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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

OR

For the twelve months ended December 31, 2000

Commission File Number: 0-10961

QUIDEL CORPORATION

(Exact name of Registrant as specified in its charter)

Registrant's telephone number, including area code (858) 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
Preferred Shares Purchase Rights

    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 / /

    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 Common Stock held by non-affiliates of the registrant, based upon the last sale price of the Common Stock reported on the National Association of Securities Dealers Automated Quotation National Market System on March 12, 2001, was $94,257,698.

    As of March 12, 2001, 28,068,517 shares of the registrant's common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

(To the Extent Indicated Herein)

    Registrant's Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the Registrant's 2001 Annual Meeting of Stockholders to be held on May 23, 2001 is incorporated by reference in Part III, Items 10, 11, 12 and 13 of this Form 10-K.

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Part I

Item 1. Business

    In this section, all references to "we," "our," and "us" refer to Quidel.

    We are a worldwide leader in developing, manufacturing and marketing point-of-care ("POC") rapid diagnostic tests for the detection and management of a variety of medical conditions and illnesses. These products provide health care professionals and consumers with accurate and cost-effective diagnostic information at the POC. Our products are sold to professionals for use in physician's offices, hospitals, clinical laboratories, and wellness screening centers. We also manufacture a line of products sold to consumers through distribution partners and organizations that provide store branded products. Our products are substantially focused on women and family health in areas such as reproduction, infectious diseases, general health screening and diseases associated with the elderly.

    We commenced our operations in 1979 and launched our first products, dipstick-based pregnancy tests, in 1984. The product base has expanded through internal development and acquisitions of other products. The product areas are pregnancy and ovulation, infectious disease, autoimmune diseases, osteoporosis and urinalysis, for professional, research and home use.

    We market our products in the United States of America (U.S.) through a network of national and regional distributors, supported by a direct sales force. In Europe and the rest of the world, we sell and market from regionally based subsidiaries in the United Kingdom, Italy and Germany and through sales representation in Australia (encompassing the Pacific Rim) and Latin America and other international locations by channeling products through distributor organizations and sales agents.

    Our executive offices are located at 10165 McKellar Court, San Diego, California 92121, and our telephone number is (858) 552-1100.

Recent Developments

    In August 2000, we received Premarket Approval (PMA) from the U.S. Food and Drug Administration (FDA) to sell the QUS™-2 Calcaneal Ultrasonometer (QUS-2). The QUS-2 is a portable device that uses ultrasound to assess the density (or quality) of bone in the heel of a person's foot. Physicians can use the quantitative results from the QUS-2 to aid in diagnosing osteoporosis and determining the risk of atraumatic (fragility) fractures associated with this common "brittle bone" disease.

    In October 2000, we received notification from the FDA that Clinical Laboratory Improvement Act of 1988 (CLIA) waiver had been granted for our QuickVue® Influenza test. CLIA-waiver allows a broader base of approximately 100,000 physicians access to the use of the product. We also introduced the QuickVue® Influenza test over-the-counter to consumers in the United Kingdom, Germany and Italy.

    In December 2000, we acquired Litmus Concepts, Inc. (Litmus), a privately-owned, in vitro diagnostics company that has an innovative and proprietary technology platform and unique products for women's health. We issued approximately 3.2 million shares of our common stock, worth approximately $17.3 million, to acquire Litmus.

    In December 2000, we announced that S.Wayne Kay had joined us as President and Chief Operating Officer reporting to André de Bruin, effective January 1, 2001. André de Bruin continues in his role of Chief Executive Officer and Vice Chairman of the Board of Directors.

    Also in December 2000, our San Diego operations received formal ISO 9001 certification for our quality management systems. ISO 9001 certification is officially recognized by European and North

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American authorities and is accepted worldwide, and is expected to become a requirement for doing business in the European Union in the future.

    We changed our accounting policies to implement the effects of the SEC Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements" which resulted in a cumulative effect of a change in accounting principle of $1.1 million during fiscal year 2000. We implemented SAB 101 in the fourth quarter of 2000 by restating our first three quarters of 2000 (see accompanying consolidated financial statements).

    In the first quarter of 2001, we implemented an expense reduction plan (the "Reduction Plan"). The Reduction Plan included a workforce reduction of approximately 15 employees and closure of our facilities in the United Kingdom. In the first quarter of 2001, we expect to incur a restructuring charge of approximately $0.6 million related to the Reduction Plan. The significant components of the Reduction Plan are expected to be $0.4 million for employee severance costs and $0.2 million in closing costs related to the United Kingdom facility. The Reduction Plan is expected to be completed as of the end of the first quarter March 31, 2001.

Diagnostic Test Kit Industry Overview
The Overall Market for In-Vitro Diagnostics

    The worldwide market for in vitro diagnostic (IVD) products is estimated at approximately $20.0 billion and is segmented by the particular technology test platform. The largest segments are instrument-based clinical chemistry and immunodiagnostics testing, which account for approximately 25% and 30% of the total IVD market, respectively. Geographically, approximately 40% of the IVD revenues are generated in the U.S., while Europe, Japan and the rest of the world account for approximately 33%, 13% and 14%, respectively.

    Customers for IVD products are primarily large centralized laboratories, either independent reference laboratories or hospital-based facilities. In the U.S., these central laboratories represent less than 10% of total number of testing facilities, but account for 70% of test volume and 80% of revenues.

    The centralized diagnostic testing process typically involves obtaining a specimen sample of blood, urine or other fluid from the patient and sending the sample from the health care provider's office or hospital unit to a central laboratory. In a typical visit to the physician's office, the patient is tested then usually sent home and often receives the results several hours or days later. The result of this process is that the patient may leave the physician's office without confirmation of the diagnosis and the opportunity to begin in more effective immediate care.

    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 cost to run a test on large scale instruments is low; and 3) the CLIA and subsequent Health Care Financing Administration regulations which subject all laboratories, regardless of size, to strict standards and licensing requirements. Many physicians and smaller laboratories found these regulations prohibitively expensive and reduced testing at the point of care. Although this trend is slowly reversing, these factors have led to the current dominance of centralized laboratories in diagnostic testing.

    The over-the-counter (OTC) market for IVD self-testing has not been affected by these trends. The U.S. OTC market is estimated to grow to $3.5 billion by 2003. Two test categories, pregnancy and glucose monitoring for diabetes, dominate this market.

The Point-of-Care Market

    POC testing for certain diagnostic parameters has become an accepted adjunct to central laboratory and self-testing. The POC market is comprised of two general segments: hospital testing

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(Emergency Rooms and bedside) and decentralized testing in non-institutional settings. Hospital POC testing is accepted and growing, and is generally an extension of the hospital's central laboratory and is often instrument-based. The largest segments of rapid turnaround POC diagnostics include tests for urinalysis, strep throat and pregnancy.

    Out of hospital testing sites consist of physician's office laboratories, nursing homes, pharmacies and other non-institutional, ambulatory settings in which healthcare providers perform diagnostic tests. The decentralized POC market encompasses a large variety of IVD products ranging from moderate sized instrumented diagnostic systems serving larger group practices to single-use, disposable tests for smaller practice physicians' offices. POC testing both in and out of hospital is increasing in popularity due to its clinical benefit and cost-effectiveness.

    The rapid non-instrument-based POC market is estimated to have manufacturers realized revenue of approximately $345 million. 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 (CLIA-waived), and thereby available to an estimated 100,000 physician offices. In 1998, 93% of family practice physicians reported providing some level of POC tests in their offices and the number of physicians using the CLIA-waived POC tests is increasing by approximately 500 physicians per year.

Business Strategy

    We believe that the trend among health care providers to adopt POC testing is increasing, and demographic changes, reimbursement policies and manageable regulations, and the availability of clinically valuable tests will increase growth in this diagnostic category. More and more employers, health plans, and payors are recognizing that POC testing is the most cost-effective means for improving the quality of care and patient satisfaction. Continuous improvements in technology are resulting in a growing number of new diagnostic tests that combine high levels of accuracy with rapid, easy-to-use product formats. It is our mission to establish a significant global leadership position in and out of hospital POC rapid diagnostics. In order to accomplish this mission, we have defined the following strategic goals:

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Improve profit margins through changing product mix and more efficient manufacturing operations;



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Expand the new product pipeline from internal research and development;



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Pursue licensing and acquisitions opportunities when financially and strategically attractive;



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Leverage the marketing and distribution strength of the QuickVue® brand in the U.S., and maximize worldwide sales through current and newly identified sales channels in Europe and the rest of world;



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Gain worldwide market share leadership position with our QuickVue® Influenza test,



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Complete the development and launch the herpes simplex virus ("HSV") antibody rapid diagnostic test on a worldwide basis in conjunction with our development partner, Glaxo Group, Ltd. ("Glaxo"), a wholly owned subsidiary of Glaxo Smith Kline, PLC.;



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Expand development and marketing collaborations with large pharmaceutical and other health care companies;



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Expand international sales through external alliances, collaborations and sales focus; and



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Exploit the MicroArray Film ("MAF") technology acquired in the Litmus acquisition.

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Technology

    We incorporate antibody-antigen (immunoassay) technology, enzymology and biochemistry combined into uniquely designed and engineered rapid diagnostic products. We have developed, licensed or acquired four delivery system formats: test strips, lateral flow-through cassettes, microwell (microtitre) plate tests and a proprietary thin film, MAF technology. Some of the tests are based on antibody-antigen based reactions, and differ in terms of speed, ease-of-use and sensitivity and others are based on rapid, enzyme and basic chemistry reactions. The general antibody-antigen based approach uses commercially produced protein molecules, or antibodies, that react with or bind to specific antigens, such as viruses, bacteria, hormones, drugs, and other antibodies. The antibodies, produced in response to particular antigens, bind specifically to that antigen. This characteristic allows antibodies to be used in a wide range of diagnostic applications. The MAF technology uses chemical and enzyme reactions to indicate the presence or absence of specific infectious agents, ambient chemistry in a variety of body fluids, and a broad spectrum of other health and disease markers.

    The ability to detect the binding of antibodies to target antigens forms the basis for immunoassay testing used in our products. In immunoassays, antibodies or antigens 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 or antibody is present in the test sample, the chemical label produces a visually identifiable color change in response to the resulting reaction. This provides a clear color endpoint for easy visual verification of the test results without the need for instrumentation. This technology is utilized in our lateral flow and microwell assay platforms. Our MAF technology has also been adapted to enable the immunologic detection of a wide variety of different antigens with different chemical composition.

Products

    We provide rapid POC diagnostic tests under the following brand names: QuickVue®, OvuQuick®, Conceive®, CARDS®, OvuKit®, RapidVue®, BlueTest®, Metra®, Pyrilinks® QUS®-2, Alkphase-B®, NovoCalcin®, Chondrex®, Rapignost®, RapiMat® and FemExam®. Our rapid POC diagnostic tests, biochemical bone markers and ultrasonometer participate in the following medical and wellness categories:

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Pregnancy Tests. The early detection of pregnancy allows the physician and patient to institute proper care, helping to ensure the health of both the woman and the developing embryo. 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 36% of our total net sales for the year ended December 31, 2000.



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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 through distribution partners to consumers OTC, to physicians, and to other health care organizations, represented approximately 3% of our net sales for the year ended December 31, 2000.



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Group A Streptococcus. 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 bacteria 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 Group A Streptococci products represented approximately 25% of our net sales for the year ended December 31, 2000.

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Influenza A/B. This diagnostic test was developed through a funded collaboration with Glaxo for the diagnosis and treatment of influenza at the POC. The test is a rapid, two step, diagnostic test for the detection of influenza A and B, the two most common types of the virus. The test received FDA clearance in September 1999 and began selling in December 1999 and received CLIA-waived status in October 2000. Influenza test sales represented approximately 3% of our net sales for the year ended December 31, 2000.



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Helicobacter pylori  ("H. pylori"). is the bacterium believed to be associated with 80% of the five million people diagnosed with peptic 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. Our rapid test utilizes whole blood samples from a finger stick. It is a serological test that measures antibodies circulating in the blood caused by the H. pylori bacteria. Our H. pylori test, which was the first to receive CLIA-waived status, has progressively increased in sales and accounted for approximately 6% of our net sales for the year ended December 31, 2000. We launched a new and improved CLIA-waived H.pylori test in August 2000.



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Other infectious disease products, including Chlamydia and Mononucleosis. The Chlamydia bacterium is responsible for the most widespread sexually transmitted disease in the United States. Over one-half of infected women do not have symptoms, and if left untreated, Chlamydia can cause sterility. Infectious mononucleosis can be severely debilitating to immune-suppressed groups, including the elderly, if not diagnosed and treated promptly. Our other infectious disease products represented approximately 3% of our net sales for the year ended December 31, 2000.



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Metabolic bone markers. According to the National Osteoporosis Foundation, osteoporosis afflicts over 28 million Americans and over 200 million people worldwide. Osteoporosis is a disorder characterized by a decrease in bone mass that leads to increased susceptibility to fracture. One parameter for diagnosing and monitoring bone health is to measure the metabolic process of bone turnover (resorption and formation) or "rate" of change. Metabolic bone markers are used by physicians to monitor the effectiveness of therapy and are extensively used in pharmaceutical research. Sales of metabolic bone markers represented approximately 9% of our net sales for the year ended December 31, 2000.



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QUS-2. Another parameter critical to assessing bone health is the measurement of the density of bone. Imaging technologies provide this information referred to as the "state" of bone health. The QUS-2 is a portable ultrasonometer that scans the heel of the foot to accurately determine the health of the bone. The "state and rate" assessment provides the most complete picture of bone health. Over 100 systems have been placed outside the United States. Sales of the QUS-2 represented approximately 1% of our net sales for the year ended December 31, 2000.



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Urine Test Strip Products. Urinalysis testing using chemical test strips is one of the single most widely ordered diagnostic test in the world. The total worldwide market is over $600 million and used by nearly every health care provider customer segment. Initially, we launched into the visual-read segment (non-instrument based) urine testing which represents a $70 million opportunity in the U.S. A secondary strategy includes the identification of a replacement instrument for the existing RapiMat instrument acquired from Dade Behring Marburg GmbH ("Dade"). The Dade brand of test strips, Rapignost®, and the RapiMat® instrument will be retained in certain countries and transitioned over time to our QuickVue® branded products and instruments. Sales of the urine test strip products represented 5% of our net sales for the year ended December 31, 2000.

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Other Products. The remaining 9% of net sales for the year ended December 31, 2000, include allergy screening tests, clinical laboratory tests used in the measurement of circulating immune complexes and veterinary products produced under outside contracts and collaborations.



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Bacterial Vaginosis. Each year millions of women seek treatment of genital infections generally known as infectious vaginitis. One of the most common forms of infectious vaginitis is bacterial vaginosis (BV), a condition which, if left untreated, can lead to serious clinical complications and illnesses. These complications include pre-term births, pelvic inflammatory disease, infections following gynecological surgeries and an increased risk of contracting HIV. Two products for the detection of BV, a test for pH and Amines and a test for Gardnerella vaginalis, are sold commercially through a distribution agreement with Cooper Surgical. These tests were acquired in the Litmus transaction in December 2000 and did not contribute any revenue subsequent to our acquisition date in December 2000.

Products Under Development

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Herpes Simplex Virus ("HSV") Antigen and Antibody. The QuickVue® HSV Antibody Test, being developed under a funded research collaboration with Glaxo, is intended to detect the presence or absence of the HSV types 1 and 2 antibodies in the blood. HSV is epidemic, spreading at an estimated rate of a half million people per year. One in six people in the U.S. between the ages of 15 and 74 is infected with HSV type 2, the virus commonly associated with genital herpes. The HSV test is designed to be used in conjunction with a Glaxo therapeutic product. In return for funding this development, Glaxo will receive royalties on the sales of these products. During 2000, the HSV antibody test completed development and progressed to human clinical trial in November. Also under the funded development program with Glaxo is a rapid test for HSV antigen. At this time, the development of the antigen test has been stopped due to technical hurdles.



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Helical Peptide. A microassay to measure urinary helical peptide, a promising new marker of bone resorption, completed development. This product was launched to the market for research-use-only in late 2000.



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Trichomoniasis. A rapid test for Trichomoniasis based on the MAF technology is near development and is expected to proceed to human clinical trials in 2001. Trichomoniasis is one of the most prevalent sexually transmitted diseases (STD) in the world and is associated with many of the adverse complications associated with BV. Trichomoniasis is treatable, if properly diagnosed. The World Health Organization reports approximately 170 million cases of trichomoniasis annually, worldwide.

Product Life Cycles

    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 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 and Influenza tests, for example, are used primarily in the fall and winter. As a result of these demand trends, we generally experience lower operating results in the second and third quarters of a calendar year, and have higher operating results in the first and fourth quarters of the calendar year.

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Research and Development

    We are focusing our research and development efforts on three areas: 1) the creation of improved products and new products for existing markets, 2) new products for new markets resulting from acquired businesses, and 3) products developed under pharmaceutical company sponsorship and other collaborations for new markets. These collaborations are being undertaken with the goal of creating differential diagnostics for use in identifying patients most likely to benefit from rapid clinical intervention. With this approach, it is believed that costs related to inappropriate or unneeded therapy can be avoided, while increasing the effectiveness of patient treatment. Research and development expenses were approximately $7.0 million, $5.3 million and $6.0 million for the year ended December 31, 2000, the nine months ended December 31, 1999 and the year ended March 31, 1999, respectively. We anticipate that we will continue to devote a significant amount of financial resources to product development and research for the foreseeable future.

Marketing and Distribution

    In contrast to the central laboratory market, the United States POC market is highly fragmented, with many small or medium-sized customers. We have designed our business strategy around serving the needs of this market segment. To reach these customers, a network of national and regional distributors is utilized and supported by our sales force. We have developed priority status with many of the major distributors in the U.S., resulting in many of our products being the preferred products offered by these distributors.

    Internationally, the use of rapid POC diagnostic tests, the acceptance of testing outside the central laboratory, the regulatory requirements to sell POC tests, and the consumer interest in OTC and self-test products differ considerably from the U.S. Our international sales are substantially lower than domestic sales as a percentage of our total business. Some of this difference is due to the POC market being more developed in the U.S. relative to the overall IVD market in other countries. Also, our ability to address the international markets is reduced due to limited resources and capital.

Customers

    We derive a portion of our net sales from a relatively small number of customers. We expect that our dependence on a few key customers will continue in the future. Approximately 27%, 18% and 21% of our net sales for the year ended December 31, 2000, the nine months ended December 31, 1999 and the year ended March 31, 1999, respectively, were derived from sales to our two largest customers in each of those periods. Even though our customer mix will likely change from period to period in the future, two large national distributors have historically accounted for a significant portion of our net sales. For the year ended December 31, 2000, the nine months ended December 31, 1999 and the year ended March 31, 1999, one of the distributors accounted for 15%, 9% and 9%, respectively, of net sales; and the other distributor accounted for 12%, 9% and 12%, respectively, of net sales. If net sales to these or any of our other significant customers were to decrease in any material amount in the future, our business, operating results and financial condition would be materially adversely affected.

Manufacturing

    We have manufacturing operations in San Diego, California; Mountain View, California; and Santa Clara, California. The San Diego facility, the Company's largest manufacturing operation, principally produces the lateral-flow, immunoassay products. The Mountain View facility, which is ISO 9001 certified for its quality management systems, manufactures microtiter plate products. The Santa Clara facility produces the thin-film products and was acquired in the Litmus transaction. We intend to consolidate our Mountain View manufacturing operation into the Santa Clara facility during 2001.

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    The urine test strip products are manufactured on a contract basis by Dade in Marburg, Germany. In late 2001, we will take responsibility for these manufacturing operations.

    Our principal manufacturing facility is located in San Diego, California and consists of laboratories devoted to tissue culture, cell culture, protein purification 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. In 2000, this facility received ISO 9001 certification for its quality management systems.

    The facility in Santa Clara, California is the location of the MAF manufacturing operation. This proprietory production system is a highly automated technology that allows the disposition of multiple reagents in specific patterns in either two or three dimensions for a specific rapid diagnostic product. The sophistication of the process allows for high unit volume through-put as well as change-over flexibility to accommodate a broad range of product configurations. This facility is ISO 9002 certified.

    Our manufacturing is conducted in compliance with the FDA Quality System Regulations ("QSR") (formerly Good Manufacturing Practices) governing the manufacture of medical devices. The manufacturing facilities have been registered with the FDA and the Department of Health Services of the State of California, and have passed routine federal and state inspections confirming compliance with the QSR regulatory requirements for IVD 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 and result in excess manufacturing costs.

Government Regulation

    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. 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 U.S. of new products under development until it receives premarket clearance or approval from the FDA, which can be a lengthy, expensive and uncertain process. Noncompliance with applicable requirements can result in, among other matters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the FDA 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 U.S. if the device is deemed to be unsafe.

    In the U.S., 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, the lowest regulated class of 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, and adherence to the QSR); and, generally, Class III devices pose the highest risk and are subject to premarket approval to ensure their safety and effectiveness.

    Before a device can be introduced in the U.S. market, the manufacturer must obtain FDA clearance through a premarket 510(k) notification or premarket approval ("PMA"). A PMA application must be filed if a device is a new device not substantially equivalent to a legally marketed Class I or Class II device, 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.

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    A 510(k) submission must be filed to establish "substantial equivalence" 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 has been requiring more rigorous demonstration of substantial equivalence as part of the 510(k) process, including submission of extensive clinical data. It generally takes from three to six months from 510(k) submission to obtain 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, and there can be no assurance that the FDA will grant clearance. A PMA application must be supported by valid scientific evidence to demonstrate the safety and effectiveness of the device, typically including the results of clinical investigations, bench tests, laboratory and animal studies. The PMA approval process can be expensive, uncertain and lengthy.

    We may not be able to obtain the necessary regulatory premarket approvals or clearances for our 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.

    Any devices manufactured or distributed by us pursuant to FDA clearance or approvals are subject to pervasive and continuing regulation by the 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. Each manufacturer must also comply with Medical Device Reporting ("MDR") requirements mandating reporting to the FDA of 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 also subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. Current FDA enforcement policy prohibits the marketing of approved medical devices for unapproved uses.

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    We are subject to routine inspection by the FDA and certain state agencies for compliance with QSR requirements, MDR requirements and other applicable regulations. Changes in existing requirements or adoption of new requirements could have a material adverse effect on our business, financial condition and results of operations. We may also incur significant costs to comply with laws and regulations in the future, resulting in a material adverse effect upon the business, financial condition and results of operations.

    We are also 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. We 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.

    Our products are also subject to the CLIA regulations and related federal and state regulations, that 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 our business, financial condition and results of operations.

Patents and Trade Secrets

    The healthcare industry has traditionally placed considerable importance on obtaining and maintaining patent and trade secret protection for significant new technologies, products and processes. We and other companies engaged in research and development of new diagnostic products using advanced biomedical technologies are actively pursuing patents for technologies, considered novel and patentable. However, important legal issues remain to be resolved as to the extent and scope of available patent protection in the U.S. and in other important markets worldwide. The resolution of these issues and their effect upon the long-term success of us and other biotechnology firms cannot be determined. We currently hold 212 patents and have approximately 60 more pending.

    It has been our policy to file for patent protection in the U.S. and other countries with significant markets, such as Western European countries and Japan, if the economics are deemed to justify such filing and our patent counsel determines that a strong patent position can be obtained. No assurance can be given that patents will be issued to us pursuant to our patent applications in the U.S. and abroad or that a patent portfolio will provide us 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 in or related to our areas of product development. To the extent such efforts are successful, we may be required to obtain licenses in order to exploit certain of our product strategies. Licenses may not be available to us at all or, if so available, on acceptable terms.

    We are aware of certain issued and filed patents issued to various developers of diagnostic products with potential applicability to our diagnostic technology. We have licensed certain rights from companies such as Becton Dickinson and Company to assist with the manufacturing of certain products. There can be no assurance that we would prevail if a patent infringement claim were to be asserted against us as to technologies, products or process for which we have no licenses.

    We currently have certain licenses from third parties and in the future may require additional licenses from other parties in order to refine our products further and to allow us to develop, manufacture and market commercially viable products effectively. There can be no assurance that such licenses will be obtainable on commercially reasonable terms, if at all, that any patents underlying such

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licenses will be valid and enforceable, or that the proprietary nature of any patented technology underlying such licenses will remain proprietary.

    We seek to protect our 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, we have taken certain security measures in our laboratories and offices. Despite such efforts, no assurance can be given that the confidentiality of our proprietary information can be maintained. Also, to the extent that consultants or contracting parties apply technical or scientific information independently developed by them to our projects, disputes may arise as to the proprietary rights to such data.

    Under certain of our distribution agreements, we have agreed to indemnify the distributors against costs and liabilities arising out of any patent infringement claims and other intellectual property claims asserted 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

    Competition in the development and marketing of diagnostic products is intense, and diagnostic technologies have been subject to rapid change. We believe 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. Our success will depend on our 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. The majority of diagnostic tests used by physicians and other health care providers are performed by independent clinical reference laboratories. We expect that these laboratories will continue to compete vigorously to maintain their dominance of the testing market. In order to achieve market acceptance for our products, we will be required to demonstrate that our 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 our current and prospective competitors, including several large pharmaceutical and diversified health care companies, have substantially greater financial, marketing and other resources than we have. These competitors include Abbott Laboratories, Beckman Coulter Primary Care, and Becton Dickinson. Our competitors may succeed in developing or marketing technologies or products that are more effective or commercially attractive than our current or future products, or that would render our technologies and products obsolete. Moreover, we may not have the financial resources, technical expertise or marketing, distribution or support capabilities to compete successfully in the future. In addition, many competitors have made substantial investments in competing technologies, and may be more effective than our technologies, or may prevent, limit or interfere with our ability to make, use or sell our products either in the U.S. or in international markets.

Human Resources

    As of December 31, 2000, we had 350 employees, none of whom are represented by a labor union. We have experienced no work stoppages and believe that our employee relations are good.

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Risk Factors

Our Operating Results May Fluctuate, Which Could Have a Negative Effect on the Price of Our Common Stock

    Fluctuations in our operating results for any reason that decrease sales or profitability, could cause our growth or operating results to fall below the expectations of investors and securities analysts, and this could cause our stock price to decline. We were not profitable for the year ended December 31, 2000, and we may not continue our revenue growth or achieve 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. These include:

•

seasonal fluctuations in our sales of strep throat and influenza tests, which are generally highest in fall and winter;



•

changes in the level of competition;



•

changes in economic conditions in our domestic and international markets;



•

delays in shipments of our products to customers or from 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.

Our Products and Markets Require Considerable Resources to Develop, and This Could Have a Negative Effect on Our Profits

    The development, manufacture and sale of diagnostic products require a significant investment of resources. Our increased investment in sales and marketing activities, manufacturing scale-up and new product development is continuing to increase our operating expenses, and our earnings will 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 are not available, we may be required to delay or scale back market developments.

Delays in Manufacturing Our Products Could Require Us to Spend Considerable Resources and Could Harm Customer Relationships

    If we experience significant demand for our products, we may require additional capital resources to meet these demands. If we are unable to develop necessary manufacturing capabilities, our sales could be adversely affected. Failure to increase production volumes, if required, in a cost-effective manner, or lower than anticipated yields or production problems encountered as a result of changes in the manufacturing process, could result in shipment delays as well as increased manufacturing costs, which could also have a material adverse effect on our sales.

    The majority of raw materials and purchased components used to manufacture our products are readily available. However, some of these materials are obtained from a sole supplier or a limited group of suppliers. The reliance on sole or limited suppliers and the failure to maintain long-term

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agreements with other suppliers involve several risks, including the inability to obtain an adequate supply of raw materials and components and reduced control over pricing, quality and timely delivery. Although we attempt to minimize our supply risks by maintaining an inventory of raw materials and continuously evaluating other sources, any interruption in supply could have a material adverse effect on our sales or cost of sales.

    In 2001, we plan to begin manufacturing our urinalysis products in Marburg, Germany. Currently, we contract with a third party to manufacture these products. Any delays or problems encountered in the integration of this process could result in shipment delays and increased manufacturing costs and could have a material adverse effect on our results of operations.

The Loss of Key Distributors or an Unsuccessful Effort to Directly Distribute our Products Could Lead to Reduced Sales

    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 timely found. Finding a suitable alternative may pose challenges in our industry's competitive environment. Another suitable distributor may not be found on satisfactory terms. 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, and This Will Have a Negative Effect on Future Sales Growth

    Clinical reference laboratories and hospital-based laboratories are significant competitors for our products and provide the majority of diagnostic tests used by physicians and other health-care providers. Our future sales depend on, among other matters, the capture of sales from these laboratories, and if we do not capture sales as expected our sales may not grow as much as we hope. 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 these tests.

Intense Competition in the Diagnostic Market May Reduce Our Sales

    The diagnostic test market is highly competitive. We have a large number of multinational and regional competitors making investments in competing technologies. 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 we have. Moreover, some competitors offer broader product lines and have greater name recognition than we have. If our competitors' products are more effective or more commercially attractive than ours, our sales could be adversely affected. Competition also has a negative effect on our product prices and, as a result, our profit margins.

To Remain Competitive We Must Continue to Develop or Obtain Proprietary Technology Rights; Otherwise, Other Companies May Increase Their Market Share by Selling Products That Compete with Our Products

    Our competitive position is heavily dependent on obtaining and protecting our proprietary technology or obtaining licenses from others. Our sales and profits 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

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product introduction. Our ability to compete successfully in the diagnostic market depends on continued development and introduction of new proprietary technology and the improvement of existing technology. If we cannot continue to obtain and protect proprietary technology, our sales and profits 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. Further, we only have patents issued in selected countries. Therefore, third parties can make, use, and sell products covered by our patents in any country in which we do not have patent protection. We license the right to use our products to our customers under label licenses that are for research purposes only. These licenses could be contested and we cannot provide assurance that we would either be aware of an unauthorized use or be able to enforce the restrictions in a cost-effective manner. 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 affect our sales because:

•

it consumes a substantial portion of managerial and financial resources;



•

its outcome is inherently uncertain and a court may find the third-party claims valid and that we have no successful defense to such claims;



•

an adverse outcome could subject us to significant liability;



•

failure to obtain a necessary license upon an adverse outcome could prevent us from selling our current products or other products we may develop; and



•

protection of our rights may not be available under the law or may be inadequate.

The Uncertainty and Cost of Regulatory Approval for Our Products May Have a Negative Effect on Our Profitability

    Our sales may be negatively 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. 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 future performance depends 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.

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We are Subject to Numerous Government Regulations Compliance Which Could Increase Our Expenses

    Numerous laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances impact our business operations. The costs of compliance with these laws could substantially increase our costs. Violations of these laws or laws regulating the manufacture and marketing of our products could result in substantial costs and loss of sales or customers. It is 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.

Violation of Government Regulations or Voluntary Quality Programs Could Result in Loss of Sales and Customers

    Certain products that we manufacture are regulated by the FDA. As such, we must register with the FDA and comply with the Quality System Regulations. Failure to comply with these regulations can lead to sanctions by the FDA such as observations made following inspections, warning letters, product recalls, fines, product seizures and consent decrees. Such actions by the FDA would be available to the public and could affect our ability to sell our products.

    ISO 9001 is an internationally recognized voluntary quality standard that requires compliance with a variety of quality requirements somewhat similar to Quality System Regulations. The operations of our manufacturing facilities are intended to comply with ISO 9001. Failure to comply with this voluntary standard can lead to observations of non-compliance or even suspension of ISO certification by the certifying unit. If we lose ISO certification, this loss could cause some customers to purchase products from other suppliers.

We Use Hazardous Materials in Our Business that May Result in Unexpected and Substantial Claims Against Us Relating to Handling, Storage or Disposal

    Our research and development and manufacturing activities may involve the controlled use of hazardous materials, including chemicals and biological materials. The risk of accidental contamination or injury from these materials cannot be completely eliminated. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. Compliance with these laws and regulations is necessary and expensive. Current or future environmental regulations may impair our research, development or production efforts by imposing substantial costs on our business. In addition, we may be required to pay fines, penalties or damages in the event of noncompliance with these laws or the exposure of individuals to hazardous materials. Further, any accident could partially or completely shut down our research and manufacturing facilities and operations.

Our Sales Could be Affected by Third-party Reimbursement Policies and Potential Cost Constraints

    Our sales could be adversely affected by changes in reimbursement policies of governmental or private health care payors. In the U.S., health care providers such as hospitals and physicians that purchase diagnostic products 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 U.S. in recent years, there can be no assurance that currently available levels of reimbursement will continue to be available in the future for our existing products or products under

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development. 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 reduce the demand for our products or our ability to sell our products on a profitable basis.

If We Are Not Able to Manage Our Growth Strategy, Our Earnings May be Adversely Affected

    We anticipate increased growth in the number of employees, the scope of operating and financial systems and the geographic area of our operations as new products are developed and commercialized. This growth may divert management's attention from other aspects of our business, and will place a strain on existing management, as well as operational, financial and management information systems. To manage this growth, we must continue to implement and improve our operational and financial systems and to train, motivate, retain and manage our employees. Furthermore, we may expand into markets in which we have less experience or incur higher costs. Should we encounter difficulties in managing these tasks, our growth strategy may suffer and our sales and earnings could be adversely affected.

Our Business Could be Negatively Affected by the Loss of Key Personnel or Our Inability to Hire Qualified Personnel

    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 these personnel is intense and if we are not able to retain existing key personnel, or identify and hire additional qualified personnel, our business could be negatively impacted.

We Are Exposed to Risks of Significant Product Liability Which, If Not Covered by Insurance, Could Have an Adverse Effect on Our Profits

    There is a risk of product liability claims 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. Also, 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 negative effect on our results of operations.

Our Earnings May be Adversely Affected If We Experience Difficulties Integrating Acquired Companies or Technologies After the Acquisition

    We may experience difficulties integrating our own operations with those of companies or technologies that we have acquired or we may acquire, and there can be no assurance that we will realize the benefits and cost savings that we believe the acquisition will provide or that these benefits will be achieved within the time frame we anticipate. The acquisitions may distract management from day-to-day business and may require other substantial resources. We may incur restructuring and integration costs from combining other operations or technologies with ours. These costs may be substantial and may include costs for employee severance, relocation and disposition of excess assets and other acquisition related costs. These costs could have a negative effect on profits.

We Face Risks Relating to Our International Sales and Foreign Operations

    Our products are sold internationally, including to customers in Europe. Sales to foreign customers accounted for 25%, 21% and 22% of our net sales for the year ended December 31, 2000, the nine

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months ended December 31 1999, and the year ended March 31, 1999, respectively, and are expected to continue to account for a significant percentage of our net sales. Moreover, in November 2001, we will commence manufacture of our urinalysis products in Germany. International sales and manufacturing operations are subject to inherent risks. These risks include:

•

exposure to currency exchange fluctuations;



•

longer payment cycles;



•

greater difficulty in accounts receivable collection;



•

compliance with foreign laws;



•

changes in regulatory requirements;



•

tariffs or other barriers;



•

difficulties in obtaining export licenses;



•

difficulties in staffing and managing foreign operations;



•

reduced protection for, and enforcement of, intellectual property rights;



•

political and economic instability;



•

transportation delays; and



•

potentially adverse tax consequences.

    Even that portion of our international sales which is negotiated for and paid in U.S. dollars is subject to currency risks, since changes in the values of foreign currencies relative to the value of the U.S. dollar can render our products comparatively more expensive. These exchange rate fluctuations could negatively impact international sales of our products and our anticipated foreign operations, as could changes in the general economic conditions in those markets. In calendar 2000, the value of major European currencies dropped against the U.S. dollar. To date, we have not reflected that change in currency value in our selling prices. In order to maintain a competitive price for our products in Europe, however, we may have to provide discounts or otherwise effectively reduce our prices, resulting in a lower margin on products sold in Europe. Continued change in the values of European currencies or changes in the values of other foreign currencies could have a negative impact on our business, financial condition and results of operations. Although we do not currently hedge against exchange rate fluctuations, any measures we take to hedge against exchange rate fluctuations may not adequately protect us from their potential harm.

We Rely on a Continuous Power Supply to Conduct Our Operations, and California's Current Energy Crisis Could Disrupt Our Operations and Increase Our Expenses

    California is in the midst of an energy crisis that could disrupt our operations and significantly increase our expenses. In the event of an acute power shortage, that is, when power reserves for the State of California fall below 1.5%, California has on some occasions implemented, and may in the future continue to implement, rolling blackouts throughout California. We currently have a backup generator with limited capacity. We have no alternate source of power in the event of a blackout, and our current insurance does not provide coverage for any damages we or our customers may suffer as a result of any interruption in our power supply. If blackouts interrupt our power supply, we would be temporarily unable to continue operations at our facilities. Any such interruption in our ability to continue operations at our facilities could damage our reputation, harm our ability to retain existing customers and to obtain new customers, and could result in lost revenue, any of which could

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substantially harm our business and results of operations. Furthermore, our utility expenses have increased substantially and could continue to be negatively impacted by the California energy crisis.

Future Sales by Existing Stockholders Could Depress the Market Price of Our Common Stock and Make it More Difficult for Us to Sell Stock in the Future

    Upon completion of the acquisition of Litmus, we had outstanding approximately 28.1 million shares of common stock. In addition, we are in the process of registering 2,486,514 shares of our common stock in conjunction with the Litmus acquisition. We have a substantial number of shares that are issuable upon the exercise of warrants and options. Sales of any substantial number of shares of our common stock in the public market may have an adverse effect on the market price of our common stock. Any sustained sales of shares by our existing or future stockholders or any increase in the average volume of shares traded in the public market may adversely affect the market price of our common stock. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.

Our Stock Price has Fluctuated and May Continue to Fluctuate Widely

    The market price of our common stock has fluctuated substantially in the past. Between December 31, 1999 and December 31, 2000, the price of our common stock, as reported on the Nasdaq National Market, has ranged from a low of $3.75 to a high of $11.00. The market price of our common stock will continue to be subject to significant fluctuations in the future in response to a variety of factors, including:

•

future announcements concerning our business or that of our competitors or customers;



•

the introduction of new products or changes in product pricing policies by us or our competitors;



•

litigation regarding proprietary rights or other matters;



•

change in analysts' earnings estimates;



•

developments in the financial markets;



•

quarterly fluctuations in operating results; and



•

general conditions in the POC diagnostic testing industry.

    Furthermore, stock prices for many companies, and high technology companies in particular, fluctuate widely for reasons that may be unrelated to their operating results. Those fluctuations and general economic, political and market conditions, such as recessions or international currency fluctuations, may adversely affect the market price of our common stock.

    In the past securities class action litigation often has been brought against a company following periods of volatility in the market price of its securities. Companies in high technology industries are particularly vulnerable to this kind of litigation due to the high volatility of their stock prices. Accordingly, we may in the future be the target of securities litigation. Securities litigation could result in substantial costs and could divert our management's attention and resources.

Item 2.  Properties

    Our executive, administrative, manufacturing and research and development operation is located in San Diego, California. We lease a 73,000 square-foot facility used primarily for manufacturing and research and development, and also lease an approximately 17,000 square-foot administrative facility in San Diego, California. We also lease space related to our foreign operations in the United Kingdom, Germany and Italy. The operating leases for the United Kingdom and Germany extend through June 2001 and March 2002, respectively, while the Italy lease is month to month.

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    The Mountain View operation leases approximately 30,600 square feet of manufacturing, laboratory and office space at two facilities. We lease these facilities under operating leases which extend through May 2001, each with a renewal option that, if exercised, would extend the term of the lease through May 2003. Currently, one of the facilities is being subleased such that the rent being received offsets a portion of the rent being paid by us for these two facilities. For the year ended December 31, 2000, our rent expense for these two facilities was approximately $0.3 million and the sublease income was approximately $0.5 million. We do not expect to exercise the lease extension option for either lease and will consolidate the Mountain View operation to the Santa Clara, California facility during 2001.

    The operation in Santa Clara, California leases approximately 24,000 square feet of manufacturing, laboratory and office space. This facility is occupied under an operating lease that expires in December 2009.

Item 3.  Legal Proceedings

    We received a letter dated April 24, 1992 from the United States Environmental Protection Agency (the "EPA") notifying us that we are 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 we 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, we do not know how much of our 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 us for damages that may be awarded.

    We are 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 us. We maintain insurance, including coverage for product liability claims, in amounts which management believes appropriate given the nature of our business.

Item 4.  Submission of Matters to a Vote of Security Holders

    Not applicable.

Item I-A.  Executive Officers of Quidel Corporation

    Information with respect to executive officers is included on pages 21-22 of this Form 10-K. The information required by item 405 of Regulation 5-K is incorporated by reference from the information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance," contained in our Proxy Statement to be filed with the Securities and Exchange Commission. The names, ages and positions of all executive officers as of December 31, 2000 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 Board of 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.

    André de Bruin, 54, is Vice Chairman and Chief Executive Officer. Mr. de Bruin was appointed President and Chief Executive Officer of Quidel on June 9, 1998 and served as President until January 1, 2001, when S. Wayne Kay was employed by Quidel as President and Chief Operating Officer. Mr. de Bruin continues to serve as Chief Executive Officer and Vice Chairman of Quidel.

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From June 23, 1997, Mr. de Bruin has also been Vice Chairman of the Board. Mr. de Bruin was a part-time employee of Quidel from June 23, 1997 until June 9, 1998. Prior to joining us, Mr. de Bruin was President and Chief Executive Officer of Somatogen, Inc. ("Somatogen"), a publicly held biopharmaceutical company, since July 1994. He was elected Chairman of the Board of Somatogen in January 1996. Baxter International, Inc. 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 30 years in pharmaceuticals, devices and diagnostics.

    S. Wayne Kay, 50, is President and Chief Operating Officer. Mr. Kay joined us on January 1, 2001. Mr. Kay previously was employed by Neoforma.com, a provider of business-to-business e-commerce services to purchasers and sellers of medical products, supplies and equipment, where he served as Senior Vice President beginning December 13, 1999. From 1994 to 1999, Mr. Kay served as President and CEO of the Health Industry Distributors Association. Mr. Kay also served as President and CEO of Enzymatics, Inc. from 1989 to 1994. Additionally, Mr. Kay worked at SmithKline Beecham from 1973 through 1989, where he became President of SmithKline Diagnostics. Mr. Kay is also a Director of Med-Ecom, Inc.

    Charles J. Cashion, 50, is Senior Vice President, Corporate Operations, Chief Financial Officer and Secretary. Mr. Cashion joined us in December 1998. Mr. Cashion has more than 20 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.

    Mark E. Paiz, 39, is Senior Vice President, Product Development and Supply Operations. From June 1998 to August 1999, Mr. Paiz was Vice President, Operations. Mr. Paiz joined us in December 1997 as Senior Director, Manufacturing. Mr. Paiz has 15 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 stint 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., 55, is Vice President, Autoimmune and Complement and General Manager, Mountain View Operations. From August 1998 to August 1999, Dr. Tamerius was Vice President, Research & Development. Dr. Tamerius joined us in August 1989 as Vice President of Clinical and Regulatory Affairs. In 1994, Dr. Tamerius assumed responsibility as Vice President of our Clinical Laboratory Business (including research and development, manufacturing and sales). Dr. Tamerius received his M.S. and Ph.D. degrees in Microbiology and Immunology from the University of Washington.

    Linda M. Tanner, 49, is Senior Vice President, Global Commercial Operations. Ms. Tanner joined us in August of 1999. Ms. Tanner has over 20 years of experience in sales and marketing management in the Medical Diagnostics industry. From 1995 to 1999, Ms. Tanner served as a Director of Global Marketing, and later as Vice President of Global Marketing and Support Services for Nichols Institute Diagnostic. From 1985 to 1995, Ms. Tanner was a Director of Corporate Accounts for Boehringer Mannheim Corporation. Ms. Tanner received her degree in Medical Technology from Macomb College.

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Part II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

COMMON STOCK PRICE RANGE

    Our 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 our common stock for the periods indicated since January 1, 1999.

    We have 950,000 warrants that are traded on the Nasdaq National Market System under the symbol "QDELW". These warrants were issued in April 1992 and expire April 30, 2002. The common stock underlying the warrants was registered on August 21, 2000. The following table sets forth the range of high and low closing prices for our warrants for the periods indicated since January 1, 1999.

    No cash dividends have been paid on the common stock and we do not anticipate paying any dividends in the foreseeable future. As of December 31, 2000, we had 828 common stockholders of record and 682 warrantholders of record.

    On October 30, 2000, we entered into an Agreement and Plan of Merger ("Merger Agreement") with Litmus, pursuant to which Litmus Acquisition Corp., our wholly owned subsidiary, would merge into Litmus with the result that Litmus would become our wholly owned subsidiary. Under the Merger Agreement, each holder of outstanding options, warrants, preferred stock and common stock of Litmus would become entitled to receive shares of our common stock. The merger was completed on December 8, 2000, after which date we became obligated to issue a total of 3,250,000 shares of our common stock to the former holders of options, warrants, preferred stock and common stock of Litmus. The issuance of the shares of our common stock to former shareholders, warrantholders and optionholders of Litmus was accomplished as a private placement pursuant to Rule 506 promulgated under the Securities Act of 1933, as amended. We are obligated to register certain shares issued in the transaction in order to facilitate the resale of the shares.

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Item 6.  SELECTED CONSOLIDATED FINANCIAL DATA

Consolidated statements of operations