Quidel's fourth quarter earnings news release and conference call earlier this year provide enough information for me to conclude that Quidel's positioning itself for accelerated earnings growth over the next few years. Here's my take:
Quidel announced annual sales increased 9.1%, primarily do to increased Strep A and H. pylori product sales in the U.S. These two products are currently Quidel's flagship POC, CLIA approved tests. If their sales were not improving, I'd be concerned. But these "emerging market," CLIA waved tests are gaining market acceptance. I suspect that when Quidel's 10-K is filed, we'll see that sales for these tests increased more than 9.1%. Since total sales increased 9.1%, I'm betting foreign sales will be lower due to negative exchange rates, and domestic POC test sales for Strep A and H. pylori will be up.
I think it's reasonable to expect that Quidel's existing product sales will continue to increase at least 10% over the next few years. If net sales do increase at just 10% per year, they'll be about 50% higher just four years from now, about a $23M increase. Assume a conservative gross profit margin of 44%, then gross profit would be 44% X $23M or $10M. If eps are break even now, then $10M/24M shares would result in an eps of $0.42 in four years. Assuming a conservative 30 P/E, this would value Quidel at about $13 ($0.42 X 30 P/E).
This analysis doesn't consider revenue from the two new rapid hCG tests Quidel recently announce it commenced marketing of (http://www.quidel.com/newsrels/12x18x97.htm). And if I remember correctly, Andre de Bruin commented in Quidel's last conference call that Quidel expected sales of these tests to be about $8M per year (Bob, I know you heard the conference call, so please correct this if you remember hearing something different).
Also, we know Glaxo's funding Quidel's research for two new rapid tests for Herpes and the flu, quidel.com. Hopefully, well soon see a 510K announcement on these tests. And remember Quidel's working on a male Chlamydia test. If Quidel successfully brings these tests to market, they should add significantly to Quidel's revenue.
Quidel's increased expenses for "General and Administrative" hurt the fourth quarter earnings, but it doesn't look like these expenses will be recurring, since Quidel reported they were related to employee severance costs, legal expenses and consulting costs. My guess is some of the legal expenses were due to the BD suit.
The additional expenses for restructuring also hurt the fourth quarter earnings, but they should result in increased profits down the road, otherwise why would Quidel be making this restructuring investment? I don't know who's responsible for initiating the restructuring, but we do know that just last summer Andre de Bruin was elected to Quidel's BOD (http://www.quidel.com/newsrels/06x25x97.htm) and Glenn Holmes (http://www.quidel.com/newsrels/07x07x97.htm) became Quidel's Vice President of Sales and Marketing. Prior to joining Quidel, de Bruin was the President and Chief Executive Officer of Boehringer Mannheim Corporation, a private, global health care corporation with sales exceeding $3 billion, and Holmes worked for Abbott Laboratories. It sure seems Quidel's got some experienced personnel, who I'd assume have the expertise to recognize the need for change and the ability to get it done. Also, I consider it a plus that Quidel's in a financial position fund restructuring.
I also noticed that R&D revenue and expenses increased significantly in the fourth quarter compared to the third quarter. I think it's realistic to conclude that the increased research spending will soon result in some new products.
So, considering that existing product sales are increasing, the potential revenue from pipeline products, and the future reductions in operation expenses from the restructuring, I think Quidel's earnings four years from now will be much better than the $0.42 calculated above.
Next Saturday in San Diego an investors forum will be held on the "Opportunities In Evolving Medical Devices/Diagnostics Industry" (http://biz.yahoo.com/bw/980508/informed_i_1.html). I wouldn't be surprised if Quidel's given a favorable mention at the forum. One of the keynote speakers will be Michael Yellen, who was formerly a healthcare analyst at Van Kasper. Van Kasper's followed Quidel for years and on 17 June 1997 issued a company report on Quidel (http://biz.yahoo.com/z/a/q/qdel/n0061345.html). A good mention could boost Quidel's price.
Mike |
