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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission File Number: 0-10961

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

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

(858) 552-1100
(Registrant's telephone number, including area code)

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý    No o

        As of October 20, 2004, 31,687,083 shares of common stock were outstanding.

QUIDEL CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
September 30, 2004

INDEX

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PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements

QUIDEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

See accompanying notes.

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QUIDEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)

See accompanying notes.

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QUIDEL CORPORATION CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)

See accompanying notes.

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Quidel Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1. Basis of Presentation

        The accompanying unaudited condensed consolidated financial statements of Quidel Corporation and its subsidiaries (the "Company") have been prepared in accordance with generally accepted accounting principles in the U.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring accruals) have been included. The information at September 30, 2004, and for the three and nine months ended September 30, 2004 and 2003, is unaudited. Operating results for the nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2003 included in the Company's 2003 Annual Report on Form 10-K.

        The Company's first, second and third fiscal quarters end on the Sunday closest to March 31, June 30 and September 30, respectively. For ease of reference, the calendar quarter end date is used herein.

Note 2. Comprehensive Earnings

        The components of comprehensive earnings (loss) are as follows (in thousands; unaudited):

Note 3. Stock Compensation

        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 and director stock options. In accordance with APB No. 25, because the exercise price of the Company's employee and director stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense has been recognized.

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        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 for the three and nine months ended September 30, 2004 and 2003:

        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 and director stock option plans have characteristics significantly different from those of traded options, the resulting pro forma compensation cost may not be representative of the compensation cost 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 for the three and nine months ended September 30, 2004 and 2003, consistent with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, the Company's net earnings (loss) and earnings (loss) per share would have been as indicated below (in thousands, except per share data; unaudited):

Note 4. Computation of Earnings Per Share

        Basic earnings per share was computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if the earnings were divided by the weighted-average number of common shares and potentially dilutive common shares from outstanding stock options. Potential dilutive common shares were calculated using the treasury stock method and represent incremental shares issuable upon exercise of the Company's outstanding stock options. Potentially dilutive shares have not been included for the three months ended September 30, 2004 and 2003 and the nine months ended September 30, 2004, as their inclusion would be antidilutive.

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        The following table reconciles the weighted average shares used in computing basic and diluted earnings per share in the respective periods (in thousands; unaudited):

Note 5. Inventories

        Inventories are recorded at the lower of cost (first-in, first-out) or market and consist of the following (in thousands):

Note 6. Deferred Revenue

        During the quarter ended June 30, 2004, the Company entered into a joint development agreement with another company. In connection with this agreement, the Company had received approximately $1.6 million in upfront fees, which had been recorded as deferred revenue and included in other accrued liabilities in the accompanying balance sheet. A portion of this amount will be recognized as contract revenue ratably over the period of development, which is expected to be through the third quarter of 2006, while the remainder will be recognized as contract revenue as certain milestones are completed. During the quarter ended September 30, 2004, the Company recorded contract revenue of approximately $0.8 million related to milestones completed in connection with the joint development agreement $0.3 million of which had already been received and $0.5 million of which is included in other receivables at September 30, 2004. The deferred revenue balance is $1.3 million as of September 30, 2004.

Note 7. Income Taxes

        A valuation allowance of $13.3 million had been established against a portion of the Company's deferred tax assets at December 31, 2002. As of December 31, 2003, the Company believed it was more likely than not that it would be able to realize the majority of its deferred tax asset through expected future taxable profits, and released approximately $13.3 million of the valuation allowance in the fourth quarter of 2003. As of September 30, 2004, the Company has recorded a valuation allowance of $1.9 million related to deferred tax assets created by the exercise and/or disposition of employee stock options in recent periods. Any tax benefits realized from the reduction of this valuation allowance will be recorded to additional paid-in capital. As of September 30, 2004, the Company assessed its deferred tax asset. While the Company's revenues and related earnings for the nine months ended September 30, 2004 were lower than expected, the Company does not believe a valuation allowance is

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necessary. The Company will continue to assess its deferred tax asset in the fourth quarter of 2004. The Company may propose a valuation allowance if it determines that its future earnings, among other factors, do not support the deferred tax asset. Should the Company determine that it would not be able to realize all or part of its other components of the deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to earnings in the period such determination were made. As of September 30, 2004, the Company had $15.4 million in net deferred tax assets.

        The Company also reserves for taxes that may become payable as a result of audits in future periods with respect to previously filed tax returns. The Company establishes the reserves based on its assessment of exposure associated with permanent tax differences, tax credits and interest expense applied to temporary difference adjustments. The tax reserves are analyzed periodically and adjustments are made as events occur to warrant adjustment to the reserves.

Note 8. Stockholders' Equity

        During the nine months ended September 30, 2004, 1,176,604 shares of common stock were issued due to the exercise of common stock options and 54,422 shares of common stock were issued in connection with the Company's employee stock purchase plan, resulting in proceeds to the Company of approximately $5.6 million.

Note 9. Recent Accounting Pronouncements

        In October 2004, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 123R, "Share-Based Payment." SFAS No. 123R would require all companies to measure compensation cost for all share-based payments at fair value and would be effective for interim or annual periods beginning after June 15, 2005. Retroactive application of the requirements of Statement 123 (not Statement 123R) to the beginning of the fiscal year that includes the effective date would be permitted, but not required. Early adoption of Statement 123R is encouraged. The Company will be analyzing its options for adoption of SFAS No. 123R which becomes effective July 1, 2005. The Company has disclosed the pro forma effect of SFAS No. 123 in Note 3.

Note 10. Industry and Geographic Information

        The Company operates in one reportable segment. Sales to customers outside the U.S. represented 29% and 44% of total sales for the nine months ended September 30, 2004 and 2003, respectively. As of September 30, 2004 and December 31, 2003, balances due from foreign customers were $2.5 million and $11.5 million, respectively.

        The Company had sales to individual customers in excess of 10% of net sales, as follows:

        As of September 30, 2004, accounts receivable from customers with a balance due in excess of 10% of total accounts receivable totaled $4.7 million while at December 31, 2003, accounts receivable from customers with balances due in excess of 10% of total accounts receivable totaled $16.2 million.

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        The following presents net sales for the nine months ended September 30, 2004 and 2003 and long-lived assets as of September 30, 2004 and December 31, 2003 by geographic territory (in thousands):

Note 11. Restructuring

        In April 2003, the Company announced and implemented a restructuring plan (the "Restructuring Plan"). The Restructuring Plan was primarily driven by manufacturing automation in the Company's San Diego facility, completion of certain research and development projects, implementation of the Company's BaaN enterprise resource planning system in its Santa Clara facility, and the transition of the Company's foreign sales and support offices to independent distributors. The Restructuring Plan included a workforce reduction of 63 positions (18% of the Company's total workforce at such time) and closure of the Company's sales and support offices in Heidelberg, Germany and Milan, Italy. The Company recorded a restructuring charge of approximately $2.2 million during 2003. The significant components of the restructuring charge in 2003 were $1.3 million for employee severance costs, $0.5 million for contractual lease and commercial contract terminations, $0.3 million for professional fees and $0.1 million for impairment charges related to assets that were deemed obsolete due to restructuring activities. As of September 30, 2004, the entire $2.2 million of the restructuring charge has been paid.

        The following table provides information regarding the Company's liabilities relating to its restructuring activity (in thousands; unaudited):

Note 12. Patent Litigation

        On February 20, 2004, the Company filed a lawsuit (the "Action") in the U.S. District Court, Southern District of California (the "Court") against Inverness Medical Innovations Inc., Inverness

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Medical Switzerland GmbH, and Applied Biotech, Inc. (collectively "Inverness") as well as against Armkel LLC, for infringement of our U.S. Patent No. 4,943,522 (the "522 Patent"), which relates to lateral-flow technology, and for declaratory relief. The Company is seeking damages and injunctive relief against Inverness products that infringe its patented technology. The Company's claim for declaratory relief relates to nine Inverness-owned and Inverness-licensed patents (U.S. Patent Nos. 6,485,982: 5,989,921; 5,714,389; 6,352,862; 6,228,660; 6,187,598; 5,656,503; 5,622,871; and 5,602,040), and requests the Court to conclude that its lateral-flow products do not infringe these patents, and that the patents are invalid and unenforceable.

        On March 9, 2004, Inverness and a related party filed, in the U.S. District Court, Southern District of California, denials of the Company's allegations of infringement in the Action, allegations that the Company's "522 Patent is invalid and unenforceable, as well as counterclaims for patent infringement against the Company. On March 12, 2004, Armkel LLC filed, in the U.S. District Court, Southern District of California, an answer to the Company's request for declaratory relief and counterclaims for patent infringement against the Company. The counterclaims by Inverness and the related parties and by Armkel LLC allege that the Company's immunoassay test products, including its tests for influenza, pregnancy, strep, and H pylori, infringe eight of the nine Inverness patents that the Company identified in the Action. In addition, Inverness Medical Switzerland GmbH, Wampole Laboratories, LLC, and Applied BioTech, Inc. filed a separate complaint against the Company alleging that its immunoassay test devices also infringe a ninth patent owned by Inverness, U.S. Patent No. 6,534,320. The relief requested in these claims and counterclaims against the Company includes damages and preliminary and permanent injunctive relief to the effect that if this relief is granted, the Company would be required to cease and desist from manufacturing, selling, marketing, using, and inducing others to use products that represent a substantial majority of the Company's revenues.

        On May 6, 2004, the Company filed responses to Inverness' claims and counterclaims, and filed claims for declaratory relief that three additional Inverness-owned patents (U.S. Patents Nos. 5,120,643; 5,578,577; and 4,956,302) are not infringed by the Company's lateral flow products and are invalid and unenforceable. On June 8, 2004, Inverness filed a motion to dismiss the Company's claims for declaratory relief, but on October 5, 2004, the Court denied Inverness' motion.

        From May 17-20, 2004, the Court began conducting a Markman hearing regarding four of the patents at issue in the Action. The Court construed terms in Inverness U.S. Patent No. 6,485,982, and construed one term of the Company's "522 Patent. The Markman hearing continued on July 27-28, 2004, and the Court construed additional terms of the Company's "522 Patent. The Markman hearing will continue in the future to interpret remaining terms of the Company's "522 Patent and other patents.

        On February 17, 2004, the Company's German affiliate Quidel Deutschland GmbH was provided with a copy of a lawsuit that Inverness Medical Switzerland GmbH, another Inverness subsidiary, and Preymed had apparently filed on or about February 4, 2004 in District Court in Düsseldorf, Germany, which names the Company, Quidel Deutschland GmbH, and its distributor, Progen Biotechnik GmbH, as defendants. The lawsuit alleges that the Company and the other defendants are infringing two Inverness-owned European patents, EP 0 291 194 and EP 0 560 411, and is directed at the Company's lateral flow test devices, including its tests for pregnancy, strep, H pylori, and Chlamydia. The suit seeks injunctive relief, an accounting, damages and annulment. If the Court grants injunctive relief, the Company will be required to cease and desist from manufacturing, selling, marketing, using, and importing its lateral flow products in Germany. An oral hearing in this lawsuit is scheduled for January 27, 2005.

        The Company filed notices of intervention challenging the validity of EP 0 560 411 in the European Patent Office (the "EPO") on April 23, 2004 and September 29, 2004. A hearing is scheduled before the EPO on December 1, 2004. On September 22, 2004, the Company filed an action

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challenging the validity of EP 0 291 194 in the German Patent Court. On September 16, 2004, the Company filed a lawsuit in the District Court of Mannheim, Germany alleging that Inverness' affiliate, Unipath Diagnostics GmbH, is infringing our European patent EP 0 296 724 in Germany and seeking damages and injunctive relief. An oral hearing in this lawsuit is scheduled for March 4, 2005.

        The Company is also aware of Inverness's active participation in suing other third parties for patent infringement on the basis that it allegedly owns, or has an exclusive license to, patent rights covering aspects of current lateral flow technology. The Company believes that it has various defenses to claims that have been made or might be made, but no assurances can be given that the Company will prevail. Because of the Company's current use of lateral flow technology and the fact that a substantial majority of its revenues are from products impacted by these disputes, the Company's business would be materially and adversely affected if it is unable to successfully prosecute and/or defend against any such patent infringement allegations or to obtain a commercially reasonable license from Inverness.

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

        In this quarterly report, all references to "we," "our" and "us" refer to Quidel Corporation and its subsidiaries.

Future Uncertainties

        This discussion contains forward-looking statements within the meaning of the federal securities laws that involve material risks and uncertainties. Many possible events or factors could affect our future financial results and performance, such that our actual results and performance may differ materially. As such, no forward-looking statement can be guaranteed. Differences in operating results may arise as a result of a number of factors, including, without limitation, intellectual property, product liability, environmental and other litigation, required patent license fee payments not currently reflected in our costs, seasonality, the length and severity of cold and flu seasons, adverse changes in the competitive and economic conditions in domestic and international markets, actions of our major distributors, manufacturing and production delays or difficulties, adverse actions or delays in product reviews by the United States Food and Drug Administration (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," "believe," "expect," "anticipate," "estimate" and similar words, although some forward-looking statements are expressed differently. The risks described in this report and in other reports and registration statements filed with the Securities and Exchange Commission (the "SEC") from time to time should be carefully considered. The following should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included el