Oct 26, 2011
Executives
Douglas Bryant - President and Chief Executive Officer John Radak - Chief Financial Officer Randy Steward
Analysts
Steven Crowley - Craig-Hallum Ashim Anand - Natixis Bleichroeder Zarak Khurshid - Wedbush Jeff Frelick - Canaccord Adams Brad Hoover - Sidoti & Company
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation Third Quarter 2011 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.
(Operator instructions) I would now like to turn the call over to Mr. John Radak, Chief Financial Officer.
Please go ahead.
John Radak
Thank you. This is John Radak.
Thank you for participating in today’s call. Joining me today is our President and Chief Executive Officer, Doug Bryant.
Today Quidel released financial results for its three months ended September 30, 2011. If you have not received this news release or if you would like to be added to the company’s distribution list, please call Hooven Argetta at Quidel Corporation at 858-646-8023.
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 materially 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, October 25, 2011.
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. For today's call I will report the financial results for the quarter and Doug will describe the status of our new products as well as our more recent commercial developments.
We will then open the call for your questions. For the third quarter of 2011, total revenues were $33.1 million compared to $28.2 million in the third quarter of 2010, an increase of 17%.
The infectious disease product lines comprised the majority of the revenue increase driven by the timing of orders for influenza sales and growth in Strep A and RSV. Inventories at distribution have not materially changed from the second quarter.
This would suggest that Q3 revenues are reflective of end-user demand. International sales as a category grew by 41% in the third quarter of 2011 over the same time period last year.
Global sales of infectious disease products totaled $22 million in the third quarter of 2011 compared to the sales of $16.2 million in the third quarter of the prior year. The main contributors to this increase were strong sales from our influenza product line combined with continued growth in our RSV and Strep A products.
In the third quarter our Strep A product line saw a 10% growth over the same period last year. In Q3 of 2011 RSV sales more than doubled from the third quarter of 2010 to just under $0.5 million.
Revenues in the women’s health category declined 7% to $8.1 million as double digit percentage growth in Thyretain was offset by softness in our bone health product line along with a 7% decrease in pregnancy sales due primarily to distributor ordering patterns. Our gastrointestinal product category revenues were 3% to $1.7 million on greater sales of IFOB and H Pylori relative to the third quarter of 2010.
Gross margin in the third quarter of 2011 was flat to the third quarter of the prior year at 55% but was unfavorably impacted by a couple of unusual item. First, included in cost to sales for the quarter was $0.8 million of higher lateral flow intangible amortization related to the royalty buyout transaction versus what we would have recorded at 8.5% of lateral flow revenue.
Most of the $0.8 million was a onetime charge driven by an accounting requirement to expense a portion of the $29.5 million in total buyout payments at signing. We will by amortizing the remaining cost of the buyout over the time period from July 2011 to February 2015.
This will amount to approximately $8 million per year and will be allocated between quarters based upon their estimated revenues relative to the estimated full year. Therefore, we will recognize $4 million of amortization in the second half of 2011.
Secondly, we took an unusual $0.6 million charge to write-off component parts associated with a new product development effort. Excluding these items our gross margin in the third quarter would have been approximately 59%, a 400 basis point improvement over the prior year driven by volume and the manufacturing efficiencies we have achieved over the last year.
Operating expenses were $19.4 million in the third quarter of 2011 compared to $18.8 million for the third quarter in the prior year. Research and development cost in the third quarter of 2011 were flat to the third quarter of 2010 at $6.1 million.
Sales and marketing costs increased to $6.5 million in the third quarter of 2011 due to higher variable compensation associated with sales commissions. General and administrative expenses increased slightly in the third quarter of this year relative to the same period in 2010 due to stock comp expense.
Stock compensation expense in total was $1.5 million for the third quarter of this year versus $1.3 million for the same period in 2010. We expect stock compensation to total about $6.4 million for the full year.
Our tax rate for the third quarter of 2011 was 34%. Year-to-date our effective tax rate for 2011 is also 34% versus the year-to-date rate of 32.9% for the first nine months of 2010.
Net loss for the third quarter of 2011 was $1.1 million or $0.03 per share compared to a net loss of $5.9 million or $0.21 per share for the third quarter of 2010. On a non-GAAP basis excluding non-recurring items, amortization of intangibles and stock compensation expense, net income for third quarter of 2011 was $2.7 million or $0.08 per diluted share compared to a net loss of $0.5 million or $0.02 per share for the same period of 2010.
I will now turn the call over to Doug.
Douglas Bryant
Thank you, John. The third quarter was an especially productive time for our company, particularly with respect to significant advances that we made with our product development efforts.
I will update you on the status of those product and some of the milestones that we achieved and talk about where we are in terms of commercialization of those products. As a reminder we are executing on three major development programs, Sofia, the brand name of our next generation immunoassay platform.
Bobcat our automated DFA analyzer and our molecular program. And again our molecular program consists of three product platforms.
AmpliVIEW, the brand name for our non-instrumented handheld molecular assays for hospital acquired infections. Real time PCR assay kits for use on number of widely used thermocyclers that exist today in many molecular diagnostic labs throughout the world.
And project Wildcat, the low cost fully integrated molecular platform that we are co-developing with Northwestern University and the Northwestern University Global Health Foundation. Let's start with Sofia, our next generation rapid point of care immunoassay instrument.
This is the analyzer that combines a unique fluorescent chemistry with advanced lateral flow technology as well as other features to ensure a reliable, objective, rapid and highly accurate diagnostic result. In the third quarter we received the CE Mark for our Sofia Fluorescent Immunoassay Analyzer, as well as the Sofia Influenza A+B Fluorescent Immunoassay, the first in a series of new assays for infectious disease and other disorders.
And just recently we shipped our first Sofia analyzers and flu kits to a small number of seeding sites in Europe. During the quarter we also submitted 510(k) packages to the U.S.
FDA seeking regulatory clearance to market both the Sofia analyzer and the influenza assay here in the United States. In addition we continued with trials of these Sofia group A Strep assay and are encouraged by the results thus far.
We expect to apply for CE Mark in Q4 and to complete U.S. clinical trials in Q1 2012.
We also made significant progress with Bobcat, our automated multiplex DFA analyzer. We finished beta site trials in Hong Kong and New Zealand and the data are what we had expected.
Therefore U.S. clinical trials for Bobcat will began in the fourth quarter and are expected to finish at the end of the first quarter.
Our molecular program also progressed considerably. We are manufacturing clinical lots for our first two AmpliVIEW products and expect to begin clinical trials shortly.
And notably we received CE Mark for our Quidel Molecular Flu A+B and Quidel Molecular Human Metapneumovirus assays and just recently launched in Europe. As a reminder these are real time PCR assays that can be run on commercially available thermocyclers.
An example will be Life Technologies’ ABI 7500 which has a large installed base in Europe. We are developing other real-time PCR assays and hope to have products for sale in Europe before year-end and to have those same products available for sale in the United States following FDA clearance.
Finally, we are moving forward on Project Wildcat, fully integrated molecular instrument. We are evaluating our Quidel molecular assays on the Rev-1 device with multiple specimen types.
Development of the instrument is progressing and we continue working towards our goal of launching by the end of 2013. As I said in the recent past, products in development always remain subject to change in terms of content and timing because there is always uncertainty around development activities, clinical trials and clearances by regulatory agencies.
Nevertheless, I am very proud of what we have accomplished so far. In the third quarter we achieved some very significant milestones especially with respect to Sofia, Bobcat and our molecular program and are preparing for the most important step, the commercialization of those products.
With each of the milestones we accomplish we move closer to the achievement of our larger purposes and goal to create a broader based diagnostic company that is uniquely positioned to meet the needs of laboratory customers regardless of location, from rapid point of care immunoassays to cellular-based assays to molecular diagnostics. Each of which serves an important function in the diagnostic continuum.
As a result of our execution in the third quarter we are closer to realizing that goal. Before we delve into the Q&A, I want to take a moment to let everyone know that this will be John’s last earnings call with us.
John will be stepping down from his role as CFO effective October 31. Over the last 4.5 years with Quidel, John has been a big part of our company’s success, from securing a credit facility to successfully managing the stock repurchase plan, to the acquisition and integration of DHI last year.
More recently he was instrumental in securing the secondary equity offering. Creating a culture of cost awareness inside the organization and completing the Alere royalty buyout agreement.
We will definitely miss John and we wish him well.
John Radak
Thank you, Doug, for the kind words and for the privilege I have had to contribute to Quidel’s success. During my tenure I have made a lot of friends across the organization, I will look back fondly on the friendships I have created as well as our accomplishments as a team.
While I would miss the people I leave Quidel confident that it is strong financially and well positioned for the future.
Douglas Bryant
Thanks, John. Transitioning into the CFO role is Randy Steward who has more than 35 year of experience in accounting and finance.
Randy served as Chief Financial Officer for Navilyst, a medical device company based in Massachusetts. Previously, Randy was Chief Operating Officer for SeQual Technologies here in San Diego.
And prior to that he served as Executive Vice President and Chief Financial Officer at Spectrum Brands where he was a key member of the management team that took the company from $380 million to $2.5 billion in revenue. Randy, would you like to add anything else?
Randy Steward
Yes, good afternoon, everyone. I just wanted to say that I am very excited to be a part of the Quidel organization.
It is a great opportunity and I look forward to working with Doug and the rest of the management team to help Quidel maximize its potential and further its strategic objectives.
Douglas Bryant
Thanks, Randy. That concludes our formal comments for today.
Operator, we are now ready to open the call for questions.
Operator
(Operator Instructions) Our first question comes from Steven Crowley with Craig-Hallum. Go ahead.
Steven Crowley - Craig-Hallum
You gave us a lot there because you have a lot going on. Maybe just to delve deeper in a couple of areas.
In your rapid handheld molecular platform, it seems like you are making progress submission, gathering data and submitting here in the U.S. Your international strategy for that product looks like what at this point?
Douglas Bryant
Our international strategy generally is to focus first on a couple of key markets to build infrastructure there. And for the most part see what needs to be done in order to go direct in those markets.
If we end up with a distribution partner for those products we will figure it out along the way. And so far we have actually begun the process of hiring folks in Europe and hope to have the organization necessary to launch these products in Q1 2012.
Steven Crowley - Craig-Hallum
And then in terms of the Open Box strategy. You have one distribution partner outside the U.S.
announced. Their efforts with the products, it seems like those are underway now.
Is your plan to kind of test drive through one partnership and then explore other opportunities or are you doing things in parallel fashion?
Douglas Bryant
Well, generally Steve we would not normally comment on our distribution relationships and in this particular Life wanted to make that announcement and so they did. And then I would also say that generally I would prefer not to comment on the details of any of those distribution relationships and certainly not on the terms.
What I can say is that the performance data on the assays that Life has chosen to represent for their ABI 7500 customers is very very good. These assays are very competitive and I would expect that Life will do quite well.
And I would also add that clearly interest in our real time PCR assays goes well beyond their interest in our flu and metapneumol assays. And then finally I would add that obviously we are in discussions with other folks depending on the geographic location, other folks who would also have equal interest in representing our kits on their platforms.
Steven Crowley - Craig-Hallum
Great. And then just a couple of more quick ones and I will hop back in the queue.
In terms of the cost you incurred to write-off components for a product under development. Does that represent you going a different direction with the product or is that just normal, relatively normal stuff that happens along the path to getting something right?
Douglas Bryant
No, this is not unusual or typical, it has to do with the mould that is obsolete. It manufactures the plastic part.
So this is not normal or typical and we would not expect to see this going forward.
Steven Crowley - Craig-Hallum
Okay. But it doesn’t sound like its indication that one of your projects has hit a instrumental road block?
Douglas Bryant
No, this has nothing to do with anything that we currently have funded in development.
Steven Crowley - Craig-Hallum
Great. And then just one question for John, and John maybe with the front end.
Obviously we wish you well. Thanks for your help over the last several years and maybe we will ask you about this Alere royalty arrangement that you have constructed here.
If I understand you correctly, you have given us some guidance for the back half of fiscal 2011 and since we know what you just booked in, in Q3 you have given us some guidance for Q4. But how should we think about how this drains off at least in 2012 so we are not out in left field.
John Radak
So for the full year, for 2012, we will recognize roughly $8 million of expense over the course of the year.
Steven Crowley - Craig-Hallum
Okay. And with your disclosures in this press release you have given us a pretty good mechanism to sort through that and look at the kind of true performance of the company and its margin structure.
John Radak
Yeah.
Steven Crowley - Craig-Hallum
Great. Well, thanks so much for doing that.
We wish you well.
Operator
Our next question comes from the line of Ashim Anand with Natixis. Go ahead.
Ashim Anand - Natixis Bleichroeder
Thanks for taking my question guys, congrats on a good quarter. I was wondering if you can bread down the 2.686 charge you have to the cogs, the adjustment you have to the cogs.
I know you gave it but so that we can kind of model it accordingly?
John Radak
Yeah, so probably 2.5 of it roughly is related to the Alere transaction.
Ashim Anand - Natixis Bleichroeder
Okay. And rest is stock-based compensation?
John Radak
That’s right, stock-based compensation.
Ashim Anand - Natixis Bleichroeder
Okay. And if you could provide us with out of U.S.
revenues this quarter?
John Radak
About $4.5 million.
Ashim Anand - Natixis Bleichroeder
And DHI, how much DHI did totally?
John Radak
Little more than $9 million.
Ashim Anand - Natixis Bleichroeder
Doug, as you know you guys have become a bona fide molecular diagnostic company and actually have a product in Europe. If you can kind of generally comment on how is the environment there in terms of adoption of molecular products there and how that is comparing to U.S.
considering the present macroeconomic circumstances?
Douglas Bryant
Our analysis shows that the market there is as robust as it is in the U.S. And in fact I would say in some countries molecular tests are more common in cell based assays.
So for some companies, you could compare as well, it appears as though the sales of their molecular products in Europe are as high as they are in the United States. So we see a market that is equally interesting.
Ashim Anand - Natixis Bleichroeder
Like would it be fair to say in fact at this point in time it might even be easier or better market, considering what's going on here?
Douglas Bryant
I am not sure easier or better. It’s certainly an attractive market and in most cases there many of the institutions who manage the labs have molecular diagnostic capability and so the opportunity to convert some of the laboratory developed test and the kits certainly exists just as it does here.
If you are referring to the regulatory differences, yeah, there is going to be a delay. Obviously it’s a little quicker to get CE Mark than it is to get FDA clearance.
That’s for sure.
Ashim Anand - Natixis Bleichroeder
Okay. And finally you didn’t mention the BioHelix collaboration you have.
It’s little bit on the backburner in terms of may be Northwestern collaboration is taken a step ahead or it’s just -- it doesn’t mean anything.
Douglas Bryant
No, I think you might be misunderstanding Ashim. The product name now is AmpliVIEW.
These are the assays that we have co-developed with BioHelix.
Ashim Anand - Natixis Bleichroeder
Okay.
Douglas Bryant
So the relationship is still terrific. We work extremely well with those folks.
And in fact interestingly enough they just announced that they had their own assay for HSV approved. This was an assay that pre-dated our relationship actually and (inaudible) and the folks at BioHelix I think should be congratulated.
As I understand that they submitted the assay in July, so the turnaround with the FDA is encouraging and perhaps helpful to us at least in terms of knowing that that was the case there as we move forward with the assays that we have co-developed with them. So to review, there are two AmpliVIEW assays that are in the process of being readied for clinical trial.
We are manufacturing clinical lots for both of those assays as we speak.
Operator
Our next question comes from the line of Zarak Khurshid with Wedbush. Go ahead.
Zarak Khurshid - Wedbush
So with respect to the early adapters of the Open Box molecular products or product, what are the features that the platform or the test that are driving adoption currently?
Douglas Bryant
Well, I think that early adoption would be a pretty aggressive description. We have just recently shipped product to one partner in Europe.
And we do know that they have been seeding a small number of sites. What I would say though that the fact that these assays take far fewer steps and that the enzyme and the primers have all been (inaudible), so that the shipping requirements are significantly less arduous.
We are shipping the product at two to eight and we understand that in most cases these assays are shipped at either minus 20 or minus 80. And I would just say they are faster, better in terms of performance and I think we can be very competitive from a cost perspective.
So faster, better, less expensive is pretty interesting I think to some customers.
Zarak Khurshid - Wedbush
And then I was wondering if you could talk about the drivers of the strengthening your food business during the quarter. Has anything changed with respect to the selling strategy?
What are the promotional activities these days in Q3 versus Q4 and if you have any thoughts on the channel in front of the flu season that would be interesting as well. Thank you.
Douglas Bryant
Sure. The promotional programs that we are running are very typical of what we have done in years past and in recent quarters and in fact I would say that for each of the major our distributors our programs are pretty much the same as our major competition.
So the real driver to our Q3 flu revenue is more likely tied to the fact that our inventories as distribution are quite low. So any flu activity that was out there in the marketplace resulted in orders.
And right now we see that IOI as a percentage of outpatient visits is pretty low at about 1%, but that’s pretty typical. If you look at last year at this time the proportion of outpatient visits for IOI was well below the 2.4% CDC says is indicative of a flu epidemic.
And the same is true this year, in other words the flu season does not normally begin in October. It didn’t last year and it certainly didn’t this year.
So there is nothing unusually going on in Q3 and there’s certainly nothing unusual so far as we move into Q4. And then I would finally say, we get a question from time to time about what happened Australia and is that indicative.
And this may sound redundant because I have said it before but the R value for the correlation of flu in the southern hemisphere versus the northern hemisphere is very low. In other words there is little value in knowing what happened in Australia or anywhere else for that matter in the southern hemisphere.
Correlation between Europe and the United States on the other hand is very high. So if you told me that we started to see flu in Germany or France, that would be obviously good to know and we would take that in a consideration with our manufacturing strategy.
But I would say what we are planning for Q4 and then into Q1 2012 is what we would characterize at least so far as pretty normal. Pretty normal season.
Zarak Khurshid - Wedbush
Great. Just wanted to echo Steve’s comments, it was a pleasure working with you John and you will be missed.
Thanks.
Operator
Our next question comes from the line of Brian Weinstein with William Blair. Go ahead.
Unidentified analyst
It’s actually Pete in for Brian. So I had a question for you on Sofia.
Can you give me any ideas as far as how late approval of the flu assay would be able to take place for it to make a difference for this flu season. Is it already too late or is there still time?
Douglas Bryant
You are referring obviously to U.S. clearance?
Unidentified analyst
Right. Right.
Douglas Bryant
If we were to receive FDA clearance anytime soon it would be highly likely that we would ship product within days of that approval. And how important that would be is difficult to say.
Obviously there will be time to take an order, there will be time to ship an order and there will be, in some cases there will time necessary to do a quick validation of the product in the customer’s hands. So I would say given the fact that flu season typically gets ramped up in January and in February, that we still do have a better time.
But obviously any week or month that goes by here, that would be difficult.
Operator
Our next question comes from the line of Jeff Frelick with Canaccord. Go ahead.
Jeff Frelick - Canaccord Adams
John, can you give us a sense what drove the strong international growth in the quarter?
John Radak
It was mostly, probably timing of orders from Japan for flu products.
Jeff Frelick - Canaccord Adams
Okay. And then Doug, could you comment on the inventory as you exited the third quarter with respect to flu, Strep and HCG?
Douglas Bryant
Sure. Flu in Q3 2010 versus Q3 2011 were down about half of that flu inventory at distribution.
And what that means is anything from now and of the end of the quarter in terms of flu activity will more than likely result in an order from our distributors. Strep, the flu inventory at the end of this quarter is actually up about 5% of what we sell on a typical quarter which is still not up by very much when you consider that Strep volumes have been increasing in the last couple of quarters for us.
And then for HCG, we are pretty much flat and have been over the last five quarters.
Jeff Frelick - Canaccord Adams
Okay. And then with respect to the Sofia flu test, can you just may be touch on how you are going to market it, position it, once you receive approval.
Douglas Bryant
Are you referring to Europe or the U.S.?
Jeff Frelick - Canaccord Adams
U.S.
Douglas Bryant
Assuming we do get approval in time to launch for this season, we intend to take a look at using our own internal organization to validate what our customers algorithms are and to understand how we might fit into that. We are having conversations with our major distributors about what we might do and how we might use their resources.
But none of that actually has been decided and we won't make the call until after we have FDA clearance.
Jeff Frelick - Canaccord Adams
Okay. And then just last question with respect to the BioHelix, AmpliVIEW.
The pivotal trial should be starting I believe soon. Just timing when does that start, when do you think it’s completed?
John Radak
I think I made a comment in the script itself but we intend to start the trials for the two assays in Q4. And we certainly would expect to be finished and to have that package submitted to the U.S.
FDA in Q1.
Operator
Our next question comes from the line of Brad Hoover with Sidoti & Company. Go ahead.
Brad Hoover - Sidoti & Company
Good afternoon. Did you say, John -- accounts receivable is up I guess $6.5 million from the second quarter, did you say what led to that and in the increase in DSOs in the quarter?
John Radak
It was mostly timing of when we got orders. As we were finishing Q3 we began to get a lot of flu orders and Strep orders so it’s really just how the business fell in the quarter.
Brad Hoover - Sidoti & Company
Okay. And then on the human metapneumovirus that you recently go the CE approval.
Could you, Doug or John, just discuss kind of what the market size is in Europe and I guess what their current testing protocol has been for the last few years and kind of expectations you are having for that assay?
John Radak
It’s actually an evolving market and I would characterize it as quite small. And it’s growing rapidly in the larger centers.
But it’s not widely ordered individually by physicians. We believe that combining the assay with our RSV may actually stimulate more demand for the product and that’s what we intend to do.
So the symptoms actually mimic those of respiratory syncytial virus. So we think it’s an important addition to the portfolio.
But on its own is not a significantly ordered product.
Brad Hoover - Sidoti & Company
Okay. And then on Thyretain, has there been any change as far as conversations or progress made with discussions with reference labs, and as far as may be getting there sales reps to talk about and push Thyretain.
John Radak
We continue to have conversations with our large commercial partners, the big reference labs. This business is still growing in the teens and I expect that with or without the reference lab involvement that the trajectory is not likely to change dramatically until more papers, more third party peer reviewed articles are published.
Which is typical for diagnostic assay growth stories. TSI is clearly better at diagnosing and monitoring grades, and there are number of studies that will be published in the next several months and then throughout 2012.
So while I think it would be very useful to have our big partners using their very large sales forces to talk about the product, we really need to put some papers in the hands of the sales people in order to make that happen. So I think the timing element is more the availability of those third party articles that describe why the physician should be using TSI.
Brad Hoover - Sidoti & Company
Okay. And it sounds like that the growth rate, like the mid-teens growth rate from last quarter held up this quarter against, that was encouraging.
And then just last and I missed the infectious disease revenue, John that you gave in the beginning of the call?
John Radak
It was $22.2 million.
Operator
(Operator Instructions) Our next question comes from the line of Tycho Peterson with JPMorgan. Go ahead.
Unidentified Analyst
Hi, good evening. It’s (Even Loadson) for Tycho.
I had a couple of questions. I guess first you had mentioned that Bobcat trials in New Zealand and in Hong Kong during or rather the beta users.
For those users can you talk about their consumable usage per system and how that might translate to a fully commercial system? And then secondly if that impacted the way that you are planning the U.S.
clinical trial, if at all? Thank you.
Douglas Bryant
The beta trail was conducted in order to demonstrate that the algorithms that we have in interpreting those slide were correct. And so we did comparison with cell culture and with PCR, and it was those data that led us to believe that the product is ready to go, ready to go to trial.
So in this case it’s a beta trial but it wouldn’t be a marketing trial. In other words it wasn’t the customer running routine samples in buying our products.
Having said that what our market research has shown, is that the typical customer that would be doing virology will run something around $25,000 to $30,000 worth of respiratory, these multiplexed panels per year. And that’s what we are -- if you are trying to model what’s a Bobcat worth, we believe it’s somewhere in that $25,000 to $30,000 reagent trail per year on average.
Unidentified Analyst
Great. Thank you.
And then I guess also. Could you talk about some of the factors that led to the Alere revenue buy down and buy out and if that has anything to do with availability of M&A targets.
i.e. priorities for competing uses of cash?
Douglas Bryant
No, I don’t think that this is a matter of whether we had certain M&A target in mind. This was more a matter of making sure that going forward that we understood what our costs were and I think that the deal itself is a good deal for them.
And certainly is a good deal for us relative to the ROI on the investment relative to our cost to the capital. So I don’t think it alters what we are looking at in terms of smaller tuck-in opportunities.
Operator
Our next question comes from the line of Steven Crowley with Craig-Hallum. Go ahead.
Steven Crowley - Craig-Hallum
Yes, guys. Just a quick follow up or two.
In terms of your view of the kind of strategic and tactical utility of the Strep, Sofia assay. Has that evolved or changed at all, Doug?
Douglas Bryant
I can't really comment in too much detail, Steve, on what we are seeing in our clinical data. That would not really be appropriate.
I can just tell you that at least at this stage the product is performing as we had expected. And what we have said previously is that assays that perform at greater than 95% sensitivity are really valuable.
And we think as long as we can hit that particular target that, that would be quite useful for us in terms of, a, securing our presence in the marketplace as it is today. And, b, potentially increasing our share and then, c, at minimum solidifying our price.
Steven Crowley - Craig-Hallum
And just one more. In terms of RSV, I know we are still talking about small numbers there.
But the product seems to be up smartly even before you are able to do some of the combo assay stuff. What's behind that, have you had some success with awareness or in featuring it with some of your other products?
Douglas Bryant
RSV continues to grow, it’s actually just an evolving category. There are more kits being tested for RSV and we are a reasonable participant in that space.
We have spent some time on the physician’s side through our distribution partners, that’s for sure. But we are also seeing an increase in volume at the hospital level too.
So I think the growth in the marketplace may be due more to simply physicians ordering the test.
Operator
Ladies and gentlemen, that is all the time that we have for today. Please proceed with your presentation or any closing remarks Mr.
Bryant.
Douglas Bryant
Well this concludes the call for today. John, Randy and I thank you again for your time this afternoon and for your continued support.
Take care everyone.
Operator
Ladies and gentlemen, we thank for your participation and ask that you please disconnect your lines. Good bye.