENT. The Company hereby engages Bowden as its Vice
President, Technology and Business Development and Chief Medical Officer and
Bowden accepts such employment upon the terms and subject to the conditions
set forth in this Agreement.

2. DUTIES AND RESPONSIBILITIES. Bowden will report directly to the
President and Chief Executive Officer. Bowden shall be responsible for
identifying, assessing and negotiating external new business, technology and
product opportunities. Bowden will serve as the Company's Chief Medical
Officer. In addition, Bowden shall perform such other duties and functions
consistent with his role as may from time to time be assigned to him by the
President and Chief Executive Officer. Bowden agrees that during the course
of the Company's business hours throughout the term of this Agreement, he
will devote the whole of his time, attention and efforts to the performance
of his duties and obligations hereunder. Bowden shall not, without the prior
written approval of the President and Chief Executive Officer, and obtained
in each instance, directly or indirectly (i) accept employment or receive any
compensation for the performance of services from any business enterprise
other than the Company or (ii) enter into or be concerned or interested in
any trade or business or public or private work (whether for profit or
otherwise and whether as partner, principal, shareholder or otherwise), which
may, in the reasonable discretion of the Board, hinder or otherwise interfere
with the performance by Bowden of his duties and obligations hereunder;
PROVIDED, HOWEVER, that Bowden may serve on the board of directors of one
for-profit corporation and one non-profit organization of his choice; so long
as such commitments do not unreasonably interfere with Bowden's duties and
responsibilities to the Company and the Board of Directors does not object to
Bowden's directorship based upon reasonable concerns relating to the nature
of the company in question or its business.

3. COMPENSATION.

(a) SALARY. For all services to be rendered by Bowden under this
Agreement, the Company agrees to pay Bowden, beginning September 1, 1998, a
salary (the "BASE SALARY") equal to Two Hundred and Fifteen Thousand Dollars
($215,000) per year, payable in the Company's normal payroll cycle, less all
amounts required by law to be withheld or deducted. The Compensation
Committee of the Board of Directors shall review Bowden's Base Salary on
about April 1, 1999 and yearly thereafter. The Compensation Committee, in
its sole and absolute discretion from time to time, may increase (but not
decrease without Bowden's prior written consent) Bowden's Base Salary.

(1) In addition to Bowden's salary, the Company agrees to pay
Bowden a one-time sign-up bonus of $25,000 in cash payable to the order of
Bowden, on his first day of employment by the Company.

(2) Bowden is eligible to receive a cash performance bonus, to
be paid each year at the same time bonuses are generally paid to other
senior executives of the Company for the relevant fiscal year of up to 30%
of Bowden's Base Salary, as determined by the

<PAGE>

Compensation Committee of the Board of Directors. Calculation and
payment of the bonus is subject to achievement of the goals set from
year to year by the Compensation Committee for the relevant fiscal year.

(b) STOCK OPTIONS. The Compensation Committee of the Board of Directors
of the Company granted Bowden Incentive and Nonqualified Stock Options to
purchase up to 200,000 shares of Common Stock of the Company under the terms and
conditions set forth in that certain Stock Option Agreement executed by the
Company and Bowden concurrently with this Agreement, a copy of which is attached
hereto as EXHIBIT A.

During the Term of Bowden's employment hereunder:

(1) Bowden shall be entitled to four weeks annual vacation leave
consistent with the Company's policies for other senior executives of the
Company.

(2) The Company shall pay or reimburse Bowden for all reasonable and
necessary travel and other business expenses incurred or paid by Bowden in
connection with the performance of his services under this Agreement
consistent with the Company's policies for other senior executives of the
Company as approved by the Compensation Committee. Additionally, Bowden
shall be entitled to receive an annual $2,500 tax consulting and
preparation allowance.

(3) Commencing on the date of this Agreement, the Company shall
provide and pay for the annual cost of premiums for health, dental and
medical insurance coverage for Bowden and Bowden's dependents consistent
with the coverage generally made available by the Company to senior
executives of the Company.

(4) In addition to the benefits set forth above, Bowden shall be
entitled to participate in any other policies, programs and benefits which
the Compensation Committee may, in its sole and absolute discretion, make
generally available to its other senior executives from time to time
including, but not limited to, life insurance, disability insurance,
pension and retirement plans, stock plans, cash and/or other bonus
programs, and other similar programs.

4. RELOCATION: Upon Bowden's physical relocation to San Diego and for
a period of six months, the Company will reimburse Bowden for all mortgage
interest, property taxes, reasonable property maintenance costs and
reasonable selling and closing costs associated with relocation, up to six
months temporary living and moving costs from San Francisco to San Diego
including reasonable costs associated with the purchase of a new home in San
Diego (such as allocable closing costs and up to one "point" in up-front
financing costs, but excluding real estate broker commissions and fees). To
the extent that any of the foregoing is taxable income to Bowden, the Company
will pay to Bowden an additional amount in cash (the "GROSS-UP PAYMENT")
equal to the sum of (i) the federal, state and local taxes payable by Bowden
as a result of the benefits set forth in this Section 4, plus (ii) all
Attributable Taxes. For purposes hereof, "ATTRIBUTABLE TAXES" means all
taxes payable by Bowden as a result of receipt of the Gross-Up Payment.
Bowden must submit customary and reasonable documentation, including proof of
payment, for any and all such reimbursements.

5. AT WILL EMPLOYMENT. The Company and Bowden acknowledge and agree that
Bowden's employment by the Company is expressly "at will" and not for a
specified term. This means that either party may terminate Bowden's employment
at any time, with or without cause. Any

<PAGE>

termination of Bowden's employment is, however, subject to the terms and
provisions of this Agreement.

6. INVENTIONS.

(a) DISCLOSURE. Bowden will disclose promptly to the Company each
Invention (as defined below), whether or not reduced to practice, that is
conceived or learned by Bowden (either alone or jointly with others) during
the term of his employment by the Company. Further, Bowden will disclose in
confidence to the Company all patent applications filed by or on behalf of
Bowden during the term of his employment and for a period of one (1) year
thereafter.

For purposes of this Agreement, the term "Invention" includes,
without limitation, any invention, discovery, know-how, idea, trade secret,
technique, formula, machine, method, process, use, apparatus, product,
device, composition, code, design, program, confidential information,
proprietary information, or configuration of any kind, that is discovered,
conceived, developed, made or produced by Bowden (alone or in conjunction
with others) during the duration of Bowden's employment and for a period of
one (1) year thereafter, and which:

(1) relates at the time of conception or reduction to practice
of the invention, in any manner, to the business of the Company, including
actual or demonstrably anticipated research or development;

(2) results from or is suggested by work performed by Bowden for
or on behalf of the Company; or

(3) results from the use of equipment, supplies, facilities,
information, time or resources of the Company.

The term Invention will also include any improvements to an Invention, and
will not be limited to the definition of patentable or copyrightable
invention as contained in the United States patent or copyright laws.

(b) COMPANY PROPERTY; ASSIGNMENT. Bowden acknowledges and agrees
that all Inventions will be the sole property of the Company, including,
without limitation, all domestic and foreign patent rights, rights of
registration or other protection under the copyright laws, or other rights,
pertaining to the Inventions. Bowden hereby assigns all of his right, title
and interest in any such Inventions to the Company.

(c) EXCLUSION NOTICE. The assignment by Bowden of Inventions under
this Agreement does not apply to any Inventions that are expressly excluded
from coverage pursuant to Section 2870 of the California Laboratory or Code.
Accordingly, Bowden is not required to assign an idea or invention for which
ALL of the following are applicable:

(1) No equipment, supplies, facility or trade secret information
of the Company was used and the invention or idea was developed entirely on
Bowden's own time;

(2) The invention or idea does not relate to the business of the
Company;

(3) The invention or idea does not relate to the Company's
actual or demonstrably anticipated research or development; and

<PAGE>

(4) The invention or idea does not result from any work
performed by Bowden for the Company.

As used in this SECTION 7(C), "INVENTION" will have the same meaning as
"invention" as used in Section 2870 of the California Laboratory or Code.

(d) PATENTS AND COPYRIGHTS; ATTORNEY-IN-FACT. Bowden agrees to
assist the Company (at the Company's expense) in any way the Company deems
necessary or appropriate from time to time to apply for, obtain and enforce
patents on, and to apply for, obtain and enforce copyright protection and
registration of, Inventions in any and all countries. To that end, Bowden
will (at the Company's expense), without limitation, testify in any suit or
other proceeding involving any Invention, execute all documents that the
Company reasonably determines to be necessary or convenient for use in
applying for and obtaining patents or copyright protection and registration
thereon and enforcing same, and execute all necessary assignments thereof to
the Company or parties designated by it. Bowden's obligations to assist the
Company in obtaining and enforcing patents or copyright protection and
registration for Inventions will continue beyond termination of his
employment, but the Company will compensate Bowden at a reasonable rate after
such termination for the time actually spent by Bowden at the Company's
request on such assistance. Bowden hereby irrevocably appoints the Company,
and its duly authorized officers and agents, as Bowden's agent and
attorney-in-fact to act for and on behalf of Bowden in filing all patent
applications, applications for copyright protection and registration
amendments, renewals, and all other appropriate documents in any way related
to Inventions.

8. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Except in the
performance of his duties hereunder, Bowden will not disclose to any person
or entity or use for his own direct or indirect benefit any Confidential
Information (as defined below) pertaining to the Company obtained by Bowden
in the course of his employment with the Company. For purposes of this
Agreement, "CONFIDENTIAL INFORMATION" will include all of the Company's
confidential or proprietary information, including, without limitation, any
information encompassed in all strategic plans, insurance plans, Inventions,
and any trade secrets, reports, investigations, experiments, research or
developmental work, work in progress, drawings, designs, plans, proposals,
codes, marketing and sales programs, financial data and records financial
projections, cost summaries, pricing formula, and all concepts or ideas,
materials or information related to the business, products or sales of the
Company or the Company's customers; PROVIDED, HOWEVER, that Confidential
Information shall not include information, documents or data that (i) is or
subsequently becomes publicly available without Bowden's breach of any
obligation of confidentiality owed to the Company; (ii) was known to Bowden
prior to his original employment by the Company; (iii) becomes known to
Bowden from a source other than the Company (which is not breaching an
obligation to the Company) and which Bowden learns of outside the scope of
his employment with the Company; or (iv) is required to be disclosed by law
or other governmental authority.

9. RETURN OF MATERIALS AT TERMINATION. In the event of any
termination of Bowden's employment for any reason whatsoever, Bowden will
promptly deliver to the Company all documents, data, and other information
pertaining to Inventions and Confidential Information. Bowden will not take
with him any documents or other information, or any reproduction or excerpt
thereof, containing or pertaining to any Inventions or Confidential
Information.

10. NON-SOLICITATION. Bowden agrees that so long as he is employed by
the Company and for a period of one (1) year after termination of his
employment for any reason, he will not (a) directly or indirectly solicit,
induce or attempt to solicit or induce any Company employee to discontinue
his

<PAGE>

or her employment with the Company; (b) usurp any opportunity of the Company
of which Bowden became aware during his tenure at the Company; or (c)
directly or indirectly solicit or induce or attempt to influence any person
or business that is an account, customer or client of the Company to restrict
or cancel the business of any such account, customer or client with the
Company.

11. REMEDIES UPON BREACH. In the event of any breach by Bowden of
Section 8 or 9 of this Agreement, the Company will be entitled, if it so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either in law or in equity, to enjoin Bowden from violating
such terms of this Agreement, to enforce the specific performance by Bowden
of such terms of this Agreement, and to obtain damages, or any of them, but
nothing contained herein will be construed to prevent such remedy or
combination of remedies as the Company may elect to invoke.

12. NO WAIVER. The waiver by either party of a breach of any provision
of this Agreement will not operate as or be construed as a waiver of any
subsequent breach thereof.

13. NOTICES. Any and all notices referred to herein will be
sufficiently furnished if in writing, and sent by registered or certified
mail, postage prepaid, to the respective parties at the following addresses
or such other address as either party may from time to time designate in
writing:

To the Company: QUIDEL CORPORATION
10165 McKellar Court
San Diego, CA 92121
Attention: Chief Executive Officer

To Bowden: Charles Bowden
2608 Warring Street
Berkeley, CA 94704

14. ASSIGNMENT. This Agreement may not be assigned by Bowden. This
Agreement will be binding upon the Company's successors and assigns.

15. ENTIRE AGREEMENT. This Agreement, together with the Stock Option
Agreement attached hereto as EXHIBIT A, supersedes any and all prior written
or oral agreements between Bowden and the Company, and contains the entire
understanding of the parties hereto with respect to the terms and conditions
of Bowden's employment with the Company.

16. GOVERNING LAW. This Agreement will be construed and enforced in
accordance with the internal laws and decisions of the State of California.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, in counterparts, each of which will be deemed an original, as of
the Effective Date.

QUIDEL CORPORATION, a Delaware corporation

By: /s/ Andre de Bruin
------------------------------
for the Compensation Committee

By: /s/ Charles Bowden
------------------------------
Charles Bowden

<PAGE>

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

Pacific Biotech, Inc., a Delaware corporation

<PAGE>

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 333-72603) pertaining to the Employee Stock Plan of Quidel
Corporation of our report dated May 14, 1999, with respect to the
consolidated financial statements of Quidel Corporation included in the
Annual Report (Form 10-K) of Quidel Corporation for the year ended March 31,
1999.

ERNST & YOUNG LLP

San Diego, California
June 25, 1999

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES F2 AND F3 OF QUIDEL'S FORM
10-K FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 6,622
<SECURITIES> 0
<RECEIVABLES> 8,975
<ALLOWANCES> 587
<INVENTORY> 5,811
<CURRENT-ASSETS> 21,619
<PP&E> 29,419
<DEPRECIATION> 11,200
<TOTAL-ASSETS> 52,606
<CURRENT-LIABILITIES> 5,072
<BONDS> 0
0
0
<COMMON> 24
<OTHER-SE> 44,682
<TOTAL-LIABILITY-AND-EQUITY> 52,606
<SALES> 47,163
<TOTAL-REVENUES> 51,496
<CGS> 26,106
<TOTAL-COSTS> 50,304
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 324
<INCOME-PRETAX> 1,394
<INCOME-TAX> (6,267)
<INCOME-CONTINUING> 7,661
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,661
<EPS-BASIC> 0.32
<EPS-DILUTED> 0.32

</TABLE>