Quidel Corporation

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Quidel Corporation

10165 McKellar Court
San Diego, California 92121
U.S.A.
Telephone: (858) 552-1100
Toll Free: (800) 874-1517
Fax: (858) 546-8955
Web site: http://www.quidel.com

Public Company
Incorporated: 1979 as Monoclonal Antibodies, Inc.
Employees: 255
Sales: $92.3 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: QDEL
NAIC: 325413 In-Vitro Diagnostic Substance Manufacturing

San Diego-based Quidel Corporation develops, manufactures, and markets rapid point-of-care (POC) diagnostic tests. They are used to detect certain illnesses and medical conditions, especially those affecting women's health. Sold under the QuickVue label, the tests serve women by verifying pregnancy, the presence of bacterial vaginosis, or osteoporosis. Quidel also provides diagnostic tests for infectious diseases, including influenza, Strep A, infectious mononucleosis, H. pylori infection (the cause of stomach ulcers), and Chlamydia (a bacteria similar to gonorrhea, mostly affecting teens and young adults). The products are used in hospitals, clinical laboratories, doctor's offices, and wellness screen centers, and sold through a direct sales force as well as major distributors, including Cardinal Healthcare Corporation, Physician Sales and Services Corporation, and National Distribution Corporation. In addition, Quidel offers the over-the-counter RapidVue line of pregnancy tests. Quidel is a public company listed on the NASDAQ.

FOUNDING OF THE ORIGINAL QUIDEL CORPORATION IN 1982

What constitutes today's Quidel Corporation is the result of a 1991 merger between Monoclonal Antibodies, Inc. and the original Quidel Corporation. Monoclonal Antibodies was the surviving corporate entity, but it subsequently assumed the Quidel name. The old Quidel was founded by Dr. David H. Katz in San Diego. He dedicated his life to the medical field in large part because of his mother's poor health while he was a child. "I had to spend a lot of time in hospitals," he explained to the San Diego Business Journal. "I wanted to emulate the people who took care of her for so long." Katz earned an undergraduate degree at the University of Virginia, and then received his medical doctor's degree from Duke University in 1968. During his time at Duke, Katz spent time at The Scripps Research Institute, working under one of the leaders in the immunology field, Dr. Frank J. Dixon. It was this experience that led Katz to become a researcher rather than a practicing physician. To fulfill his military commitment at the height of the Vietnam War, he spent four years at the National Institutes of Health (NIH) involved in immunological research. "That's where I really learned immunology for the first time," he told the San Diego Business Journal. "The field was moving in a new direction in the late '60s." For the first time the importance of the immune system regarding cancer research, organ transplants, and disease was to be fully investigated.

After NIH, Katz taught at Harvard's pathology department and while there stumbled upon a biotechnology he called Suppressive Factor of Allergy, or SFA, for which he would ultimately receive a patent. In 1976 his old mentor, Dr. Dixon, brought Katz back to Scripps, where in the course of the next five years Katz rose to the chairmanship of the cellular and immunology department, which was only a three-person affair when he began but would grow to significantly more than 100 by 1981. At this point he resigned to launch a biotech start-up company primarily to exploit SFA, a technology that he believed had the potential to create a drug that could eradicate all known allergies.

With $1.5 million in seed money from the venture capital firm Brentwood Associates, Katz established Quidel Corporation in 1982 in Torrey Pines Mesa, near San Diego. For the company name, he eschewed the use of common prefixes such as "bio," "tech," or "immuno." His initial idea was to call it Lidan, drawing on the names of his daughters, Lisa and Danica, but it had already been trademarked by a Los Angeles investment firm that had no interest in changing their name to accommodate him. Over wine with some friends, Katz coined Quidel, a variation of the Chinese word Quided, which meant "to advance very rapidly." In addition to for-profit Quidel, Katz also established a nonprofit sister company, Medical Biology Institute (MBI), which conducted basic research on a number of diseases, relying mostly on government grants. Although MBI did not serve as the research arm of Quidel, there was interaction between researchers, who shared much of the same facilities and even teamed up to form a coed softball team, Quimbi.

While Quidel worked to develop an SFA drug, it developed some interim products to bring in money. One of them was a self-test pregnancy test kit, introduced in 1985 and marketed under the QTest name by Becton, Dickinson & Co. Other test products followed, including a home ovulation test, a "dipstick" strep throat test for physicians, and a dairy cow fertility test that grew out of the company's human fertility work. Quidel filed to make an initial public offering of stock in 1986, but had to back off when market conditions deteriorated. The company, strapped for cash, raised $9 million in a private placement of stock with a number of venture capitalists, but troubles continued and in 1988 Katz fell out with the directors and resigned.

FINDING A MERGER PARTNER IN 1990

Katz was replaced as CEO by Scott Glenn, who had been with Quidel since the beginning. In 1989 he engineered a restructuring of the business, spinning off the therapeutics division as La Jolla Pharmaceuticals to develop and market drugs for antibody-mediated autoimmune diseases, such as lupus and antibody-mediated thrombosis. What remained of Quidel was the diagnostic products, but it was a small company attempting to survive in a competitive field. To become a larger player, Quidel, in 1990 found a suitable, and willing, merger partner in Monoclonal Antibodies, Inc.

Monoclonal Antibodies was founded in Mountain View, California, in 1979 by Thomas A. Glaze, a graduate of Stanford's MBA program. Backed by legendary Silicon Valley venture capitalist Arthur Rock, it was one of a number of companies looking to exploit the hot new field of monoclonal antibodies, which sought to use pure antibodies to target specific parts of the body as a way to combat cancer and other serious diseases. Dr. Cesar Milstein and Dr. Georges Kohler developed the technique to produce these antibodies in mice at their laboratory in Cambridge, England in 1975, and nine years later would win the Nobel Prize in Medicine for their work. According to the Wall Street Journal, "Monoclonal antibodies are the products of hybridomas, the fusion of fast-growing cancer with an antibody-producing cell. The antibody produced is free of impurities that could confuse its natural radar system. At least in theory, it can be armed with therapeutic agents and aimed." Unfortunately, monoclonal antibodies was yet one more magic bullet that failed to work, as the complexities of the human body as well as cancer proved too great. The drugs that were developed—using mouse proteins that were treated as invaders by the body—were unable to penetrate "tumors to reach their target proteins." But, as the Wall Street Journal further reported, "The specificity of the antibodies in seeking out a single protein made them immediately useful in diagnostics." Early on Monoclonal steered away from cancer therapy and focused on the potentially lucrative diagnostics market.

COMPANY PERSPECTIVES

Our ultimate and all-consuming mission is to enhance the health and well-being of people around the globe.

Monoclonal went public in 1981 and began marketing diagnostic test kits using genetically engineered antibodies. Growth was sidetracked in 1984 when Hybritech Inc., another diagnostics test provider, sued Monoclonal, alleging infringement on a patent it received a year earlier. According to the San Francisco Chronicle, "The patent in question pertains to the use of monoclonal antibodies in a technique known as sandwich immunoassays…. Thomas Glaze, president of Monoclonal, said sandwich immunoassays were developed and not patented in the late 1960s using conventional antibodies to measure biological compounds. His company used the technique with monoclonal antibodies to develop products such as a home pregnancy test. Glaze said six of his company's seven current products use the sandwich technique that Hybritech claims to have patented."

In August 1985 Monoclonal achieved what it considered a major court victory when a federal judge dismissed the case, noteworthy because it was the first genetic engineering patent dispute to be settled in court. A month later the company signed a major agreement with a Johnson & Johnson unit to develop and supply home diagnostic tests, and it appeared Monoclonal was on the cusp of prosperity. In 1986 it achieved profitability on revenues of $7.7 million. But even as it was posting record results the company met with serious problems. In August 1986 Johnson & Johnson pulled out of its deal to sell an ovulation test because of shelf-life problems. A month later a federal appeals court reversed the prior lower court decision and upheld the validity of the Hybritech patent, and then in March 1987 Monoclonal was ordered by the court to cease selling products that infringed on the patent, eliminating 80 percent of its revenues. On the verge of bankruptcy, the company slashed its workforce by a third to cut costs while it negotiated a settlement with Hybritech. In July 1987 Monoclonal agreed to pay Hybritech $2.25 million to settle past claims and acquired a one-year license with a 15 percent royalty to sell its products until they were reformulated.

Monoclonal began to rebuild sales in the final years of the 1980s, but the company was eager to merge with Quidel in 1990. The agreement was contingent upon the infusion of $7 million from private investor David Blech. When he backed out, the merger stalled until J.P. Morgan & Co. and other institutional investors stepped in to provide $11 million in financing, of which $7 million came from the purchase of stock. When the merger was completed in January 1991, the result was a company employing nearly 300 people with combined sales of $30 million. Although Monoclonal contributed just a third of that amount, as a public company it became the surviving entity. But it immediately assumed the Quidel name and set up its headquarters in San Diego, and steps were taken to shut down Monoclonal's Sunnyvale facilities. Glaze, who took over as chairman, did not lament the name change, telling the Business Journal of San Jose, "We felt for a long time that the name (Monoclonal) was just too long." Glaze held the chairmanship until 1995, then stayed on as a director.

By combining operations the new Quidel was able to save about $2.3 million over what the two companies would have paid if on their own. As a result, in the fiscal year ending March 31, 1992, the company reached profitability, netting nearly $900,000. In the fall of 1992 the company received more good news when the 1,800-unit Walgreen drugstore chain agreed to carry Quidel's ovulation detection kit, Conceive, priced at $9.99, packaged in a box with a smiling baby on the front. Quidel also marketed a plain wrapper pregnancy test called RapidVue at a price point of $6.99. But they were actually the same product packaged differently. According to Forbes, "What's different is the market. 'The market definitely divides between the women who want babies and those who don't,' explains Quidel Chief Executive Steven Frankel. He explains why the smiling baby sells for more than the plain-wrapper product: 'It's like what Charles Revson said about cosmetics: People buy hope. In our case, they pay more for hope than for possible relief.'"

KEY DATES

1979:: Monoclonal Antibodies, Inc. is founded.
1981:: Monoclonal is taken public.
1982:: Quidel Corporation is founded.
1986:: Monoclonal loses a patent dispute.
1991:: Monoclonal and Quidel merge.
1996:: An alliance with Glaxo Wellcome is formed.
2000:: Litmus Concepts, Inc. is acquired.
2004:: Caren L. Mason is named CEO.

Business tailed off in fiscal 1994 and fiscal 1995, when Quidel lost nearly $6 million. But the company was in the process of switching its business model from one dependent on selling kits under others' brand names to one dependent on branded sales. Quidel returned to profitability in 1996, netting $579,000 on sales of $33.5 million. The company also forged an important alliance with Glaxo Wellcome in 1996, as the two collaborated to develop the Quick Vue Influenza Test, which received FDA approval three years later. They signed another collaborative agreement in 1997 to develop diagnostic tests to detect genital herpes. In addition, Quidel established an alliance with Procter and Gamble in fiscal 1997 to co-market a H. pylori test, which a year later would result in a 45 percent increase in sales in the H. pylori category. In April 1999 Quidel's women's health business received a major boost when the company signed an exclusive agreement with Perrigo Company, a global leader in store brand healthcare products. In addition, in March 1999, Quidel struck an agreement with Merck-Medco Managed Care, L.L.C. to provide the Quick Vue H. Pylori tests in Merck-Medco's pharmacy disease management program. By the end of the 1990s, Quidel eliminated less profitable products, shut down three unprofitable international subsidiaries, and narrowed its focus to women's health and infectious diseases. In the year 1999 (Quidel's fiscal year now ended on December 31), the company recorded sales of $52.2 million and net income of $5.9 million.

MAJOR ACQUISITIONS: 2000

In 2000 Quidel acquired Litmus Concepts, Inc., a diagnostic company that made women's health products. As a result, Quidel picked up multilayered thin film technology, used in the mass production of disposable tests, as well as 21 associated patents. Also in 2000, Quidel began selling a urinalysis product line, Quick Vue UrinChek, an improved H. pylori test for peptic ulcer disease in the U.S. market, began selling an over-the-counter influenza test in Europe, and received permission to market its influenza test in Canada as well. For the year global sales increased 31 percent to $68,351.

In 2002 Quidel began to offer products using the layered thin film technology acquired from Litmus Concepts. Sales continued to grow, reaching $92.5 million in 2003, while net income approached $20 million. The year 2004 brought a change in management as Caren L. Mason was named president, CEO, and a member of the board of directors after the company reported disappointing quarterly results and CEO S. Wayne Kay was asked to leave. She brought to the job more than 25 years of healthcare experience, involved with the running of a number of fast-growth, high-tech healthcare companies. She took over as Quidel was contending with a drop-off in business caused by an unusual flu season that peaked much sooner than normal. Hence, sales dipped to $78.7 million and net income fell to $1.6 million. Revenues rebounded to $92.3 million in 2005, and the year ended on a good note when the FDA agreed to allow Quidel to promote its flu-test kit as being useful in detecting avian flu, as well as highly effective in diagnosing the common influenza A strain. The effects of the decision were felt immediately, as Quidel achieved record results in the first quarter of 2006, led by sales of its influenza tests.