Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation fourth quarter and full year 2019 earnings conference call. At this time, all participants are in a listen-only mode. Later, instructions will be given for the question and answer session. If anyone has difficulty hearing the conference, please press star zero for operator assistance. I'd now like to turn the call over to Mr. Ruben Argueta, Quidel's Director of Investor Relations. Please go ahead.
Thank you, operator. Good afternoon, everyone. Thank you for joining today's call. With me today is our President and Chief Executive Officer, Doug Bryant, and Randy Steward, our Chief Financial Officer. Our fourth quarter and full year 2019 earnings release is now available on ir.quidel.com, our investor relations website. We will also post our prepared remarks on the presentations tab of our IR website following the conclusion of this call, February 12th, for a period of 24 hours. Please note that this conference call will include forward-looking statements within the meaning of federal securities laws. It is possible that actual results and performance could differ significantly from these stated expectations. For a discussion of risk factors, please review Quidel's annual report on Form 10-K, registration statements, and subsequent quarterly reports on Form 10-Q, as filed with the SEC.
Furthermore, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 12, 2020. Quidel undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call, except as required by law. Today, Quidel released financial results for the three months and full year ended December 31, 2019. If you have not received our news release, or if you would like to be added to the company's distribution list, please contact me at 858-646-8023. Following Doug's comments, Randy will briefly discuss our financial results, then we'll open the call to your questions. I'll now hand the call over to Doug for his comments.
Thank you, Ruben, and good afternoon, everyone. As I reported at a recent healthcare conference, we were expecting strong fourth quarter revenue. There's no surprise. At $152.2 million, we were just slightly ahead of the $151 million-$152 million that we had suggested. The strength was driven by an early start to the influenza season, in which, very unusually, flu B was the dominant strain. Now, as you know, we're in the middle of another influenza A epidemic across most of the U.S. Sofia and Solana Q4 revenues were favorably affected, of course. We also saw a pickup in QuickVue revenue as customers who may have purchased generic flu tests in the past because of price returned to our QuickVue brand because of ease of use factors and the importance of a shorter turnaround time when patient volumes are high.
For many of our larger multi-site customers, our proven ability to scale during an epidemic, leveraging our supply chain to manufacture millions more flu tests when needed, has also been a compelling reason to switch back to QuickVue. Molecular product revenue, which was also helped by the early start to the influenza season, was up 21% to $7.1 million. Cardiometabolic revenue contributed to the strong quarter as well, up 5% on both an actual and a constant currency basis as the unfavorable foreign exchange impact that we saw in the first three quarters was largely mitigated in the fourth. For the year, overall revenues were roughly $535 million, in line with our expectations for 2019, despite soft influenza revenue in Q1 and the delay in regulatory clearance for the new Triage toxicology panel. Equally important, we had a number of operational accomplishments in the year.
The global integration of the Triage businesses was completed in November, delivering $20 million in annual synergies, which was ahead of our plan. We reduced our debt by another $98.6 million, also a little earlier than we had expected. The R&D, clin reg, and instrument systems development teams made significant progress in 2019 as well. All of the 20 or so R&D projects that we are working on are important, and I'll be happy to discuss any of them as you like during the Q&A, but I want to mention three. First, the SAVANNA cross-functional product development team did achieve a couple of critical milestones. One, the first six assay panels that were previously discussed in our presentations are complete. I can review those again if you want, but there's no change at this point to our initial menu strategy.
Two, the cartridge design was finalized, and cartridges are now being manufactured, clearing the way for the integration of assays and cartridges with the instrument, which is currently in development. Second, Sniffles, our next generation Sofia platform, is still on track for U.S. clinical trials during the respiratory season next winter. Third, we're expecting the publication of the Advantageous Predictors of Acute Coronary Syndromes Evaluation study data that demonstrates the excellent performance of Triage High Sensitivity Troponin I in a major cardiology journal any week now, and hope to finalize our U.S. clinical trial design for the product this spring. Moving forward to 2020, we expect increasing efficiency and productivity out of the sales and marketing teams globally, leveraging key account and distributor relationships to sell an increasingly broader product offering.
While we expect to continue promoting our flagship products and believe that there is still more share to be gained, in 2020, we are counting on seeing traction and getting help from the newer products, Sofia Lyme, Triage Toxicology, High Sensitivity Troponin in Europe, Triage PLGF, and the new Sofia GI products. These products should account for about $10 million in incremental revenue. Before turning it over to Randy to review financial detail for last quarter and the year, I should make a brief comment on the potential impact of the novel coronavirus in China. Most important, none of the numerous employees we have in China has been ill, and none of several employees returning from trips to China has been ill. Routine trips to China, like my own, have been postponed until the spring.
Shipments of our products this quarter have been received by our repacker and distribution partners, and we have additional product in China that cleared customs this morning. If there is a risk to our ability to ship and recognize revenue this quarter, it would be in the next shipment. If, for some reason, there were a problem and we were unable to ship, our total downside risk for the quarter would be about $5 million. With that, I will summarize by saying that Q4 was really good. 2019 was fine, in line with expectations, and we're really looking forward to 2020 on a number of fronts. Camaraderie in this company is terrific, and the morale and happiness of our employees has never been higher. Quidel has truly become a great place to be, and the recruiting of extraordinary talent from the outside has been increasingly easier. Randy Steward?
Thank you, Doug. Good afternoon, everyone. As we reported earlier today, total revenues for the fourth quarter of 2019 were $152.2 million as compared to $132.6 million in the fourth quarter of 2018. This 15% increase came from revenue growth across all four major categories. We realized a 29% increase in rapid immunoassay revenue, 5% growth in cardiac immunoassay revenue, 21% growth in molecular diagnostic solutions revenue, and 7% growth from specialized diagnostic solutions. In the quarter, there was not a significant foreign currency impact. For the cardiac immunoassay business, revenue was $65.8 million, as mentioned, a growth of 5% in the fourth quarter of 2019. Of the $65.8 million, $33.6 million was derived from the Triage business and $32.2 million from the Beckman BNP business.
We placed an incremental 292 Triage MeterPro instruments in the quarter as we continue to quote smaller volume accounts on the Triage side of the business to offset lost customers to the higher volume Multiplex systems. Cardiac immunoassay realized revenue growth in all major geographies. North America increased 5%, China increased 6%, and Europe, Middle East, Africa grew 3%. North America and China realized growth on the Beckman BNP side, somewhat offset by declines in the Triage business. Europe, Middle East, Africa realized strong growth in Triage, somewhat offset by declines in the Beckman BNP business. For the year, on an as reported basis, cardiac immunoassay revenue was $266.5 million, equal to last year. On a constant currency basis, cardiac immunoassay revenue grew by 2% over the prior year.
Of the $266.5 million, total Triage business revenue was $139.9 million, a decrease of 6%, and the Beckman BNP revenue was $126.6 million, an increase of 7%. From a geographic perspective for the full year, cardiac revenue in North America was $137.3 million, China was $61.4 million, and Europe, Middle East, Africa was $43.7 million. Rapid immunoassay product revenues increased 29% to $64.9 million in the fourth quarter, as compared to $50.4 million in the previous year. Within this category, Sofia products grew 38% to $46.6 million, while QuickVue product revenues increased 11% to $17.1 million, driven by influenza.
Total influenza revenue, which includes rapid immunoassay, Diagnostic Hybrids, Inc. respiratory, and molecular diagnostics, grew 44% in the quarter to $50.3 million. The influenza rapid immunoassay revenue was $45 million, with approximately 83% of the revenue derived from the Sofia platform. Total Strep revenue was up 1%, and Respiratory Syncytial Virus was up 29%.
Revenue in the specialized diagnostic solutions category increased 7% in the fourth quarter to $14.3 million, driven by a 42% increase in respiratory-related DHI revenues, as well as a 4% increase in our specialty microtiter business. Our molecular diagnostic solutions category increased 21% the quarter to $7.1 million due to a 29% revenue growth in Solana. We continue to see strong growth from our Solana platform, specifically with the Strep A and influenza product lines, driven by the severe and earlier than typical influenza season. We are seeing strong growth from our Solana C. difficile and Herpes Simplex Virus / Varicella-Zoster Virus products.
For the year, our molecular franchise grew by 12%, driven by a 25% growth from Solana. We believe there is continued strong demand for the Solana platform, and that Solana will continue to be the driver of molecular growth going forward, driven by incremental Solana instrument placements and increased assay utilization.
Gross profit in the fourth quarter increased $12.7 million to $94.8 million, primarily driven by improved product mix and higher revenue in the quarter. Gross profit margin in the fourth quarter of 2019 was slightly improved at 62.3%. For the full year, we achieved GAAP gross margin of 60%, a performance on par with last year. Excluding intangibles, gross profit margin for the full year was 61%, with the breakdown as follows: legacy Quidel business gross margin was 66%, Triage gross margin was 51%, and Becton, BD gross margin was 63%. R&D expenses increased by $2.3 million in the fourth quarter as compared to the same period in 2018. The increase is due to greater investments made on our new product platforms, including SAVANNA.
We expect R&D expenses in 2020 should be equal to or slightly higher than in 2019 and will be in the range of $53 million-$56 million. Sales and marketing expense in the fourth quarter increased by $1.6 million as compared to the same period last year due to increased spending on expanding our international sales organization, product promotion costs, and higher freight costs, offset by lower transition service fees as we have completed the globalization of our commercial team. For the full year 2020, we expect sales and marketing expense to be between the range of 20% and 21% of revenue. G&A expenses increased by $2 million in the quarter, primarily due to higher facility costs and information technology spend, offset by lower fees for professional services. We expect G&A expenses to be between $55 million and $60 million for the full year 2020.
As it relates to the provision for income taxes, the full year 2019 effective tax rate was 5.5%. This 2019 overall tax provision rate includes beneficial impacts from equity compensation that occurred during the year and from the generation of federal and state research credits. In 2018, the company had the one-time impact of releasing $13.4 million of its valuation allowance against its net deferred tax asset balance, as it became more likely than not that these deferred tax assets will be utilized before they expire. As a result, we reported an income tax benefit of $10.8 million for fiscal year 2018. Due to the uncertainty of the beneficial impact from equity compensation, we expect the 2020 effective tax rate to be in the range of 19%-21% of pre-tax income.
For the full year, we achieved net income of $72.9 million, GAAP EPS of $1.78, and non-GAAP EPS of $2.97. A very rewarding year. As we said, since our Analyst Day in 2018, an important part of our capital deployment strategy has been to aggressively de-lever the business. In 2019, we continued to execute on that strategy by accelerating our debt reduction through opportunistic convertible bond exchanges and utilizing our excess cash to reduce the balance on our revolving credit facility. As of today, we have completely paid off the remaining balance on the revolving credit facility, have only $13 million remaining on our convertible bond debt, which matures this December, and plan to make our third $48 million payment to Abbott in April. From a balance sheet perspective, our company is well positioned for M&A, licensing or other partnership opportunities in support of our longer-term growth objectives.
With that, we conclude our formal comments for today. Operator, we are now ready to open the call for questions.
All right. Ladies and gentlemen, to ask a question, press star one on your telephone keypad. To withdraw a question, press the pound key. Our first question is going to come from the line of Jack Meehan with Barclays.
Thank you. Good afternoon. Nice quarter. Wanted to start with a two-parter on flu. As you reflect on the recent respiratory season, Doug, I was curious if you had a sense for how market share might have shifted, just what you were seeing. For Randy, as you look in the crystal ball, just what are you thinking about pacing into the first quarter?
It's unclear at this point exactly how much share we've gained. We'll do some work on it after the quarter closes, and we may have a better answer for you when we do the Analyst Day, the first week in April, Jack. As I mentioned, there was a bit of share shift back to QuickVue, and clearly we've been placing Sofia analyzers as well. I won't point to the competitive manufacturers, but specifically we can name the folks where that share came from. I think when the analytics are completed, we'll be able to show more precisely what we think the share gain actually ended up being. We know what we strongly suspect, I should put it, that we strongly suspect that we've gained share.
What I would say is we're shipping everything we make at this point, and we've not been back ordered, and I can't say the same is true for others.
Randy, on the first quarter.
Yeah, on the first quarter, as Doug's mentioned, it's been pretty strong to date. Rather than giving you some guidance on it, I think probably the most astute thing to do is we're having our Analyst Day on April 8th. We can certainly then give you a lot more insight as to how the flu revenue was in Q1.
Perhaps a better idea on revenue guidance for the year.
Sounds good. Maybe on Triage then, as you just reflect on the year, down 6% for the year on Triage specifically, can you just assess what you think might have been going on between market and competition, and then an update on the commercial efforts behind toxicology?
First, we'll just start with what's happening with Triage generally. It does depend on geography, of course. Here in the U.S. and in China, what we see is the volume of the Triage accounts get larger and larger and larger to the point where it's no longer practical to do it on a Triage MeterPro analyzer, and those accounts then opt to go to a larger immunoassay analyzer in the main lab. Often that's Beckman, and we pick up the volume there. Equally often it's not. When you lose an account like that needs to be offset by the continued sales of people now having volume enough to start the Triage MeterPro. It's a bit of a churn as we've learned over the last couple of years, and I think we're getting ahead of it.
I do think that the introduction of the toxicology product is helping reintroduce that. We're certainly seeing the introduction of the TriageTrue high-sensitivity product in Europe as one effective tool. To the toxicology piece, what I can say is that we spent a lot of time making sure that we're addressing all the accounts that we should. The data that we see in salesforce.com shows that the funnel is building. I think the reps in the field have a very good understanding of where to go and where they're at in each of the accounts. More specifically, when I've traveled over the last couple of weeks with salespeople, there's quite a bit of focus on toxicology, and I would say, except in one specific account I visited, there was a lot of interest in Triage toxicology.
By the way, the account where there wasn't an interest is because their volume is too high. I think an acceptable response by the customer, "We'd love to do it, but we couldn't do it on your platform." That's where we're at at this stage, but Jack, I think the funnel looks good. We're still forecasting to deliver what we thought at this stage of the year.
Sounds good. Last question. Have you baked the cake yet for the SAVANNA instrument, or when's that going to take place and what needs to be finalized before you get there?
Well, as I mentioned in my comments, we're ahead of schedule on the assay development. Six of the seven, actually, there's eight now, of the panels that we're working on are done. The seventh is in progress. So is the eighth. That looks really good. We did finalize cartridge design. We have one manufacturing line going as fast as it can at this point. We have plans to build two other manufacturing lines for the cartridges. The aim there is to have enough cartridges built in order to do the clinical trials. We're in the process of instrument development, which will go faster than the other components, but still, there's a lot of work to be done. Effectively, we'll be integrating all the pieces of that, and we'll have a clinical trial box by the end of the year.
We will be in a clinical trial by the end of the year. We're still on schedule for that. Let's just see what happens after that. Now, of course. A lot to happen between now and year-end. Inevitably something will pop up that we need to solve, which we don't know about. I'm pretty confident at this stage that most of the issues that we have in front of us are known.
Sounds good. Congrats on the progress.
Thanks, Jack.
Our next question is going to come from the line of Brian Weinstein with William Blair.
Hey, guys. Thanks for taking the questions.
No problem.
As you think about 2020, just putting some pieces together here. You did $535 million this year. I think, Doug, you said $10 million from a host of new products. Cardio probably grows what? Mid-single digits. That's going to add another 15 or so. Plus whatever you're going to get from flu and the other parts of the base. Is there a reason why this shouldn't be well over $560 million next year in terms of revenue?
I would suggest that there's certainly upside to the $550. As we get to the end of this quarter and see where we're at, we'll head into the Analyst Day, as Randy just mentioned, on April 8th. We'll tell you about what we're working on, of course, but we'll give you a much better idea on where we think we're going to land for the year, and it wouldn't surprise me if it's north of $550, yeah.
Okay. I think at the investor conference earlier this year, I think you said the way to think about Q1 flu is similar to Q4, which would be just right around that kind of $50 million. Did we hear that right? I heard what you said to Jack's question, I think you did comment on it previously, I just want to go back and, A, did I hear that comment correctly, and B, would that still be just directionally the right way to think about it?
Yeah, I would say that that's comfortable.
Okay. Then a question for you on gross margin. I'm sorry, go ahead.
I'll leave you to interpret what that means. Yeah. I'm sorry to be vague, but it looks really good. We're shipping everything we make right now. Okay? As you know, though, when it stops, it stops. If it continues through the end of the quarter, it could be, I don't want to use the word extraordinary. I'll just say it would be a good quarter.
Okay. I appreciate that. Thanks. Real quick on gross margin. On gross margin, you talked about, I think it was overhead absorption was one of the issues that might have held it back. At least that's what I think you said in the press release. It would seem that with all the volume you guys are putting through with flu, that you guys should have seen potentially better gross margin than what you guys posted. Can you just go back through kind of the pluses and minuses with gross margin and how we should think about in a strong flu quarter, how flu does contribute to gross margin?
Well, flu is a strong contributor to gross margin, and the high volumes that we're pushing through the factory right now would suggest that we're going to be fine there. I think the issue that we had before was actually more on the cardio volume that we had assumed that we were going to do. I know you know how to do standard costing, Brian. Effectively, the drag, if you will, is that we had overestimated what we thought we were going to manufacture and ship out of the factory.
The other piece of it, Brian, is there's a little different mix, a little lower margins in the rest of world products versus what we see in North America. That had a little big impact. As Doug said, so much of it in manufacturing was where the overhead absorption was under-absorbed. Plus, remember there's also FX impact, so that had a negative impact. Full year was approximately just, I think it was $4.8 million negative FX impact as well.
Of which about $4.6 million was the first three quarters, Brian. Yeah.
Got it. Last one from me, I promise this. As far as China goes and corona, do you import anything that goes into your manufacturing process or anything else from China that could be affected if those factories are down? Is there any raw materials or anything else that you guys bring here that we should be thinking about?
No, we don't.
Okay. Thanks for the clarification. Thanks.
Our next question will come from the line of Tycho Peterson, JP Morgan.
Hey, thanks. A little bit odd that we don't have guidance, but I guess we can wait till April. Just to probe on a couple things. For cardiac, your comps are notably easier. Is mid-single digits the right way to think about it in light of the easier comps? What's the latest on the toxicology panel delay?
You saw we were right at five now. If I want to be conservative, I'd call it four to five. It's dependent, obviously, on the existing base business, but you've also got toxicology in there. There's a couple other things. Placental Growth Factor could be helpful. What we do in troponin in Europe is another factor. There's a few variables there, but I would say we're comfortably in the four to five range.
Okay. On the toxicology, you talked about having to retrain the commercial team. What's just the latest on where you are in the toxicology rollout?
Yeah. Let me clarify, because I've had to do this a couple of times now. The main driver to the mess was the FDA delay in approving the product. We had assumed that we would have approval early in the second quarter, and we had rolled it out to the sales team in the sales meeting that was around that time. I don't think it was so much a retraining of the sales force as it was a resource allocation issue, because in Q3, our salespeople spent a lot of time working with customers to make sure that we retain our flu business. We also like to place more Sofia, as you might imagine. I would say it was more of a resource allocation than a training issue. Having said that, all that is behind us.
Our guys are out there actively addressing every single opportunity that's out there, and I believe I just heard a little while ago that we expect very shortly to have contacted virtually every customer that's a possibility here in the next quarter or so. I think we're in good shape. The funnel looks good. We track calls, we track progress, we track opportunities. We try to assess things under what we call a 30-day, 60-day, 90-day forecast. As I look at it, and I judge what people are telling me, I think we're in pretty good shape to hit the numbers that we suggested.
Can you talk a little bit more on the molecular acceleration? You just saw 21% versus 6% last quarter. Can you just maybe talk to the drivers and sustainability there?
Well, yeah, remember, we make a Solana influenza assay. We make a polymerase chain reaction assay under the brand Lyra. Those certainly were healthy in the quarter, those products. Honestly, strep is also a big contributor. Our share in marketship is quite good. We've done pretty well there as well. Yeah, the products that we have out there are certainly helped by good respiratory season. We did get some traction with C. diff and HFMD, as Randy also mentioned. I think the Solana business looks pretty solid right now. The other thing that was a factor for us that I thought may have impaired our growth, particularly in the larger accounts, is the front end of the whole process was a little bit too laborious for some people.
We've recently completed the development of what I would call a front-end engineering solution that should be helpful, and we're rolling that out now. I don't think we're done growing with Solana. We've got about 1,100 or so instruments out there, and I suspect that we'll continue to grow that throughout this year, assisted by some improvements to the ease with which our customers can actually run the assay. To your point, fourth quarter, 21% looks big, but there's a lot of respiratory in there.
On Lyme, you talked at the time of the launch about getting into new-to-point-of-care customers . Can you talk to the degree to which that's opened up new doors? Also your confidence in locking down the clinical study design before the season hits in the fall?
Are you talking for troponin?
No, I was talking about Lyme. Yeah.
Lyme exclusively. Lyme right now for us is a market growth concept. The whole idea of getting physicians, some of whom don't even test at all for anything, to begin testing customers, particularly in the upper Midwest and the Northeast. We have a number of marketing programs, PR, word of mouth, symposia, all sorts of things that we're working on to create both awareness by physicians and awareness by people who could be tested. It's still early phase, but I would say that we're expecting a reasonably significant uptick, a couple million dollars or so more in Lyme this year than we were before. We're also expecting some collateral benefit on flu, RSV, and strep as a result. What was the last question, Tycho, with regard to clinicals?
Yeah, the clinical study, yeah. You're doing a clinical study for Lyme, right, before the season in the fall?
Oh, yeah. We are doing a Tier 2, and we're in discussions right now with the FDA on what that study looks like, because we could mimic what's done currently, which is the Western blot. Certainly, we could launch a product that had all the proteins that are done by Western blot, so it would be a test strip. We could mimic the Tier 2 product. What we've decided to do instead is something novel. We'll talk more about it at the Analyst Day and why we think that that's a better result. We actually think that rather than continuing with this testing process, which is woefully inadequate, we think we've come up with something clever that's actually going to be better, and we're presenting that to the FDA here shortly.
If you don't mind, I'll just hit the pause button on that question and say that we'll provide a lot more detail on that on April 8th.
Last one on M&A. Just curious, odds of getting a deal done, for a half the year or so, how would you characterize the funnel?
Well, as Randy pointed out, we're certainly in good shape to do one. We've been looking at a number of targets, and some of them are interesting and I'm hopeful that we can announce something reasonably soon, but I can't speak to the timing, of course.
Thank you.
Our next question is going to come from the line of Bill Quirk, Piper Sandler.
Great. Thanks. Good afternoon, everybody.
Hi, Bill.
Hi there. First question for me, Doug. I'm just thinking about the Sofia pipeline here for 2020, obviously fairly full. Can you just remind us about how we should think about the pacing of the filings or the approvals for those over the course of 2020?
Sure. The first one likely to be submitted would be the C. diff assay for toxin A, B, and GDH. As I mentioned before, we've got a number of other assays that we have in development as well. In the third quarter, I expect that we would be closer to submission with Campylobacter, Shiga toxin, H. pylori, lactoferrin, and a parasite panel. Those are the ones we're working on. We expect them all to be submitted this year, all of them are pretty much a back half, with C. diff potentially being early third quarter.
Okay, got it.
Did I miss anything?
Sorry, go ahead.
I'm looking at Randy asking, did I miss one? Sometimes I'm getting to the age where I start just to forget stuff.
Respiratory panel.
Oh, yeah. We don't know. We may be closer to being able to start the trial for the four-member respiratory panel, which, just to remind you, that's flu A/B, RSV, and human metapneumovirus. I think what we may do is file a 510(k) or start a 510(k) clinical trial, then move later to the Clinical Laboratory Improvement Amendments waiver, just so that we can start the trial and get data. We could actually, depending how long this flu season lasts, we might be able to get started here reasonably soon on that. Then as we go into the next winter, start the CLIA waiver trial. That's the other one, on Sofia, that I was forgetting there. Randy just reminded me.
Okay. No, got it, appreciate it. It sounds like Randy's due for a higher bonus this year to help out.
Thank you, Bill.
You're welcome, Randy. Separately [crosstalk] j ust thinking about the Alere cost synergies. You hit your targets. How should we be thinking about anything additional on a go-forward basis? Thank you.
Well, you should definitely think that there is more. We still think there's work to do in our Somerset facility to improve yields. I don't know that we have a really solid idea, but, a couple million, maybe more, Bill. That's a swag at this point. There's a lot more to be done, we believe, and we've got consultants working with us right now to see if we can get more done. It's sort of in that range of possibility, I would guess.
Okay. Very good. Thanks, guys. Appreciate it.
Once again, if you would like to ask a question, please press star then one on your telephone keypad. Again, that's star one for questions. To withdraw a question, press the pound key. Our next question is going to come from the line of Alex Nowak, Craig-Hallum Capital.
Good afternoon, everyone. Doug, can you just provide some more details on the concept of Project Sniffles here, if that cannibalizes any of the existing business? Which markets does a smaller, cheaper Sofia box open you up to?
Question number one, Alex, was will Sniffles cannibalize some business? I would suggest, sure, it would. At the same time, by the time we launch, many of our boxes would've fallen off their three-year depreciation schedule, so it's not really relevant necessarily. In fact, swapping out now with Sniffles at a significantly reduced cost will be fine. I think the biggest opportunity would be in the great ability to democratize testing and to put these analyzers just about anywhere where you want. Even in physicians today who have a Sofia in a central part of their office practice, imagine that you could have a little Sniffles instrument on each of the exam rooms, which would dramatically reduce the overall turnaround time. Right now, the assays are short, but you still have to take a swab and move it to where the Sofia is.
If you can eliminate all that time, the transport time, the setup, and all that by simply just doing the test while the patient's sitting on the filling paper. That would be dramatically better. The same would be true in urgent care settings. You can imagine putting these in each one of the exam rooms there versus going to a centralized lab. On the floors in hospitals, et cetera. When you get the cost down that low, I think there's just almost no end to where we could do it. Certainly, we're counting on markets like China and others where volumes are significantly higher. I think this is a perfect product for expanding beyond the traditional places where we have gone in the past.
Thanks, Doug. Really appreciate that. That's very helpful. I don't have perfect math here, but if I scale away flu in the immunoassay business, I see the non-flu assay declining about mid-single digits over 2019. The growth in that business used to be pretty consistent, but I'm just curious, what's driving the declines there recently?
Go ahead and answer, Randy.
Yeah, Alex, the biggest assay that we're seeing a decline is in our hCG product. We continue to see it being commoditized. Private label probably has the largest share now in that market in the U.S. That's where you're seeing a decline that offsets some of the growth in our Strep RSV and flu business.
Yeah, it truly is a generic market now, whether it's in the professional segment or over-the-counter and in the grocery stores, you see generic products versus the branded versions. That's just a commodity, as you point out. Unfortunately, we've been in that market for a long time, and we've seen it where we had pretty high volumes, and it's just sort of slowly gone away.
How much revenue is left there? Should we expect enough material declines that we could see it on the revenue line next year, 2020?
Yeah. I think you just continue to see a, I don't know, mid to high single-digit decline.
But we're going to have [crosstalk].
We're probably only doing seven, eight million tests a year now, where it used to be double that about five years ago.
Okay. No, that's helpful just kind of modeling this out. I know you had to adjust the protocol here for the Strep A test, so I’m just curious, what is the current timeline there? It seems like you didn’t mention it as one of the three products in the prepared remarks. Just remind us, what is your share in that market, and then what sort of price premium should you be able to demand for a confirmatory product there?
Sure. First, we're manufacturing on the immunoassay side now $16 million, $17 million. Randy says $16 million.
Yep.
I'm the CEO and I say $17 million. He's the CFO, he says $16 million. $16 million -$17 million tests is what we manufacture today. The price point, unfortunately, is such that our gross margins are well under 50%. You certainly wouldn't want to jump into the business at this point on that side. Strep A, on the other hand, if we're successful, enables a physician in a very short period of time to not have to reflex a negative result. Frankly, most of the results are negative. 80%-85% of the strep tests are, in a physician's office, going to be negative. There's a lot of value there. We do have two ideas in mind, and we're going to have to work through that here as we move closer to launch. One is with Sniffles.
Is it a compelling enough package together that I should just launch into the market with the existing reimbursement rate, and then just price it modestly higher than it is today? I don't know whether that's a couple of dollars higher or what it is, but certainly well below the reimbursement rate. There's a trade-off there. One is I get a lot more volume, but I'm going to forego some of the margin that I would have gained if I priced it like a true confirmatory test. The other option, of course, is to go in and expect low volume but don't allow reimbursement. In other words, don't crosswalk it, this product, over to the current immunoassay code. If we did that, we could potentially have pricing that was significantly higher, closer to where our own molecular tests are priced. In other words, in the teens.
If that were the case, obviously the gross margin would be high, but the volumes would be low because we would be doing outcome studies in order to justify with payers why we needed a reimbursement that was significantly higher than what we have today. Those are the two options that we're exploring. We're doing the investigation on that. We'll probably, again, provide more analysis when we talk about our overall portfolio and strategy during the Analyst Day here in April. Where we're at in terms of product development, the product of course performs great. We're working through the clinical trial at this stage. We'll continue to run samples. I think we still have a little bit of runway before the end of this respiratory season. We'll see what we have.
We have to have, for the FDA, a set number of positive samples and, of course, we need to demonstrate the sensitivity and specificity that would be required to call this a confirmatory assay. That's where we're at.
Okay. Understood. Thank you.
You're welcome, Alex.
Thank you. At this time, we do not have any further questions, and I would like to turn the call over to Mr. Doug Bryant for closing comments.
Sure. Well, thanks everyone for your support and of course, your interest in Quidel. We did have a great year, we're in terrific shape to achieve our growth objectives over the next few years. Placeholder was sent out on Analyst Day, April 8th. Encourage you to participate if you can. Thanks again, everybody, for being on the call.
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