Earnings Call: Q1 2018

May 8, 2018

Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation's First Quarter 20 18 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. Also as a reminder, this conference call is being recorded. I'd now like to turn the call over to Mr. Randy Stewart, Quidel's Chief Financial Officer. 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. Our Q1 2018 earnings release is now available on ir.quidel.com, our Investor Relations website. We also post our prepared remarks on the Presentations tab of our IR website following the conclusion of this call on May 8 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 ks, 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, May 8, 2018. 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 3 months ended March 31, 2018. If you have not received our news release or if you would like to be added to the company's distribution list, please contact Ruben at 858-646 8023. Following Doug's comments, I will briefly discuss our financial results and will then open the call for your questions. I'll now hand the call over to Doug for his comments. Thank you, Randy, and good afternoon, everyone. We had another extraordinary quarter and are positioned well to achieve all our targets and expectations for 2018. As I'll describe shortly, revenue for both our legacy Quidel products and the acquired Triage and BNP businesses was ahead of what we had anticipated. Sofia II was an absolute hit and we placed as many analyzers on 3 year contracts as we could make in the quarter, enlarging our Sofia installed base to over 31,000 analyzers globally. SOPHIA has truly become a flagship product for us and a highly leverageable asset as we continue to expand our menu of immunoassays for the Sofia platform and as the movement of patients away from traditional health care provider settings continues. Solana placements and revenue grew nicely in the quarter as well. And finally, our R and D teams continued to make impressive progress. Most notably, the Savanna team achieved its most critical milestone in the quarter, locking down the design of the multiplex cartridge that will enable the delivery of unique and highly desirable content and capability to the point of care molecular segment. Based on where we are at this stage, I think that we can confidently say that Savanna will be Quidel's 2nd flagship product. Total revenue for quarter 1, 2018 was $169,000,000 a 130% increase from the Q1 of the prior year, driven by an incremental $68,000,000 from the acquired Triage and BNP businesses that closed on October 6 and an additional $27,000,000 in growth from the legacy Quidel businesses, about 37 percent higher than in Q1 2017. The $68,000,000 in the acquired businesses was about $6,000,000 higher than we were expecting due to strong growth in the United States. And the $27,000,000 delta in legacy revenue was largely influenza at $24,000,000 which includes molecular influenza sales as well. As I mentioned during our Analyst Day presentation in Chicago, our strategic intent has long been to build a broader based diagnostic company that delivers revenue and margin more consistently. In support of our strategic intent, I outlined 3 main objectives for 2018. 1st, we will cultivate organic growth through continued effort and investment in our Sofia and Virena immunoassay, Solana and Savanna Molecular and Triage Cardiovascular and Toxicology programs. 2nd, we will continue to integrate the acquired businesses, realize synergies we have modeled at minimum and pay down debt. 3rd, we will execute an evolving plan that through a combination of organic growth and M and A will get us to $1,000,000,000 in annual revenue in the not too distant future, while leveraging our existing infrastructure and growing our costs at a much slower rate. Let me comment briefly on our efforts to grow organically as well as where we are with antitrust claim. Clearly, we had a great quarter as did other companies with influenza related products of all sorts. While our QuickVue product was temporarily off market awaiting FDA clearance due to the new reclass guidelines, For most of the quarter, Quidel was shipping 4 different products to our customers, each of which performed very well. Sofia Influenza sales led the way of course with obvious growth in the market, noticeable gains in market share and assisted by conversions from our visually read QuickView product, a brand that has remained incredibly sticky as we saw in the quarter. Solana influenza and lyra, our PCR influenza assay also saw noticeable gains in revenue and share. Often overlooked as it is assumed even by us internally is our supply chain and manufacturing leverage and competency, which proved hugely beneficial as at times it appeared as though we were among a select few companies that could consistently supply product. Moving forward, we are adding a 6th fully automated manufacturing line with a capacity of up to 30,000,000 additional Sofia test cartridges per year as we believe that the market for rapid influenza testing will continue to grow over the longer term. In terms of product development, we're making consistent steady progress at the same fast paced rate Quidel has become known for. We recently launched a moderately complex Lyme assay for SOPHIA 2 and we received CE Mark for both SOPHIA Legionella and SOPHIA Strep pneumo for use on SOPHIA 2. Work on CLIA waiver for Sofia 2 whole blood Lyme is ongoing and we hope to launch this summer in the United States. Sofia II Vitamin D CLIA waived is also further down its development path and we're making great strides with Sofia Strep 98 and Sofia RVP among several others in the pipeline. We expect to add a couple more Solana assays shortly while we begin to shift more molecular assay development effort and investment to the Savanna platform. Integration of the Alire assets is going extremely well. The team we've assembled to manage this project is motivated, highly skilled and diligent. There are many actions to be accomplished, but we know what to do and it's getting done. The cooperation, know how and assistance we're getting from our Abbott counterparts who have clearly done this before should be noted as well as they've clearly made it easier than it could have been. There are a few milestones we're tracking from an external perspective. Our efforts to pay down debt in the near term is a big one and Randy will provide color there. Our control of order to cash and the sales and distribution processes for big chunks of the business is another. In that regard, the U. S. Is done. We expect Europe to be finished in August and we expect to be live in China by January 2019. And of course, numerous other smaller countries are finished and or are in process at this time. We did set up a shared service center in Galway, Ireland with a facility scheduled to begin supporting Europe, Middle East and Africa personnel in mid June and Europe, Middle East and Africa customers in August. And finally, I recognize that there's interest in the ongoing Danaher claim that the agreement that has been in place for many years with Beckman to distribute BNP kits for use on their analyzers was somehow anti competitive. And so I'll provide a brief update on the proceedings. As we've said before, we filed our demurrer to the claim in February and we expected the judge to rule on it sometime in May as is the normal process and sequence of events. I've said that our filing was a standard practice and that rarely would a judge rule in our favor at this stage. The hearing was held on Friday. It went exactly as anticipated and the demurrer was dismissed by the judge. We expected this outcome as the demurrer is more of a legal process type hearing. The most important outcome from Friday's hearing in our view was that a trial date has been set for August 30, 2019. With that said, our views of our legal position remain unchanged and we are highly confident in our legal position as we have continued to learn more in engaging experts and as we move through the discovery process. In conclusion, we've had a couple of fantastic quarters. Having lived and worked with a highly talented team at Quidel for several years now, I can say the following with confidence. At no time in the history of Quidel has the company been as poised to meet the demands of customers in the traditional diagnostic segments in which it has competed or as poised to meet the demands for testing where patients are increasingly headed. Many have speculated that testing for routine and chronic conditions would ultimately move closer to patients who would demand efficiency and convenience. We are just beginning to see evidence of that trend and Sofia with its data management capabilities is proving to be a valuable diagnostic tool in a growing number of alternate site settings. With the impending launch of Savanna, Quidel will have another valuable diagnostic tool in the emerging point of care segment and I will predict another flagship product. In summary, great quarter. Great start to what will be another great year. We're enthused and motivated. Randy? Thank you, Doug. Good afternoon again everyone. As we reported earlier today, total revenues for the Q1 of 2018 were $169,100,000 This compares to $73,700,000 in the Q1 of 2017. The 130% increase in revenue was driven by the $68,400,000 in revenue from the acquired Triage and BNP businesses as well as a very robust influenza season. Rapid immunoassay product revenues increased 40% to $80,700,000 in the Q1 of 2018. Within that category, Sofia product revenues increased 131% to $58,100,000 Sofia is clearly the driver of the rapid immunoassay category and continues to deliver growth primarily from flu, but also from Strep A and RSV due to the over 31,000 instrument placements in the field. As expected, QuickVue product revenues decreased 34% to $21,400,000 largely due to the continued emphasis to convert customers over to the Sofia platform. The influenza rapid immunoassay revenue split was $51,200,000 from Sofia versus $9,500,000 from QuickVue. Across all categories, influenza revenue increased 59% in the quarter to $64,600,000 and $131,500,000 on a trailing 12 month basis. Also within this category, STRUP revenue was up 12% over the prior year quarter and for the trailing 12 months was $39,700,000 an increase of 14%. RSV was up 3% in the quarter and up 20% on a trailing 12 month basis to $11,100,000 Cardiac Immunoassay revenues at $68,400,000 represent the revenue contribution of the acquired Triage and BNP businesses. The category overall grew 13% from the Q1 of 2017. Criage revenue was $39,300,000 and grew 12% from the Q1 of 2017. Beckman BNP revenue was $29,200,000 a 15% increase over Q1 2017. For the Triage business, U. S. Revenue increased 14%, Asia Pacific grew 18% and Europe, Middle East, Africa grew 2%. For the Beckman BNP business, the revenue growth mainly came from the United States. As you may recall, we achieved our objective in the Q4 of last year in building out the majority of our international commercial team as well as the realignment of our U. S. Commercial team in order to properly support this acquired business. We initially commented we thought it would take us the 1st 6 months of the transaction to stabilize the business. We are quite pleased that our cardiac immunoassay products achieved 1st quarter growth over the prior year. While we are encouraged at this point, it is still early and we will need to report several more quarters in order to understand the drivers of the underlying growth in cardiac. Revenue in the Specialized Diagnostic Solutions category increased 14% to $14,900,000 led by 9% growth in our virology products due to the heavy respiratory season and 16% growth in our specialty products. Our Molecular Diagnostic Solutions category increased 65% in the quarter to $5,100,000 due to a 178% growth in Solana revenue. Gross profit in the Q1 increased $57,800,000 mostly the result of the incremental cardiac immunoassay revenue from the acquired Triage and BNP businesses and the profit generated from the increased influenza sales. Gross profit margin in the Q1 of 2018 was approximately 63%. This compares to 66% in the Q1 of 2017. Amortization of intangibles reduced the Q1 2018 consolidated gross margin by 2 percentage points and the Triage BNP inventory step up of fair value reduced the total gross margin by an additional 2 percentage points. Net of acquisition related one time costs and amortization of intangibles, the legacy Quidel business gross margin was 72%, Triage gross margin was 53% and the BNP business gross margin was 65%. R and D expense increased by $4,700,000 in the quarter as compared to last year. This increase is due to the increase in projects and personnel associated with the acquired Triage business. As we stated on our Analyst Day presentation, we continue to believe our R and D expense in 2018 should be in the range of $50,000,000 to $52,000,000 Sales and marketing expense increased by $14,300,000 in the Q1 of 2018 as compared to the Q1 of 2017. This increase was largely due to incremental personnel costs associated with the Triage business. For the full year 2018, we expect sales and marketing expense to be between $100,000,000 to $110,000,000 driven by the full year impact of an expanded and multinational sales force supporting both the legacy products as well as the Triage and BNP businesses. G and A expense increased by $3,400,000 in the quarter, primarily due to acquisition related costs and stock comp expense. Interest expense in the quarter was $7,900,000 of which $2,600,000 relates to our convertible senior notes, $2,500,000 relates to our senior credit facility and $2,800,000 relates to the deferred consideration associated with the purchase of the BNP business. Of the $7,900,000 $3,500,000 relates to cash portion of the interest expense. Non cash components includes the $2,800,000 related to the BNP deferred consideration, dollars 1,300,000 for the accretion of our convertible senior notes and $300,000 for the amortization of debt issued costs on our senior credit facility. We also recorded a loss on extinguishment of debt of $4,600,000 This relates to the $100,000,000 early payment on the term loan and the extinguishment of $70,000,000 in aggregate principal of the convertible senior notes in exchange for our common stock. In the quarter, we recorded income tax expense of $4,700,000 and we continue to book a full valuation allowance against our net deferred tax asset value due to 3 years of cumulative losses. With the passage of the 2017 Tax Cuts and Jobs Act, we believe our effective tax rate for 2018 should be in the range of 18% to 20% of pre tax income without consideration for the reversal of the valuation allowance. The share count we used in calculating fully diluted shares outstanding has changed in the Q1 due to the convertible senior note exchange transactions. Due to the settlement with certain holders of the convertible notes entirely with common stock, the accounting rules stipulate that we now must assume that the remaining convertible note balance of $97,100,000 will be exchanged for common stock. In the quarter, the $70,200,000 in convertible note exchange increased the outstanding shares by approximately 2,400,000 shares. The potential share issuable from the remaining outstanding convertible notes, if converted, is an incremental 3,000,000 shares. In total then for the quarter, we are reporting fully diluted shares outstanding of 41,900,000 shares. We continue to represent that on a go forward basis, the convertible notes may be settled in cash or a combination of cash and shares of common stock. Net income for the Q1 of 2016 was $34,000,000 or 0.86 dollars per share as compared to net income of $14,300,000 or $0.42 per diluted share Q1 of 2017. On a non GAAP basis, net income for the Q1 of 2018 was $54,300,000 or $1.29 per diluted share. This compares to net income of $15,300,000 or $0.45 per diluted share for the Q1 of 2017. As we mentioned on our Analyst Day in April, we took several steps in the quarter toward improving our capital structure. In January, the company sold the Summers Ridge property for net consideration of $146,600,000 As a result of this transaction, Quidel used $100,000,000 of the net cash proceeds to pay down approximately 40% of the existing term note. Also as part of the transaction, the company repaid the entire outstanding $10,000,000 balance on its revolving credit facility. The remaining portion of the sale leaseback proceeds plus cash on the balance sheet were used in April to pay the 1st annual contingent and deferred consideration payment to Abbott of $48,000,000 As a result of the prepayment on the term loan, the company wrote off approximately $3,000,000 of unamortized debt issuance costs. Also in the quarter, Quidel exchanged approximately $70,000,000 in aggregate principal amount of the convertible senior notes, as mentioned previously, for approximately 2,400,000 shares of the company's common stock. As a result, the company recorded a 1,600,000 transaction. Quidel's convertible note balance currently stands at approximately $97,100,000 As a result of these transactions, plus the 1st quarter term loan amortization payment, Quidel's total principal balance on its debt as of March 31 was $244,200,000 With this significant reduction in debt, plus the exceptional first quarter earnings, our leverage ratio excluding the netting of cash is now below 2 times. As a result, our LIBOR spread was reduced by 50 basis points. As of today and after the 1st annual installment payment to Abbott, the company has $87,000,000 in cash on the balance sheet. And with that, we conclude our formal comments for today. Operator, we are now ready to open the call for questions. Thank you, sir. Our first question comes from Jack Meehan of Barclays. Your question please. Good afternoon. I wanted to start with the cardiac immunoassay business, so big beat there versus expectations. What drove the strength in the United States? And was there any pull forward of revenue timing wise? There was no timing impact. And as it turns out, Jack, the beat, as you call it, was equal between the Triage business and the BNP businesses. So obviously as we get more familiar with the business, we'll understand the underlying drivers of growth. So I can't actually tell you that we can predict moving forward what that means quite yet, but obviously we're encouraged. Yes, good start. Then on Sofia, could you talk a little bit about the cross sell of additional tests and what adoption you're seeing beyond just flu in the quarter? Flu is a big driver, Jack, of course. But we've done a pretty good job of pulling in RSV and Strep and our commercial organization has specific goals that are tied to increasing the number of assays per box. And I think we're seeing that the program has legs. Great. Final question. Where do inventory levels stand at the end of the quarter? And just any thoughts on what a normal flu might look like for the 2nd quarter? No, I think we're in good shape. As you know, towards the end of Q1, it's typical for distributors to wind down inventory, and they did. So as we go into the next season, which we would predict would be more normal because we have to, I think we're in good shape that meaning that distributors will need to order once they know that they're going to be shipping products to their end users. Thank you, Doug. Thank you. Our next question comes from Brian Weinstein of William Blair. Your question please. Hi, guys. Thanks for taking the question and sorry for the background noise. There is a Quidel pool party I think going on at CBS behind me right now. Just to follow-up on Jack's question a moment ago. I recognize that you said that there was nothing pulled forward on the cardiac side. But what is specifically going better operationally? Is it just simply execution? Is it more focus? And should we expect that that business would be sequentially down in the next quarter? Or is this really kind of the base to start thinking about building off of this? You're talking about 2 parts, aren't you though, Brian? You're talking about the cardiovascular business. Yes. And in that regard, sequentially, it would normally be slightly down just because of the seasonality of the cardiovascular business. Obviously, not as significant as on the respiratory side. But nevertheless, there is some seasonality. We are encouraged though by the focus that we're getting from our commercial organization. This is one of their 3 key goals for 2018. And I do see a lot of momentum as a result. Certainly lots in the queue in terms of things that could be closed as we move forward. I wasn't anticipating that we would see that level of success so early, but I do think that both from a process and focus perspective, we're doing pretty well, certainly doing better than it was doing before. Fair enough. And then I don't know if I missed this, because I did jump on a couple of minutes late. But Randy, did you address the prior comment about, I think, it was revenue up to $520,000,000 Is that still what you guys are targeting? Was there any kind of changes to those more broad annual targets that you laid on at the Analyst Day? It's a terrific comment. Obviously, we knew early in the quarter that we were doing nicely and it was probably inappropriate to make comment at Analyst Day as to how or what nicely meant. But even we were a little bit surprised as things rolled up at the end of the quarter. So we do have some favorability relative to our own internal expectations. I would just say that the $520,000,000 that we suggested is certainly achievable. And then the last question for me. I don't think you addressed it really at the Analyst Day or on this call, but can you just give an update on the toxicology instruments that you guys talked about in the first closed the deal? Where that stands today? And what it's going to take to get that onto the market? Thank you. We're still working on the toxicology product. We're still looking at clinical trials. We're also looking at our longer term strategy and trying to make instrument choice decisions as well. So I can't really comment a whole lot further than that, Brian, but it's certainly one of the topics that's top of mind for us as we look at the Triage business. Okay. Thanks, guys. Thank you. Our next question comes from Mark Massaro of Canaccord Genuity. Your question, please. Hi. This is Max Masucci on for Mark. On Savanna, your Analyst Day, I believe you indicated plans to launch in the EU in late 2019 and in the U. S. In 2020. I think you're planning to shrink the size of the instrument compared to the one you showed at AACC a few years ago. Can you speak to some of the bigger items left on your checklist before you take Savanna into the EU and initiate clinical trials in the U. S? Sure. A couple of points. One is you're right. The instrument will be much smaller than we had originally projected and that's due to a different cartridge design. Right now, we're moving a lot of resources over to assay development. We have a small number of cartridges that have multiplexed assays on board in development. I would suggest that the timeline that we mentioned at Analyst Day is still intact. In terms of milestone, the biggest milestone that we had in front of us frankly for the year we just hit. And that was that we have locked down the design of the cartridge and are highly confident that it's the cartridge we need and that it's manufacturable. At this stage now, we're thinking about what additional investments we might make to speed up assay development because I think in the longer term, menu is going to matter and the number of things you have on the instrument is far more interesting to the customer than the instrument itself. Great. And you reiterated your $1,000,000,000 revenue target out to 2023, which I believe by your Analyst Day estimates that you'll need to acquire about $150,000,000 to $250,000,000 of revenues. Can you speak to the size of your M and A funnel, deal multiples or whether anything might be close to fruition? Not really. I mean, I don't want to be flippant, but I can't really talk about what our funnel looks like or at the size of the funnel. I would say we're actively looking at a number of different things and some things are more interesting than others. I could see a combination of things that are of medium to larger size. But I it's harder once you think about an acquisition that would deliver it all in one shot. So I would just say stay tuned and we'll keep working on it. And I don't know that we can reproduce what we just did, of course, but we do have a couple of good ideas. And one more, if I can. Are your previously provided margin targets intact, 65% gross margins, 35% EBITDA and $20,000,000 in run rate synergies by the end of 2020? Yes. Correct. Great. That's it for me. Thank you. Thank you. Thank you. Our next question comes from Tycho Peterson of JPMorgan. Question please. Hey, thanks. I guess on Piazza BNP, the China excess inventory, has that all kind of worked its way through? And is there any lingering inventory issues for the Q2? There are none for the second. We did see a modest amount of mop up, if you will, in the Q1. That's behind us now. Yes. China was on our internal expectations for the Q1. So we're off and running. Okay. And then just any comments on tariff dynamics given that it's an important OUS market for Trieste? No. We've been looking at it pretty closely. We think we understand where everything is. I don't anticipate anything at this stage. All right. And no change to your full year outlook on cardiac, right? You're still assuming 2 $50,000,000 back to kind of Brian's question before whether this is the new run rate? I think so. Let me be a little bit more specific. I think seeing the growth is great, but understanding the underlying drivers to the growth will require a little bit more digging, which we're doing. It will require some effort on the part of the commercial organization to see what's real and what's reproducible and how much of that therefore allows us to predict what might happen in the next several quarters. In our defense, it's still pretty new to us. The good news though is what we're seeing here is increases in the U. S, which we have originally assumed to be quite flat. And then more to that, we have order to cash and distribution responsibility under our responsibility at this stage. So our ability to understand it is far greater than some of the countries that we're still working through. So again, good news is the U. S. Ought to be somewhat predictable at some stage in the next couple of quarters, I would think. All right. And then last one just on margins. I know you commented on the longer term goal a minute ago. But just as we think about the next few quarters, given Sofia II momentum and the lower margins there, how should we think about gross margins trending for the next quarter or 2? Well, certainly in Q2, it will go down because of the absence of flu. So I believe we had said all in for the full year was going to be in the range of 58% to 60%. I still think it may be on the high side of that. I still think probably somewhere around 60% is a good target. Okay. Thank you. Thank you. Our next question comes from Bill Quirk of Piper Jaffray. Your question please. Great, thanks. Good afternoon everybody. Nice quarter. Thanks Bill. So first Doug just thinking a little bit about the integration process with Alire, you touched on Europe and China coming later on this summer and early 'nineteen. Can you talk a little bit about some of the longer term plans to help get more Quidel products into the hands of some of your distribution for the acquired business? The good news is with the infrastructure we're putting in place plus some specific R and D effort designed to meet the needs of those markets. Moving forward, we do expect the Quidel legacy business to increase at an increasing rate as well. In addition, in terms of M and A targets, we're also looking at things that would specifically benefit from our improved international channel. Okay. Got it. And then just thinking about the I think your comment your response rather to one of Tycho's questions that within the next couple of quarters, you should have a better handle on the U. S. Puts and takes of the acquired business. Any comment, Doug, on if I go back to when those assets were publicly traded as BioSight, BNP in particular did seem to have a correlation with flu. The severe weather seemed to exacerbate a lot of patient symptoms. Any thoughts to that? It doesn't explain that why the triage was up so much, but do you think that contributed at all to why BNP was so strong in the Q4? Well, if the increase in flu in the quarter were due to severe weather, I would agree with you, Bill. But I don't know that I can say for certainty that the weather had an impact on this influenza season. I think what had an impact on this influenza season was a poor match with the vaccine and a specific H3N2 that a lot of the population had not seen before. So but you are right, in colder months, we see more BNP and ex U. S, we see a lot of shortness of breath panels being sold during those colder months. Our next question comes from Alex Nowak of Craig Hallum. Question, please. Great. Good afternoon, everyone. Congrats on the results. I had to jump on late, so apologies if this was already discussed. But do you have any update on the Beckman Coulter lawsuit? It appears the court dismissed your head to trial here in 2019. So any update there? And what sort of legal spend should we be forecasting for this in 2018 2019? Okay. Well, great questions. Not inappropriate, although I did, Alex, you'll see in the transcript make a comment during my prepared remarks. But still, I would encourage everybody to read the order. The judge ruled on Friday actually. And the order explains what we had said before and supports my original supposition that our chances of demur having the case dismissed at this stage was highly unlikely. There were 2 causes of action, as I think everybody knows. And I'll just read a couple of comments from the order itself. It said, on the first cause of action, moreover, a demurrer can be used only to challenge defects that appear on the face of the pleading under attack or matters outside the pleading that are judicially noticeable. And it continues that the murder for uncertainty is strictly construed even where a complaint is in some respects uncertain because ambiguities can be clarified under modern discovery procedures. And of course, we're about to head into significant discovery here. So it continues to demurrer for uncertainty will be sustained where the complaint is so bad that the defendant cannot reasonably respond that is he or she cannot reasonably determine what issues must be admitted or denied. And finally, in terms of that first cause of action, the final comment was, judges usually make short shrift of demurs for uncertainty. They expect counsel to clear up any ambiguities through discovery or stipulations rather than by demurrer. And on the second cause of action, it's similar. A couple of comments from the order. It is an abuse of discretion for a judge to sustain a demurrer to such a complaint and to dismiss the action even if the judge concludes that the plaintiff is not entitled to a favorable declaration. And then at the final remark, it said, It should be noted that the United States Supreme Court has observed that a summary judgment, let alone a demurrer, in favor of defendants is rarely warranted in antitrust cases, which I believe I've said before in public settings. So we fully expected this was going to happen. We were fully prepared to move forward with discovery. The news though is that the trial data set for August of 2019. We will move forward as we had intended to. Even if we prevail at trial next fall, I suspect that the plaintiff will consider at least an appeal and that could take another 12 to 18 months past that. So your question though, Alex, with regard to spend, I would just say that spend is going to ramp up starting now. And prior to this we had spent very, very little. And actually honestly the management team has spent practically no time on this issue whatsoever. In Discovery though, we'll be involved somewhat and moving forward that will become just another thing that is part of business. So in terms of spend, we're probably looking at $1,000,000 or so this year. Okay. Thank you, Doug. That's helpful. And then just real quick, any update on Sofia Lyme, CLIA waived and Sofia II vitamin D? Sofia 2 Lyme? Sofia 2 Lyme, yes, it's FDA. As I commented in my remarks, we expect to have the CLIA waived fingerstick whole blood product in market in the United States this summer. Vitamin D, we're still working on. We've got things to do, but we are going to launch in Europe, while we continue to work on the Sofia 2 CLIA waived version for the U. S. All right. Thank you. You're welcome. Thank you. Our next question comes from David Westenberg of CL King. Your question please. Thank you very much for taking the question. And I too had to hop on late. So I'm sorry if things were covered that I'm going to ask. But actually this one, next one I know probably wasn't because it was just asked. But did the actual trial date catch you guys off guard or maybe catch you off guard was the wrong word. Is the trial date sort of on a timeline as expected or was that sooner or later than your prior expectations? No. Again, I'll just say one more time, we are not surprised at all by either the judge's ruling or the timeline. And we had anticipated all this. We budgeted this moving out several years. In fact, we've suggested before the total spend all in by the time we get done over a 4 year period of time or so, we'll be in the $7,000,000 to $12,000,000 range. Perfect. And then just maybe an update on some of your instruments. First with SOPHIA, what percent of them are using more than one assay? And then in terms of Solana, do you have any updates on your confidence in your ability to hit more than $20,000,000 in revenue in 2018? And thank you very much. Solana 20 dollars Yes, I think I'll go in reverse order. I think $20,000,000 looks very achievable for Solana at this stage. We were certainly encouraged by what we saw in the Q1. And honestly, I was a bit surprised by the number of customers that were running Solana Influenza. Honestly, I'm a little bit surprised that the uptake was so quick in the quarter. And those places are on those places are up and running already waiting for the next season. So I think $20,000,000 is imminently achievable now that I saw what happened in the Q1. In terms of the number of placements that have more than one assay, boy, I don't I'm sorry, I don't have a number off the top of my head. I would just say that I noticed that the number of multiple assays per box, those customers is increasing and obviously has to do with a number of factors, including the fact that I think our Strep product works extremely well. Customers recognize that and more and more customers are now also running RSV. Thank you very much and got some on the blowout revenue this quarter. Thank you. Thanks, David. Thank you. That is all the time we have today. Please proceed with your presentation or any closing remarks. I don't have any closing remarks. I'll just say thanks everyone for your support and your interest in Quidel. And we did have a great quarter. I heard somebody just say blowout Dave say just blowout. But we're certainly off to a great start. And I believe that we're well positioned to achieve all those things that we talked about during the Analyst Day. Thanks again. Take care everybody. Ladies and gentlemen, we thank you for your participation and ask that you please disconnect your lines. Goodbye.