10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 0-10961

QUIDEL CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware	94-2573850
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

10165 McKellar Court, San Diego, California 92121

(Address of principal executive offices, including zip code)

(858) 552-1100

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x    No  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of October 24, 2011, 33,249,297 shares of common stock were outstanding.

INDEX

PART I—FINANCIAL INFORMATION		3
ITEM 1.	Financial Statements (unaudited)	3
Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010		3
Consolidated Statements of Operations for the three and nine months ended September  30, 2011 and 2010		4
Consolidated Statements of Cash Flows for the nine months ended September  30, 2011 and 2010		5
Notes to Consolidated Financial Statements		6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	20
ITEM 4.	Controls and Procedures	20
PART II—OTHER INFORMATION		21
ITEM 1.	Legal Proceedings	21
ITEM 1A.	Risk Factors	21
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
ITEM 3.	Defaults Upon Senior Securities	21
ITEM 5.	Other Information	21
ITEM 6.	Exhibits	22
Signatures		23

2

PART I    FINANCIAL INFORMATION

ITEM 1. Financial Statements

QUIDEL CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value; unaudited)

	September 30, 2011		December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	51,045	$	6,788
Accounts receivable, net		17,305		13,477
Inventories		14,851		17,707
Deferred tax asset—current		6,034		7,159
Income tax receivable		77		8,344
Prepaid expenses and other current assets		3,529		2,552
Total current assets		92,841		56,027
Property and equipment, net		31,785		31,755
Goodwill		71,013		71,013
Intangible assets, net		76,210		53,675
Other non-current assets		1,434		2,123
Total assets	$	273,283	$	214,593
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,583	$	4,715
Accrued payroll and related expenses		5,766		3,013
Accrued royalties		16,217		2,262
Current portion of lease obligation		316		280
Other current liabilities		7,034		5,507
Total current liabilities		33,916		15,777
Long term debt		43,337		73,498
Lease obligation, net of current portion		6,033		6,276
Deferred tax liability—non-current		3,715		2,313
Income taxes payable		2,937		2,937
Other non-current liabilities		1,015		1,271
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.001 par value per share; 5,000 shares authorized; none issued or outstanding at September 30, 2011 and December 31, 2010		—		—
Common stock, $.001 par value per share; 50,000 shares authorized; 33,213 and 28,514 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively		33		29
Additional paid-in capital		172,932		109,802
Retained earnings		9,365		2,690
Total stockholders’ equity		182,330		112,521
Total liabilities and stockholders’ equity	$	273,283	$	214,593

See accompanying notes.

3

QUIDEL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data; unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Total revenues	$	33,108		$	28,225		$	120,212		$	81,630
Costs and expenses
Cost of sales (excludes amortization of intangible assets of $1,670, $1,662, $5,009 and $4,134, respectively)		14,996			12,807			47,579			37,678
Amortization of inventory fair value adjustment from acquisition		—			—			—			1,118
Total cost of sales (excludes amortization of intangible assets of $1,670, $1,662, $5,009 and $4,134, respectively)		14,996			12,807			47,579			38,796
Research and development		6,134			6,148			20,398			18,772
Sales and marketing		6,487			5,797			18,996			18,068
General and administrative		4,944			4,759			16,296			13,792
Amortization of intangible assets from acquired businesses and technology		1,791			1,948			5,342			4,715
Business acquisition and integration costs, and restructuring charges		—			115			—			2,181
Total costs and expenses		34,352			31,574			108,611			96,324
Operating (loss) income		(1,244	)		(3,349	)		11,601			(14,694	)
Other (expense) income
Interest income		42			15			151			195
Interest expense		(485	)		(645	)		(1,639	)		(1,655	)
Total other expense		(443	)		(630	)		(1,488	)		(1,460	)
(Loss) income before taxes		(1,687	)		(3,979	)		10,113			(16,154	)
(Benefit) provision for income taxes		(574	)		1,882			3,438			(5,309	)
Net (loss) income	$	(1,113	)	$	(5,861	)	$	6,675		$	(10,845	)
Basic (loss) earnings per share	$	(0.03	)	$	(0.21	)	$	0.20		$	(0.38	)
Diluted (loss) earnings per share	$	(0.03	)	$	(0.21	)	$	0.20		$	(0.38	)
Shares used in basic per share calculation		33,019			28,183			32,833			28,362
Shares used in diluted per share calculation		33,019			28,183			33,189			28,362

See accompanying notes.

4

QUIDEL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands; unaudited)

	Nine months ended September 30,
	2011			2010
OPERATING ACTIVITIES:
Net income (loss)	$	6,675		$	(10,845	)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation, amortization and other		12,063			8,779
Gain on sale of assets		8			2
Stock-based compensation expense		5,153			3,881
Change in deferred tax assets and liabilities		2,527			(947	)
Changes in assets and liabilities:
Accounts receivable		(3,828	)		3,694
Inventories		2,856			864
Income tax receivable		8,267			(1,306	)
Prepaid expenses and other current assets		(977	)		(243	)
Accounts payable		(289	)		(2,454	)
Accrued payroll and related expenses		2,753			(1,689	)
Accrued royalties		(1,858	)		(3,877	)
Accrued income taxes payable		—			(5,393	)
Other current and non-current liabilities		521			(3,856	)
Net cash provided by (used for) operating activities		33,871			(13,390	)
INVESTING ACTIVITIES:
Acquisitions of property and equipment		(4,304	)		(5,305	)
Payment for licensed technology		(13,217	)		(2,000	)
Purchase of business, net of cash acquired of $3,150		—			(128,162	)
Proceeds from sale of marketable securities		—			3,999
Other assets		(100	)		65
Net cash used for investing activities		(17,621	)		(131,403	)
FINANCING ACTIVITIES:
Payments on lease obligation		(207	)		(153	)
Purchases of common stock		(625	)		(9,181	)
Borrowing from line of credit		—			75,000
Payments on line of credit		(30,000	)		(3,000	)
Issuance of common stock, net of cancellations		59,268			1,056
Other		(429	)		(703	)
Net cash provided by financing activities		28,007			63,019
Net increase (decrease) in cash and cash equivalents		44,257			(81,774	)
Cash and cash equivalents, beginning of period		6,788			89,003
Cash and cash equivalents, end of period	$	51,045		$	7,229
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	1,639		$	1,655
Cash paid during the period for income taxes	$	200		$	6,952
NON-CASH INVESTING ACTIVITIES:
Purchase of capital equipment by incurring current liabilities	$	157		$	369
Purchase of licensed technology by incurring current liabilities	$	16,563		$	—

See accompanying notes.

5

Quidel Corporation

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Quidel Corporation and its subsidiaries (the “Company”) have been prepared in accordance with generally accepted accounting principles in the U.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring accruals) have been included. The information at September 30, 2011, and for the three and nine months ended September 30, 2011 and 2010, is unaudited. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information, refer to the Company’s consolidated financial statements and footnotes thereto for the year ended December 31, 2010 included in the Company’s 2010 Annual Report on Form 10-K. Subsequent events have been evaluated up to and including the date these financial statements were issued.

For 2011 and 2010, the Company’s fiscal year will or has ended on January 1, 2012 and January 2, 2011, respectively. For 2011 and 2010, the Company’s third quarter ended on October 2, 2011 and October 3, 2010, respectively. For ease of reference, the calendar quarter end dates are used herein. The three and nine month periods ended September 30, 2011 and 2010 both included 13 and 39 weeks, respectively.

Note 2. Comprehensive Income (Loss)

Net income (loss) is equal to comprehensive income (loss) for the three and nine months ended September 30, 2011 and 2010, respectively.

Note 3. Computation of (Loss) Earnings Per Share

Diluted net income per share is reported based on the more dilutive of the treasury stock or the two-class method. Under the two-class method, net income is allocated to common stock and participating securities. The Company’s unvested restricted stock awards and certain unvested restricted stock units meet the definition of participating securities. Basic net income per share under the two-class method is computed by dividing net income adjusted for earnings allocated to unvested stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share under the two-class method is computed by dividing net income adjusted for earnings allocated to unvested stockholders for the period by the weighted average number of common and common equivalent shares outstanding during the period. The Company excludes stock options from the calculation of diluted net income per share when the combined exercise price, unrecognized stock-based compensation and assumed tax benefits upon exercise are greater than the average market price for the Company’s common stock because their effect is anti-dilutive. Stock options totaling 1.9 million for the nine months ended September 30, 2011 were not included in the computation of diluted earnings per share (“EPS”) as their effect was anti-dilutive. For the three months ended September 30, 2011 and the three and nine months ended September 30, 2010 there were no differences between the number of common shares used for the basic and diluted EPS computations as they were periods in which the Company incurred a net loss.

6

Quidel Corporation

Notes to Consolidated Financial Statements

(Unaudited)

Note 3. Computation of (Loss) Earnings Per Share (Continued)

The following table sets forth the computation of basic and diluted EPS for the nine months ended September 30, 2011 (in thousands, except per share amounts):

Basic net income per share:
Net income	$	6,675
Less: income allocated to participating securities		(61	)
Net income allocated to common stockholders	$	6,614
Weighted average common shares outstanding — basic		32,833
Net income per share — basic	$	0.20
Diluted net income per share:
Net income	$	6,675
Less: income allocated to participating securities		(60	)
Net income allocated to common stockholders	$	6,615
Weighted average common shares outstanding — basic		32,833
Dilutive securities		356
Weighted average common shares outstanding — diluted		33,189
Net income per share — diluted	$	0.20

Note 4. Inventories

Inventories are recorded at the lower of cost (first-in, first-out) or market and consist of the following (in thousands):

	September 30, 2011		December 31, 2010
Raw materials	$	5,547	$	7,262
Work-in-process (materials, labor and overhead)		4,081		5,375
Finished goods (materials, labor and overhead)		5,223		5,070
	$	14,851	$	17,707

Note 5. Other Current Liabilities

Other current liabilities consist of the following (in thousands):

	September 30, 2011		December 31, 2010
Accrued liability for technology licenses	$	2,450	$	2,300
Customer incentives		2,112		1,740
Current portion of note payable to state agency		214		211
Other		2,258		1,256
	$	7,034	$	5,507

7

Quidel Corporation

Notes to Consolidated Financial Statements

(Unaudited)

Note 6. Income Taxes

The Company’s effective tax rate for the nine months ended September 30, 2011 and 2010 was 34.0% and 32.9%, respectively. The Company recognized tax expense of $3.4 million and a tax benefit of $5.3 million for the nine months ended September 30, 2011 and 2010, respectively. For the nine months ended September 30, 2010, the income tax benefit includes a charge related to the re-valuation of the Company’s deferred tax assets due to a change in the statutory state tax rate. The difference between the September 30, 2011 and September 30, 2010 effective tax rate is primarily due to the exclusion of the federal research and development tax credit and certain acquisition related non-deductible transaction costs during the first nine months of 2010.

The Company is subject to periodic audits by domestic and foreign tax authorities. The Company’s federal tax years for 1995 and forward are subject to examination by the U.S. authorities due to the carry forward of unutilized net operating losses and research and development credits. With few exceptions, the Company’s tax years for 1999 and forward are subject to examination by state and foreign tax authorities. The Company believes that it has appropriate support for the income tax positions taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on its assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter.

Note 7. Line of Credit

The Company currently has a $120.0 million senior secured syndicated credit facility (the “Senior Credit Facility”), which matures on October 8, 2013. The Senior Credit Facility bears interest for base rate loans at a rate equal to (i) the higher of (a) the lender’s prime rate and (b) the Federal funds rate plus one-half of one percent, plus (ii) the applicable rate, or for Eurodollar rate loans the interest rate is equal to (i) the Eurodollar rate, plus (ii) the applicable rate. The applicable rate is generally determined in accordance with a performance pricing grid based on the Company’s leverage ratio and ranges from 0.50% to 1.75% for base rate loans and from 1.50% to 2.75% for Eurodollar rate loans. The agreement governing the Senior Credit Facility is subject to certain customary limitations, including among others: limitation on liens; limitation on mergers, consolidations and sales of assets; limitation on debt; limitation on dividends, stock redemptions and the redemption and/or prepayment of other debt; limitation on investments (including loans and advances) and acquisitions; limitation on transactions with affiliates; and limitation on annual capital expenditures. The Company is also subject to financial covenants that include a funded debt to adjusted EBITDA ratio (as defined in the Senior Credit Facility, with adjusted EBITDA generally calculated as earnings before, among other adjustments, interest, taxes, depreciation and amortization) not to exceed 3 to 1 as of the end of each fiscal quarter, and an interest coverage ratio of not less than 3.5 to 1 as of the end of each fiscal quarter. The Senior Credit Facility is secured by substantially all present and future assets and properties of the Company. As of September 30, 2011, the Company had $52.7 million available under the Senior Credit Facility. The Company’s ability to borrow under the Senior Credit Facility fluctuates from time to time due to, among other factors, the Company’s borrowings under the facility and its funded debt to adjusted EBITDA ratio. At September 30, 2011, the Company had $42.0 million outstanding under the Senior Credit Facility which was borrowed in connection with the acquisition of Diagnostics Hybrids, Inc. (“DHI”). At September 30, 2011, the Company was in compliance with all covenants.

During the third quarter of 2011, the Senior Credit Facility was amended for various matters, including amending the credit and security agreement to (i) permit investments in new foreign subsidiaries and (ii) allow certain indebtedness and liens related to the investments in new foreign subsidiaries.

8

Quidel Corporation

Notes to Consolidated Financial Statements

(Unaudited)

Note 8. Stockholders’ Equity

In January 2011, the Company completed a public offering of 4.6 million shares of its common stock at $13.15 per share. The Company received proceeds, net of underwriting discounts and commissions, of $57.9 million ($12.43 per share) and incurred approximately $0.7 million in related offering expenses. The Company has and expects to continue to use the net proceeds of this offering for working capital and other general corporate purposes, which may potentially include the acquisition or development of new technology, the acquisition of diagnostic or related companies, products or businesses or the repayment of existing indebtedness.

During the nine months ended September 30, 2011, 207,532 shares of restricted stock were awarded, 12,842 shares of restricted stock were cancelled, 66,575 shares of common stock were issued due to the exercise of stock options and 48,529 shares of common stock were issued in connection with the Company’s employee stock purchase plan (the “ESPP”), resulting in net proceeds to the Company of approximately $1.0 million. Additionally, during the nine months ended September 30, 2011, 42,423 shares of outstanding common stock were repurchased for approximately $0.6 million, which represent shares repurchased in connection with payment of minimum tax withholding obligations for certain employees relating to the lapse of restrictions on certain restricted stock awards during the nine months ended September 30, 2011.

Note 9. Stock-Based Compensation

The compensation expense related to the Company’s stock-based compensation plans included in the accompanying Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010 was as follows (in millions):

	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Cost of sales	$	0.1	$	0.1	$	0.4	$	0.5
Research and development		0.3		0.2		0.7		0.4
Sales and marketing		0.2		0.1		0.3		0.3
General and administrative		0.9		0.9		3.8		2.7
	$	1.5	$	1.3	$	5.2	$	3.9

Total compensation expense recognized for the three months ended September 30, 2011 and 2010 includes $1.0 million and $1.0 million related to stock options and $0.5 million and $0.3 million related to restricted stock, respectively. Total compensation expense recognized for the nine months ended September 30, 2011 and 2010 includes $3.6 million and $3.0 million related to stock options and $1.6 million and $0.9 million related to restricted stock, respectively. As of September 30, 2011, total unrecognized compensation expense related to non-vested stock options was $4.8 million, which is expected to be recognized over a weighted-average period of approximately 2.2 years. As of September 30, 2011, total unrecognized compensation expense related to non-vested restricted stock was $2.4 million, which is expected to be recognized over a weighted-average period of approximately 2.0 years. Compensation expense capitalized to inventory and compensation expense related to the Company’s ESPP were not material for the three and nine months ended September 30, 2011 and 2010.

9

Quidel Corporation

Notes to Consolidated Financial Statements

(Unaudited)

Note 9. Stock-Based Compensation (Continued)

The estimated fair value of each stock option award was determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions for the option grants.

	Nine months ended September 30,
	2011			2010
Expected option life (in years)		5.22			4.89
Volatility rate		0.47			0.52
Risk-free interest rate		2.05	%		2.40	%
Forfeiture rate		14.0	%		15.5	%
Dividend rate		0	%		0	%

The weighted-average grant date fair value of stock options granted during the nine months ended September 30, 2011 and 2010 was $5.73 and $6.86, respectively. The grant date fair value of restricted stock is determined based on the closing market price of the Company’s common stock on the grant date.

Note 10. Industry and Geographic Information

The Company operates in one reportable segment. Sales to customers outside the U.S. represented $13.8 million (11%) and $13.9 million (17%) of total revenue for the nine months ended September 30, 2011 and 2010, respectively. As of September 30, 2011 and December 31, 2010, balances due from foreign customers were $2.7 million and $1.5 million, respectively.

The Company had sales to individual customers in excess of 10% of total revenue, as follows:

	Nine months ended September 30,
	2011			2010
Customer:
A		15	%		11	%
B		12	%		6	%
		27	%		17	%

As of September 30, 2011, accounts receivable from customers with balances due in excess of 10% of total accounts receivable totaled $7.3 million while, at December 31, 2010, accounts receivable from customers with balances due in excess of 10% of total accounts receivable totaled $3.2 million.

10

Quidel Corporation

Notes to Consolidated Financial Statements

(Unaudited)

Note 11. Licensed Technology

On September 27, 2011, the Company entered into the Second Amendment (the “Amendment”) to Quidel/Inverness Settlement Agreement dated April 27, 2005 (the “Agreement”), as amended by an Addendum dated June 19, 2006, with Alere Inc. (formerly known as Inverness Medical Innovations, Inc.) (“Alere”).

The Amendment, which is effective as of April 1, 2011, amends certain royalty and other provisions in the Agreement and enables the Company to “buy-down” and “buy-out” its future royalty obligation under the Agreement for payments totaling $29.5 million. Under the Amendment, the Company made an initial cash payment of $13.8 million to Alere in September 2011 in connection with a buy-down of the Company’s royalty obligations for the period beginning July 1, 2011. In addition, the Company expects to exercise its buy-out right for any remaining future royalty obligation by exercising the Royalty Termination Option (as defined in the Amendment) in January 2012, thereby terminating the Company’s obligation to pay future royalties under the Agreement in exchange for a fixed cash payment in the amount of $15.7 million less the sum of specified third and fourth quarter 2011 royalties, resulting in the Company receiving a fully paid up license effective January 1, 2012. In association with the Amendment, the Company has recorded $26.9 million as intangible assets, net and $15.7 million as accrued royalties as of September 30, 2011.

In conjunction with Financial Accountings Standards Board Accounting Standard Update No. 2009-05, Fair Value Measurements and Disclosures (Topic 820), the Company assigned $28.8 million to the licensed technology and $0.7 million as a one-time charge to cost of sales. In determining the fair value allocation between the intangible asset licensed technology and the one-time charge to cost of sales, the Company assessed the past and estimated future revenue streams related to present and future products that use the patents that are subject to the Amendment. The effective life and related amortization of the licensed technology will be based on the higher of the percentage of usage or the straight-line method. This percentage of usage will be determined using the revenues generated from products covered by the patents that are subject to the Amendment. The terms of the Amendment provide for an estimated useful life of 3.5 years for this asset. The Company recorded $1.9 million of amortization expense in the three months ended September 30, 2011 included as a portion of cost of sales. As of September 30, 2011, the estimated future amortization expense associated with this intangible asset is $8.0 million, $8.0 million, $8.0 million, and $0.8 million for the years ending 2012, 2013, 2014, and 2015, respectively.

Note 12. Lease Obligation

During 1999, the Company completed a sale and leaseback transaction of its approximately 78,000 square-foot executive, administrative, manufacturing and research and development facility in San Diego. The facility was sold for $15.0 million, of which $3.8 million was capital contributed by the Company. The sale was an all cash transaction, netting the Company approximately $7.0 million. The Company is a 25% limited partner in the partnership that acquired the facility. The transaction was deemed a financing transaction under the guidance in ASC Topic 840-40, Accounting for Sales of Real Estate. The assets sold remain on the books of the Company and will continue to be depreciated over the estimated useful life. The Company’s lease was initially for 15 years, with options to extend the lease for up to two additional five-year periods.

In December 2009, the Company amended the terms of its lease agreement which had no significant impact on the Company’s financial statements. The amended terms include a new ten-year lease term through December 2019, with options to extend the lease for up to three additional five-year periods. The Company will amortize the lease obligation over this new term. The amount of the monthly rental payments remain the same under the amendment. In addition, the Company has the option to purchase the general partner’s interest in the partnership in January 2015 for a fixed price. The Company has determined that the partnership is a variable interest entity (VIE). The Company is not, however, the primary beneficiary of the VIE as it does not absorb the majority of the partnership’s expected losses or receive a majority of the partnership’s residual returns. The Company made lease payments to the partnership in connection with the San Diego facility of approximately $0.8 million for each of the nine months ended September 30, 2011 and 2010.

11

Quidel Corporation

Notes to Consolidated Financial Statements

(Unaudited)

Note 13. Fair Value Measurement

ASC Topic 820, Fair Value Measurements and Disclosures requires the valuation of assets and liabilities subject to fair value measurements using a three tiered approach and fair value measurement be classified and disclosed by the Company in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

The Company believes that the carrying amount of its line of credit approximates fair value because it has a variable interest rate that reflects market changes to interest rates and changes in the Company’s leverage ratio. The fair value of the Company’s cash equivalents is determined based on Level 1 inputs. The Company uses Level 2 inputs to determine the fair value of its line of credit.

12

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In this quarterly report, all references to “we,” “our” and “us” refer to Quidel Corporation and its subsidiaries.

Future Uncertainties and Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws that involve material risks, assumptions and uncertainties. Many possible events or factors could affect our future financial results and performance, such that our actual results and performance may differ materially from those that may be described or implied in the forward-looking statements. As such no forward-looking statement can be guaranteed. Differences in actual results and performance may arise as a result of a number of factors including, without limitation, seasonality, the timing of onset, length and severity of cold and flu seasons, the level of success in executing on our strategic initiatives, our reliance on sales of our influenza diagnostic tests, uncertainty surrounding the detection of novel influenza viruses involving human specimens, our ability to develop new products and technology, adverse changes in the competitive and economic conditions in domestic and international markets, our reliance on and actions of our major distributors, technological changes and uncertainty with research and technology development, including any future molecular-based technology, the medical reimbursement system currently in place and future changes to that system, manufacturing and production delays or difficulties, adverse regulatory actions or delays in product reviews by the U.S. Food and Drug Administration (the “FDA”), compliance with FDA and environmental regulations, our ability to meet unexpected increases in demand for our products, our ability to execute our growth strategy, including the integration of new companies or technologies, disruptions in the global capital and credit markets, our ability to hire key personnel, intellectual property, product liability, environmental or other litigation, potential required patent license fee payments not currently reflected in our costs, potential inadequacy of booked reserves and possible impairment of goodwill, and lower than anticipated acceptance, sales or market penetration of our new products. Forward-looking statements typically are identified by the use of terms such as “may,” “will,” “should,” “might,” “expect,” “anticipate,” “estimate,” and similar words, although some forward-looking statements are expressed differently. Forward-looking statements in this Quarterly Report include, among others, statements concerning: our outlook for the upcoming fiscal year, including projections about our revenue, gross margins, expenses, and the effect the DHI acquisition will have on the seasonality of our business; projected capital expenditures for the upcoming fiscal year and our source of funds for such expenditures; the sufficiency of our liquidity and capital resources; the future impact of deferred tax assets or liabilities; our plans to use the funds from our 2011 stock offering for working capital; our intentions to exercise the buy-out right under the Alere Amendment; the expected vesting periods of unrecognized compensation expense; and our intention to maintain our emphasis on research and development and continue to evaluate technology and Company acquisition opportunities and the source of funds for such investments. The risks described under “Risk Factors” in Item 1A of this Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2010, and elsewhere herein and in reports and registration statements that we file with the Securities and Exchange Commission (the “SEC”) from time to time, should be carefully considered. You are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Quarterly Report. The following should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto beginning on page 3 of this Quarterly Report. We undertake no obligation to publicly release the results of any revision or update of these forward-looking statements, except as required by law.

Overview

We have a leadership position in the development, manufacturing and marketing of rapid diagnostic testing solutions. These diagnostic testing solutions primarily include applications in infectious diseases, women’s health and gastrointestinal diseases. We sell our products directly to end users and distributors, in each case, for professional use in physician offices, hospitals, clinical laboratories, reference laboratories, leading universities, retail clinics and wellness screening centers. We market our products in the U.S. through a network of national and regional distributors, and a direct sales force. Internationally, we sell and market primarily in Japan and Europe through distributor arrangements.

In January 2011, we completed a public offering of 4.6 million shares of our common stock at $13.15 per share. We received proceeds, net of underwriting discounts and commissions, of $57.9 million ($12.43 per share) and incurred approximately $0.7 million in related offering expenses. We have and expect to continue to use the net proceeds of this offering for working capital and other general corporate purposes, which may potentially include the acquisition or development of new technology, the acquisition of diagnostic or related companies, products or businesses or the repayment of existing indebtedness.

13

Recent Developments

On September 27, 2011, we entered into the Second Amendment (the “Amendment”) to Quidel/Inverness Settlement Agreement dated April 27, 2005 (the “Agreement”), as amended by an Addendum dated June 19, 2006, with Alere Inc. (formerly known as Inverness Medical Innovations, Inc.) (“Alere”).

The Amendment, which is effective as of April 1, 2011, amends certain royalty and other provisions in the Agreement and enables us to “buy-down” and “buy-out” its future royalty obligation under the Agreement for payments totaling $29.5 million. In September 2011, we made an initial cash payment of $13.8 million to Alere in connection with a buy-down of our royalty obligations for the period beginning July 1, 2011. In addition, we expect to exercise our buy-out right for any remaining future royalty obligation by exercising the Royalty Termination Option (as defined in the Amendment) in January 2012, thereby terminating our obligation to pay future royalties under the Agreement in exchange for a fixed cash payment in the amount of $15.7 million less the sum of specified third and fourth quarter 2011 royalties, resulting in us receiving a fully paid up license effective January 1, 2012.

Outlook

We had a more normalized cold and flu season for the first quarter of 2011, resulting in significant sales of our influenza, strep and respiratory products as compared to a lack of an influenza season in the first quarter of 2010. We expect gross margins will trend higher year over year as a result of a more favorable product mix shift that includes higher influenza sales in fiscal year 2011 compared to fiscal year 2010, which was adversely impacted by the lack of an influenza season in the first quarter of 2010. We will continue our focus on prudently managing our business and delivering solid financial results, while at the same time continuing to introduce new products to the market and maintaining our emphasis on research and development investments for longer term growth. Finally, we will continue to evaluate opportunities to acquire new product lines and technologies, as well as company acquisitions.

Results of Operations

Three months ended September 30, 2011 compared to the three months ended September 30, 2010

Total Revenues

The following table compares total revenues for the three months ended September 30, 2011 and 2010 (in thousands, except percentages):

	For the three months ended September 30,				Increase (Decrease)
	2011		2010		$			%
Infectious disease net product sales	$	21,996	$	16,188	$	5,808			36	%
Women’s health net product sales		8,145		8,717		(572	)		(7	)%
Gastrointestinal disease net product sales		1,719		1,661		58			3	%
Other net product sales		689		946		(257	)		(27	)%
Royalty, license fees and grant revenue		559		713		(154	)		(22	)%
Total revenues	$	33,108	$	28,225	$	4,883			17	%

The increase in total revenues was primarily due to increased unit sales of our influenza products.

The revenue from our royalty, license fees and grant revenue category for all periods primarily relates to royalty payments earned on our patented technologies utilized by third parties.

14

Cost of Sales

Cost of sales was $15.0 million, or 45% of total revenues for the three months ended September 30, 2011, compared to $12.8 million, or 45% of total revenues for the three months ended September 30, 2010. The absolute dollar increase in cost of sales is primarily related to the variable nature of direct costs (material and labor) associated with the 17% increase in total revenues, the $0.7 million allocated to the Alere Amendment as discussed in Note 11, and $0.6 million additional inventory reserve associated with new product development.

Operating Expenses

The following table compares operating expenses for the three months ended September 30, 2011 and 2010 (in thousands, except percentages):

	For the three  months ended September 30,
	2011					2010					Increase (Decrease)
	Operating expenses		As a %  of total revenues			Operating expenses		As a % of total revenues			$			%
Research and development	$	6,134		19	%	$	6,148		22	%	$	(14	)		0	%
Sales and marketing		6,487		20	%		5,797		21	%		690			12	%
General and administrative		4,944		15	%		4,759		17	%		185			4	%
Amortization of intangible assets from acquired businesses and technology		1,791		5	%		1,948		7	%		(157	)		8	%
Business acquisition and integration costs, and restructuring charges		—		—			115		0	%		(115	)		(100	)%

Sales and Marketing Expense

Sales and marketing expense increased due to an increase in sales commissions associated with higher sales volume in the third quarter of 2011 compared to the third quarter of 2010. Other key components of this expense relate to continued investment in assessing future product extensions and enhancements and market research.

General and Administrative Expense

The increase in general and administrative expenses is primarily due to increased legal and consulting expenditures associated with an increase in international business development activities.

Amortization of Intangible Assets from Acquired Businesses and Technology

Amortization of intangible assets from acquired businesses consists of customer relationships, purchased technology and patents and trademarks acquired in connection with our acquisition of DHI. Amortization of intangible assets from acquired technology consists primarily of expense associated with purchased technology.

Business Acquisition and Integration Costs, and Restructuring Charges

We incurred $0.1 million in expenses in the third quarter of 2010 primarily related to professional fees for the DHI acquisition and integration activities.

Other Income (Expense)

The increase in interest income is related to the increase in our average cash balance during the three months ended September 30, 2011 as compared to the three months ended September 30, 2010, partially offset by a decrease in the average interest rate. Interest expense primarily relates to interest paid on borrowings under the Senior Credit Facility and interest paid on our lease obligation associated with our San Diego facility.

15

Income Taxes

As of the three months ended September 30, 2011 and September 30, 2010, our expected annual effective tax rate was 34.0% and 32.9%, respectively. We recognized a tax (benefit) expense of $(0.6) million and $1.9 million for the three months ended September 30, 2011 and 2010, respectively. During the three months ended September 30, 2010, we decreased our expected annual effective tax rate. Therefore, we reversed a portion of the tax benefit previously recorded for the six months ended June 30, 2010. The adjustment resulted in recognizing tax expense on a pre-tax loss, as opposed to a tax benefit, for the three months ended September 30, 2010.

Nine months ended September 30, 2011 compared to the nine months ended September 30, 2010

Total Revenues

The following table compares total revenues for the nine months ended September 30, 2011 and 2010 (in thousands, except percentages):

	For the nine months ended September 30,				Increase (Decrease)
	2011		2010		$			%
Infectious disease net product sales	$	84,894	$	47,478	$	37,416			79	%
Women’s health net product sales		24,556		24,714		(158	)		(1	)%
Gastrointestinal disease net product sales		5,254		4,283		971			23	%
Other net product sales		3,708		3,400		308			9	%
Royalty, license fees and grant revenue		1,800		1,755		45			3	%
Total revenues	$	120,212	$	81,630	$	38,582			47	%

The increase in total revenues was primarily due to a more normalized cold and flu season in 2011 and the related increase in unit sales of our influenza and Group A strep products, as compared to the lack of an influenza season in 2010. Also, the first quarter 2011 includes a full quarter of revenues from the DHI acquisition compared to the first quarter of 2010 that does not include $5.7 million of DHI pre-acquisition revenues.

The revenue from our royalty, license fees and grant revenue category for all periods primarily relate to royalty payments earned on our patented technologies utilized by third parties.

Cost of Sales

Cost of sales increased 23% to $47.6 million, or 40% of total revenues for the nine months ended September 30, 2011, compared to $38.8 million, or 48% of total revenues for the nine months ended September 30, 2010. The absolute dollar increase in cost of sales is primarily related to the variable nature of direct costs (material and labor) associated with the 47% increase in total revenues, the $0.7 million allocated to the Alere Amendment as discussed in Note 11, and $0.6 million additional inventory reserve associated with new product development. Partially offsetting this increase are acquisition related synergies including certain decreased material costs and freight rates associated with leveraging our combined volume, and reduced overhead costs and scrap at DHI. The decrease in cost of sales as a percentage of total revenue was primarily due to a more favorable product mix, as well as the improved cost structure noted above as well as the amortization of an inventory fair value adjustment for the nine months ended September 30, 2010 associated with our acquisition of DHI.

16

Operating Expenses

The following table compares operating expenses for the nine months ended September 30, 2011 and 2010 (in thousands, except percentages):

	For the nine  months ended September 30,
	2011					2010					Increase (Decrease)
	Operating expenses		As a %  of total revenues			Operating expenses		As a % of total revenues			$			%
Research and development	$	20,398		17	%	$	18,772		23	%	$	1,626			9	%
Sales and marketing		18,996		16	%		18,068		22	%		928			5	%
General and administrative		16,296		14	%		13,792		17	%		2,504			18	%
Amortization of intangible assets from acquired businesses and technology		5,342		4	%		4,715		6	%		627			13	%
Business acquisition and integration costs, and restructuring charges		—		—			2,181		3	%		(2,181	)		(100	)%

Research and Development Expense

Research and development expense for the nine months ended September 30, 2011 includes a full nine months of expense from the DHI acquisition compared to the first quarter of 2010 that does not include $1.5 million of DHI pre-acquisition expenses. In addition, there was an increase in costs for clinical studies and costs associated with the development of potential new technologies and with products under development.

Sales and Marketing Expense

Sales and marketing expense for the nine months ended September 30, 2011 includes a full nine months of expense from the DHI acquisition compared to the first quarter of 2010 that does not include $0.5 million of DHI pre-acquisition expenses. Additionally, sales and marketing expense increased due to an increase in sales commissions associated with higher sales volume in 2011 compared to 2010. Other key components of this expense relate to continued investment in assessing future product extensions and enhancements and market research.

General and Administrative Expense

General and administrative expense for nine months ended September 30, 2011 includes a full nine months of expense from the DHI acquisition compared to the first quarter of 2010 that does not include $0.7 million of DHI pre-acquisition expenses. There was also an increase in employee incentive compensation in 2011.

Amortization of Intangible Assets from Acquired Businesses and Technology

Amortization of intangible assets from acquired businesses consists of customer relationships, purchased technology and patents and trademarks acquired in connection with the acquisition of DHI. Amortization of intangible assets from acquired technology consists primarily of expense associated with purchased technology.

Business Acquisition and Integration Costs, and Restructuring Charges

We incurred $2.2 million in expenses for the nine months ended September 30, 2010 primarily related to professional fees for the DHI acquisition and integration activities.

Other Income (Expense)

The decrease in interest income is primarily related to the decrease in the average interest rate during the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010. Interest expense primarily relates to interest paid on borrowings under the Senior Credit Facility and interest paid on our lease obligation associated with our San Diego facility.

17

Income Taxes

The effective tax rate for the nine months ended September 30, 2011 and 2010 was 34.0% and 32.9%, respectively. The Company recognized tax expense of $3.4 million and a tax benefit of $5.3 million for the nine months ended September 30, 2011 and 2010, respectively. For the nine months ended September 30, 2010, the income tax benefit includes a charge related to the re-valuation of our deferred tax assets due to a change in the statutory state tax rate. In addition, the difference between the September 30, 2011 and September 30, 2010 effective tax rate is due to the exclusion of the federal research and development tax credit and certain acquisition related non-deductible transaction costs during the 2010 period.

Liquidity and Capital Resources

As of September 30, 2011, our principal sources of liquidity consisted of $51.0 million in cash and cash equivalents, as well as $52.7 million available to us under our Senior Credit Facility. Our working capital as of September 30, 2011 was $58.9 million.

Cash provided by operating activities was $33.9 million during the nine months ended September 30, 2011. We had net earnings of $6.7 million, including non-cash charges of $17.2 million of depreciation and amortization of intangible assets and property and equipment, and stock-based compensation. The most significant changes in operating assets and liabilities included an increase in accounts receivable of $3.8 million and decreases in inventories and income tax receivable of $2.9 million and $8.3 million, respectively. The increase in accounts receivable and the decrease in inventory are related to the seasonal nature of our business, while the decrease in income tax receivable is due to a tax refund received during the nine months ended September 30, 2011.

Our investing activities used $17.6 million during the nine months ended September 30, 2011 primarily related to the acquisition of licensed technology associated with the Alere Amendment as discussed in Note 11. In addition, the Company acquired production and scientific equipment, and building improvements during the nine months ended September 30, 2011.

We are planning approximately $2.7 million in capital expenditures for the remainder of 2011. The primary purpose for our capital expenditures is to acquire manufacturing and scientific equipment, implement facility improvements, and for the purchase or development of information technology. We plan to fund these capital expenditures with cash flow from operations and other available sources of liquidity. We have $0.2 million in firm purchase commitments with respect to such planned capital expenditures as of the date of filing this report.

Our financing activities generated $28.0 million of cash during the nine months ended September 30, 2011. This was primarily related to proceeds from the sale of our common stock, partly offset by repayments made under the Senior Credit Facility, both of which occurred during the first quarter of 2011.

Our $120.0 million Senior Credit Facility matures on October 8, 2013. The Senior Credit Facility bears interest for base rate loans at a rate equal to (i) the higher of (a) the lender’s prime rate and (b) the Federal funds rate plus one-half of one percent, plus (ii) the applicable rate, or for Eurodollar rate loans the interest rate is equal to (i) the Eurodollar rate, plus (ii) the applicable rate. The applicable rate is generally determined in accordance with a performance pricing grid based on our leverage ratio and ranges from 0.50% to 1.75% for base rate loans and from 1.50% to 2.75% for Eurodollar rate loans. The agreement governing the Senior Credit Facility is subject to certain customary limitations, including among others: limitation on liens; limitation on mergers, consolidations and sales of assets; limitation on debt; limitation on dividends, stock redemptions and the redemption and/or prepayment of other debt; limitation on investments (including loans and advances) and acquisitions; limitation on transactions with affiliates; and limitation on annual capital expenditures. The terms of the Senior Credit Facility require us to comply with certain financial covenants that include a funded debt to adjusted EBITDA ratio (as defined in the Senior Credit Facility, with adjusted EBITDA generally calculated as earnings before, among other adjustments, interest, taxes, depreciation and amortization) not to exceed 3 to 1 as of the end of each fiscal quarter, and an interest coverage ratio of not less than 3.5 to 1 as of the end of each fiscal quarter. The Senior Credit Facility is secured by substantially all present and future assets and properties of the Company. As of September 30, 2011, we had $52.7 million available under the Senior Credit Facility. Our ability to borrow under the Senior Credit Facility fluctuates from time to time due to, among other factors, our borrowings under the facility and our funded debt to adjusted EBITDA ratio. At September 30, 2011, we had $42.0 million outstanding under the Senior Credit Facility which was borrowed in connection with the acquisition of DHI. At September 30, 2011, we were in compliance with all covenants.

18

During the third quarter of 2011, the Senior Credit Facility was amended for various matters, including amending the credit and security agreement to (i) permit investments in new foreign subsidiaries and (ii) allow certain indebtedness and liens related to the investments in new foreign subsidiaries.

Our cash requirements fluctuate as a result of numerous factors, such as the extent to which we generate cash from operations, progress in research and development projects, competition and technological developments and the time and expenditures required to obtain governmental approval of our products. In addition, we intend to continue to evaluate candidates for acquisitions or technology licensing. If we determine to proceed with any such transactions, we may need to incur additional debt, or issue additional equity, to successfully complete the transactions. Based on our current cash position and our current assessment of future operating results, we believe that our existing sources of liquidity will be adequate to meet our operating needs during the next 12 months.

Off-Balance Sheet Arrangements

At September 30, 2011, we did not have any relationships or other arrangements with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

New Accounting Standards

In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2011-08, Intangibles—Goodwill and Other (Topic 350)—Testing Goodwill for Impairment (“ASU 2011-08”), to allow entities to use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. ASU 2011-08 is effective for us beginning in fiscal year 2013, however, earlier adoption is permitted. We are currently evaluating the impact of our pending adoption of ASU 2011-08 on our consolidated financial statements.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to customer programs and incentives, bad debts, inventories, intangible assets, income taxes, stock-based compensation, restructuring and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

A comprehensive discussion of our critical accounting policies and management estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2010. Determining the fair values and useful lives of the intangible assets acquired in connection with the Alere Amendment described in Note 11 requires the exercise of judgment. While there are a number of different generally accepted valuation methods to estimate the value of intangible assets, we used the discounted cash flow method in determining the value of licensed technology associated with the Alere Amendment. This method required significant management judgment to forecast the future operating results used in the analysis. In addition, other significant estimates were required such as residual growth rates and discount factors. The estimates we used to value and amortize intangible assets were consistent with the plans and estimates that we use to manage our business and were based on available historical information and industry estimates and averages. These judgments can significantly affect our net operating results.

19

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The fair market value of our floating interest rate debt is subject to interest rate risk. Generally, the fair market value of floating interest rate debt will vary as interest rates increase or decrease. We had $42.0 million outstanding under our Senior Credit Facility at September 30, 2011. The weighted average interest rate on these borrowings is currently 2.5%. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would increase our annual interest expense by approximately $0.4 million. Based on our market risk sensitive instruments outstanding at September 30, 2011, we have determined that there was no material market risk exposure from such instruments to our consolidated financial position, results of operations or cash flows as of such date.

Our current investment policy with respect to our cash and cash equivalents focuses on maintaining acceptable levels of interest rate risk and liquidity. Although we continually evaluate our placement of investments, as of September 30, 2011, our cash and cash equivalents were placed in money market or overnight funds that we believe are highly liquid and not subject to material market fluctuation risk.

Foreign Currency Exchange Risk

The majority of our international sales are negotiated for and paid in U.S. dollars. Nonetheless, these sales are subject to currency risks, since changes in the values of foreign currencies relative to the value of the U.S. dollar can render our products comparatively more expensive. These exchange rate fluctuations could negatively impact international sales of our products, as could changes in the general economic conditions in those markets. Continued change in the values of the Euro, the Japanese Yen and other foreign currencies could have a negative impact on our business, financial condition and results of operations. We do not currently hedge against exchange rate fluctuations, which means that we are fully exposed to exchange rate changes.

ITEM 4. Controls and Procedures

Evaluation of disclosure controls and procedures: We have performed an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2011 to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in internal control over financial reporting: There was no change in our internal control over financial reporting during the quarter ended September 30, 2011 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

20

PART II OTHER INFORMATION

ITEM 1. Legal Proceedings

None.

ITEM 1A. Risk Factors

There has been no material change in our risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. For a detailed description of our risk factors, refer to Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2010.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

The table below sets forth information regarding repurchases of our common stock by us during the three months ended September 30, 2011:

Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Approximate dollar value of shares that may yet  be purchased under the plans or programs (1)
July		—	$	—		—	$	10,300,000
August		—		—		—		10,300,000
September		—		—		—		10,300,000
Total		—	$	—		—	$	10,300,000

(1) In June 2005, we announced that our Board of Directors authorized us to repurchase up to $25.0 million in shares of our common stock under our stock repurchase program. In March 2007, we announced that our Board of Directors authorized us to repurchase up to an additional $25.0 million in shares of our common stock under our stock repurchase program. In December 2008, we announced that our Board of Directors authorized us to repurchase up to an additional $25.0 million in shares of our common stock under our stock repurchase program. In December 2009, we announced that our Board of Directors authorized us to repurchase up to an additional $25.0 million in shares of our common stock under our stock repurchase program. Any shares of common stock repurchased under this program will no longer be deemed outstanding upon repurchase and will be returned to the pool of authorized shares. This repurchase program will expire on December 2, 2011 unless extended by our Board of Directors.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 5. Other Information

None.

21

ITEM 6. Exhibits

Exhibit Number
3.1	Restated Certificate of Incorporation of Quidel Corporation. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed on October 29, 2010.)
3.2	Amended and Restated Bylaws of Quidel Corporation. (Incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on November 8, 2000.)
4.1	Certificate of Designations of Series C Junior Participating Preferred Stock. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q filed on October 29, 2010.)
4.2	Amended and Restated Rights Agreement dated as of December 29, 2006 between Registrant and American Stock Transfer and Trust Company, as Rights Agent. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on January 5, 2007.)
10.1*	Third Amendment to Credit Agreement, dated as of September 21, 2011, by and among Quidel Corporation, the financial institutions listed on the signature pages thereof and Bank of America, N.A.
10.2	Second Amendment to Quidel/Inverness Settlement Agreement dated September 27, 2011. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 28, 2011.)
10.3(1)	Randall Steward Employment Offer Letter, dated as of September 12, 2011. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 18, 2011.)
10.4(1)	Agreement Re: Change in Control, dated as of September 19, 2011, between Quidel Corporation and Randall Steward. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on October 18, 2011.)
10.5(1)	Transition Agreement, dated as of October 18, 2011, between Quidel Corporation and John Radak. (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on October 18, 2011.)
31.1*	Certification by Principal Executive Officer of Registrant pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification by Principal Financial and Accounting Officer of Registrant pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certifications by Principal Executive Officer and Principal Financial and Accounting Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101**	XBRL Instance Document
101**	XBRL Taxonomy Extension Schema Document
101**	XBRL Taxonomy Calculation Linkbase Document
101**	XBRL Taxonomy Label Linkbase Document
101**	XBRL Taxonomy Presentation Linkbase Document

* Filed herewith.

** Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.

(1) Indicates a management plan or compensatory plan or arrangement.

22

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: October 26, 2011	QUIDEL CORPORATION
	/s/ DOUGLAS C. BRYANT
	Douglas C. Bryant
	President and Chief Executive Officer (Principal Executive Officer)
	/s/ JOHN M. RADAK
	John M. Radak
	Chief Financial Officer (Principal Financial Officer and Accounting Officer)

23

Exhibit Index

Exhibit Number
3.1	Restated Certificate of Incorporation of Quidel Corporation. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed on October 29, 2010.)
3.2	Amended and Restated Bylaws of Quidel Corporation. (Incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on November 8, 2000.)
4.1	Certificate of Designations of Series C Junior Participating Preferred Stock. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q filed on October 29, 2010.)
4.2	Amended and Restated Rights Agreement dated as of December 29, 2006 between Registrant and American Stock Transfer and Trust Company, as Rights Agent. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on January 5, 2007.)
10.1*	Third Amendment to Credit Agreement, dated as of September 21, 2011, by and among Quidel Corporation, the financial institutions listed on the signature pages thereof and Bank of America, N.A.
10.2	Second Amendment to Quidel/Inverness Settlement Agreement dated September 27, 2011. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 28, 2011.)
10.3(1)	Randall Steward Employment Offer Letter, dated as of September 12, 2011. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 18, 2011.)
10.4(1)	Agreement Re: Change in Control, dated as of September 19, 2011, between Quidel Corporation and Randall Steward. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on October 18, 2011.)
10.5(1)	Transition Agreement, dated as of October 18, 2011, between Quidel Corporation and John Radak. (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on October 18, 2011.)
31.1*	Certification by Principal Executive Officer of Registrant pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification by Principal Financial and Accounting Officer of Registrant pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certifications by Principal Executive Officer and Principal Financial and Accounting Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101**	XBRL Instance Document
101**	XBRL Taxonomy Extension Schema Document
101**	XBRL Taxonomy Calculation Linkbase Document
101**	XBRL Taxonomy Label Linkbase Document
101**	XBRL Taxonomy Presentation Linkbase Document

* Filed herewith.

** Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.

(1) Indicates a management plan or compensatory plan or arrangement.

24

EX-10.1

Exhibit 10.1

EXECUTION VERSION

QUIDEL CORPORATION

THIRD AMENDMENT TO CREDIT AGREEMENT

This THIRD AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is dated as of September 21, 2011 and entered into by and among QUIDEL CORPORATION, a Delaware corporation (“Borrower”), the financial institutions listed on the signature pages hereof (“Lenders”), and BANK OF AMERICA, N.A., a national banking association, as agent for Lenders (in such capacity, “Agent”), and each of the Guarantors listed on the signature pages hereof (“Guarantors”), and is made with reference to that certain Credit Agreement, dated as of October 8, 2008, by and among Borrower, Lenders, Bank of America, N.A., as Agent, Swing Line Lender and L/C Issuer, and U.S. Bank N.A., as Syndication Agent, as amended by that certain First Amendment to Credit Agreement and Security Agreement, dated as of February 19, 2010, and that certain Second Amendment to Credit Agreement, dated as of September 27, 2010 (as so amended, the “Credit Agreement”). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement.

RECITALS

WHEREAS, Borrower and Lenders desire to amend the Credit Agreement to permit Borrower to form or acquire new Foreign Subsidiaries, and to allow certain Indebtedness and Liens related thereto, in each case on the terms and conditions set forth below;

NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows:

Section 1. AMENDMENTS TO THE CREDIT AGREEMENT

1.1 Amendments to Article I: Definitions and Accounting Terms

A. Section 1.1 of the Credit Agreement is hereby amended by adding thereto the following definition, which shall be inserted in proper alphabetical order:

“Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.

B. Section 1.1 of the Credit Agreement is hereby further amended by amending the definition for “Capital Expenditures” by replacing the phrase “under Section 7.2(h) or (i)” in clause (iii) thereof with “under Section 7.2(h), (i) or (j)”.

1.2 Amendments to Article VI: Affirmative Covenants

A. Section 6.16(a) of the Credit Agreement is hereby amended by replacing the phrase “clauses (b) through (i) of Section 7.1” in clause (ii) thereof with “clauses (b) through (k) of Section 7.1”.

B. Article VI of the Credit Agreement is hereby amended by adding at the end thereof the following Section 6.22:

“6.22 Foreign Subsidiaries. Promptly (but in any event within 5 Business Days) notify Agent when the Borrower acquires or forms any Foreign Subsidiary, and, to the extent such Foreign Subsidiary’s Equity Interests are directly owned by the Borrower or any Guarantor, the Borrower or such Guarantor, as applicable, shall promptly (but in any event within 30 days) execute and deliver to Agent a supplement to the Security Agreement and, subject to the last paragraph of Section 1 of the Security Agreement, all certificates representing such Equity Interests of such Foreign Subsidiary (accompanied by irrevocable undated stock powers, duly endorsed in blank).”

1.3 Amendments to Article VII: Negative Covenants

A. Liens. Section 7.1 of the Credit Agreement is hereby amended by deleting the word “and” at the end of Section 7.1(i), deleting the period at the end of Section 7.1(j) and substituting therefor “; and”, and inserting the following new Section 7.1(k):

“(k) Liens securing Indebtedness permitted under Section 7.3(j) to the extent such Liens shall be restricted to the assets of the Foreign Subsidiary incurring such Indebtedness.”

B. Investments. Section 7.2 of the Credit Agreement is hereby amended by deleting the word “and” at the end of Section 7.2(h), deleting the period at the end of Section 7.2(i) and substituting therefor “; and”, and inserting the following new Section 7.2(j):

“(j) Investments in Foreign Subsidiaries (other than any Dormant Foreign Subsidiaries) by Borrower or any wholly owned Subsidiary Guarantor so long as, after giving effect to such Investment, the aggregate amount of all Investments in Foreign Subsidiaries (other than any Dormant Foreign Subsidiaries) made by the Borrower and its Subsidiaries on or prior to the date of such Investment does not exceed 5% of the consolidated total assets of Borrower and its Subsidiaries as of the most recent fiscal quarter end occurring on or prior to the date of such Investment (it being understood that the amount of Investment made with respect to any Acquisition on the date of such Acquisition shall be the Total Consideration for such Acquisition plus any other Investments made by Borrower or any of its Subsidiaries with respect to such Acquisition).”

C. Indebtedness. Section 7.3 of the Credit Agreement is hereby amended by deleting the word “and” at the end of Section 7.3(h), deleting the period at the end of Section 7.3(i) and substituting therefor “; and”, and inserting the following new Section 7.3(j):

“(j) Indebtedness of any Foreign Subsidiaries (other than any Dormant Foreign Subsidiaries); provided, however, that neither the Borrower nor any Guarantor shall guaranty or provide any other credit support with respect to Indebtedness of any Foreign Subsidiaries.”

2

D. Transactions with Affiliates. Section 7.8 of the Credit Agreement is hereby amended by (a) replacing the phrase “Section 7.2(b), (c), (e) or (g)” in clause (iii) thereof with ““Section 7.2(b), (c), (e), (g) or (j)”, (b) replacing “or” in front of clause (vi) thereof with a comma and (c) inserting the following new clause (vii) at the end thereof: “(vii) sale by or to the Borrower or any wholly owned Domestic Subsidiary that is a Guarantor to or from any Foreign Subsidiary (other than any Dormant Foreign Subsidiaries) of any products of the Borrower or such wholly owned Domestic Subsidiary that is a Guarantor (or, in case of a sale by such Foreign Subsidiary, certain foreign manufactured products) in the ordinary course of business at a price not lower than the actual cost of such products to the Borrower, such wholly owned Domestic Guarantor or such Foreign Subsidiary (other than any Dormant Foreign Subsidiaries), as applicable”

E. Foreign Subsidiaries. OSC. Section 7.11 of the Credit Agreement is hereby amended and restated in its entirety as follows:

“7.11 Foreign Subsidiaries. OSC. Make any Investments in OSC, any Dormant Foreign Subsidiary or any other Foreign Subsidiary after the Closing Date, Guarantee any obligations of OSC, any Dormant Foreign Subsidiary or any other Foreign Subsidiary after the Closing Date, or otherwise transfer any assets (including the repayment of any intercompany payables) to OSC, any Dormant Foreign Subsidiary or any other Foreign Subsidiary after the Closing Date, except for any Investments in any Foreign Subsidiaries (other than any Dormant Foreign Subsidiaries) permitted under Section 7.2(j) hereof.”

1.4 Amendments to Article VIII: Events of Default. Section 8.1(j) of the Credit Agreement is hereby amended by replacing the phrase “under clauses (b) through (j) of Section 7.1” therein with “under clauses (b) through (k) of Section 7.1”.

1.5 Substitution of Exhibit D: Form of Compliance Certificate. Exhibit D to the Credit Agreement is hereby amended by deleting such Exhibit D in its entirety and substituting in place thereof a new Exhibit D in the form of Exhibit A to this Amendment.

Section 2. CONDITIONS TO EFFECTIVENESS

Sections 1 of this Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the “Third Amendment Effective Date”):

A. On or before the Third Amendment Effective Date, Borrower shall deliver to Lenders (or to Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following, each, unless otherwise noted, dated the Third Amendment Effective Date:

(i) A certificate, dated as of the Third Amendment Effective Date, of its corporate secretary or an assistant secretary of Borrower, certifying that there have been no changes in its Certificate of Incorporation, its Bylaws, resolutions of its Board of Directors regarding the Credit Agreement and the other Loan Documents and its incumbency certificate from the form of Certificate of Incorporation, Bylaws, the resolutions of the Board of Directors and the incumbency certificate, respectively, previously delivered to Lenders (or attaching copies of any such amendments or other modifications); and

3

(ii) Executed copies of this Amendment executed by Borrower and each Guarantor.

B. Borrower shall pay to each Lender executing this Amendment on or before the Third Amendment Effective Date, by 12:00 PM, California time, on the Third Amendment Effective Date, the amendment fee set forth in that certain letter agreement, dated as of the date hereof, by and among Borrower and the lenders party thereto.

Section 3. REPRESENTATIONS AND WARRANTIES

In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, each Loan Party represents and warrants to each Lender that the following statements are true, correct and complete:

A. Corporate Power and Authority. Each Loan Party has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the “Amended Agreement”) and the other Loan Documents.

B. Authorization of Agreements. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of each Loan Party.

C. No Conflict. The execution and delivery by each Loan Party of this Amendment and the performance by such Loan Party of the Amended Agreement and the other Loan Documents do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to such Loan Party or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of such Loan Party or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on such Loan Party or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of such Loan Party or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of such Loan Party or any of its Subsidiaries (other than Liens created under any of the Loan Documents in favor of Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of such Loan Party or any of its Subsidiaries, except for such approvals or consents which have been obtained on or before the Third Amendment Effective Date and disclosed in writing to Lenders.

4

D. Governmental Consents. The execution and delivery by Borrower and Guarantors of this Amendment and the performance by Borrower and Guarantors of the Amended Agreement and the other Loan Documents do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body.

E. Binding Obligation. This Amendment has been duly executed and delivered by each Loan Party and this Amendment and the Amended Agreement are the legally valid and binding obligations of such Loan Party, enforceable against such Loan Party in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.

F. Incorporation of Representations and Warranties From Loan Documents. The representations and warranties contained in Article V of the Credit Agreement and in the other Loan Documents are and will be true, correct and complete in all material respects on and as of the Third Amendment Effective Date (both before and after giving effect to this Amendment) to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date.

G. Absence of Default. Both before and after giving effect to this Amendment, no event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute a Default or an Event of Default.

Section 4. MISCELLANEOUS

A. Reference to and Effect on the Credit Agreement and the Other Loan Documents.

(i) On and after the Third Amendment Effective Date, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring to the Credit Agreement and each reference in the other Loan Documents to the “Credit Agreement” “thereunder”, “thereof” or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement.

(ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.

(iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Agent or any Lender under, the Credit Agreement or any of the other Loan Documents.

B. Fees and Expenses. Borrower acknowledges that all costs, fees and expenses as described in Section 10.4(a) of the Credit Agreement incurred by Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Borrower.

5

C. Headings. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect.

D. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA (INCLUDING WITHOUT LIMITATION SECTION 1646.5 OF THE CIVIL CODE OF THE STATE OF CALIFORNIA), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

E. Counterparts; Effectiveness. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment (other than the provisions of Section 1 hereof, the effectiveness of which is governed by Section 2 hereof) shall become effective upon the execution of a counterpart hereof by Borrower, each Guarantor and Required Lenders and receipt by Borrower and Agent of written or telephonic notification of such execution and authorization of delivery thereof.

Section 5. ACKNOWLEDGEMENT AND CONSENT BY GUARANTORS

Each Guarantor hereby acknowledges that it has read this Amendment and consents to the terms thereof, and hereby confirms and agrees that, notwithstanding the effectiveness of this Amendment, the obligations of each Guarantor under each Loan Document to which it is a party or otherwise bound (i) shall continue in full force and effect, (ii) shall be valid and enforceable, (iii) shall not be impaired or affected by the execution or effectiveness of this Amendment, and (iv) are hereby confirmed and ratified in all respects. Each Guarantor acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Guarantor is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment, and (ii) nothing in the Credit Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Guarantor to any future amendments to the Credit Agreement.

6

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.

BORROWER:
QUIDEL CORPORATION
By:	/s/ DOUGLAS C. BRYANT
Name:	Douglas C. Bryant
Title:	President and Chief Executive Officer
GUARANTORS:
PACIFIC BIOTECH, INC.
By:	/s/ DOUGLAS C. BRYANT
Name:	Douglas C. Bryant
Title:	President and Chief Executive Officer
METRA BIOSYSTEMS, INC.
By:	/s/ DOUGLAS C. BRYANT
Name:	Douglas C. Bryant
Title:	President and Chief Executive Officer
OSTEO SCIENCES CORPORATION
By:	/s/ DOUGLAS C. BRYANT
Name:	Douglas C. Bryant
Title:	President and Chief Executive Officer
LITMUS CONCEPTS, INC.
By:	/s/ DOUGLAS C. BRYANT
Name:	Douglas C. Bryant
Title:	President and Chief Executive Officer
DIAGNOSTIC HYBRIDS, INC.
By:	/s/ DOUGLAS C. BRYANT
Name:	Douglas C. Bryant
Title:	President and Chief Executive Officer

Signature Page to Third Amendment to Credit Agreement

QUIDEL INTERNATIONAL, LLC

By: Quidel Corporation, its manager
By:	/s/ ROBERT BUJARSKI
Name:	Robert Bujarski
Title:	Senior Vice President

Signature Page to Third Amendment to Credit Agreement

BANK OF AMERICA, N.A., as Agent
By:	/s/ DORA A. BROWN
Name:	Dora A. Brown
Title:	Vice President

Signature Page to Third Amendment to Credit Agreement

BANK OF AMERICA, N.A., as Lender
By:	/s/ JOHN C. PLECQUE
Name:	John C. Plecque
Title:	Senior Vice President

Signature Page to Third Amendment to Credit Agreement

U.S. BANK N.A., as Lender
By:	/s/ MARLEEN SULLIVAN
Name:	Marleen Sullivan
Title:	Vice President

Signature Page to Third Amendment to Credit Agreement

JPMORGAN CHASE BANK, N.A., as Lender
By:	/s/ LING LI
Name:	Ling Li
Title:	Vice President

Signature Page to Third Amendment to Credit Agreement

UNION BANK, N.A., as Lender
By:	/s/ GLENN FORTIN
Name:	Glenn Fortin
Title:	Vice President

Signature Page to Third Amendment to Credit Agreement

Exhibit A to the Third Amendment

Exhibit D

Form of Compliance Certificate

(see attached)

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Douglas C. Bryant, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Quidel Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 26, 2011
	/s/ DOUGLAS C. BRYANT
	Douglas C. Bryant
	President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John M. Radak, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Quidel Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 26, 2011
	/s/ JOHN M. RADAK
	John M. Radak
	Chief Financial Officer (Principal Financial Officer and Accounting Officer)

EX-32.1

Exhibit 32.1

Certifications by the Principal Executive Officer and Principal Financial and Accounting Officer of Registrant pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Each of the undersigned hereby certifies, in his capacity as an officer of Quidel Corporation, a Delaware corporation (the “Company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

• the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2011, as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of (the “Report”) Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 26, 2011

/s/ DOUGLAS C. BRYANT

Douglas C. Bryant

President and Chief Executive Officer

(Principal Executive Officer)

/s/ JOHN M. RADAK

John M. Radak

Chief Financial Officer

(Principal Financial Officer and Accounting Officer)

XML

Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, except Per Share data	Sep. 30, 2011	Dec. 31, 2010
Stockholders' equity:
Preferred stock, par value per share	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000	5,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value per share	$ 0.001	$ 0.001
Common stock, shares authorized	50,000	50,000
Common stock, shares issued	33,213	28,514
Common stock, shares outstanding	33,213	28,514

XML

Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Consolidated Statements of Operations [Abstract]
Total revenues	$ 33,108	$ 28,225	$ 120,212	$ 81,630
Costs and expenses
Cost of sales (excludes amortization of intangible assets of $1,670, $1,662, $5,009 and $4,134, respectively)	14,996	12,807	47,579	37,678
Amortization of inventory fair value adjustment from acquisition				1,118
Total cost of sales (excludes amortization of intangible assets of $1,670, $1,662, $5,009 and $4,134, respectively)	14,996	12,807	47,579	38,796
Research and development	6,134	6,148	20,398	18,772
Sales and marketing	6,487	5,797	18,996	18,068
General and administrative	4,944	4,759	16,296	13,792
Amortization of intangible assets from acquired businesses and technology	1,791	1,948	5,342	4,715
Business acquisition and integration costs, and restructuring charges		115		2,181
Total costs and expenses	34,352	31,574	108,611	96,324
Operating (loss) income	(1,244)	(3,349)	11,601	(14,694)
Other (expense) income
Interest income	42	15	151	195
Interest expense	(485)	(645)	(1,639)	(1,655)
Total other expense	(443)	(630)	(1,488)	(1,460)
(Loss) income before taxes	(1,687)	(3,979)	10,113	(16,154)
(Benefit) provision for income taxes	(574)	1,882	3,438	(5,309)
Net (loss) income	$ (1,113)	$ (5,861)	$ 6,675	$ (10,845)
Basic (loss) earnings per share	$ (0.03)	$ (0.21)	$ 0.20	$ (0.38)
Diluted (loss) earnings per share	$ (0.03)	$ (0.21)	$ 0.20	$ (0.38)
Shares used in basic per share calculation	33,019	28,183	32,833	28,362
Shares used in diluted per share calculation	33,019	28,183	33,189	28,362

XML

Document and Entity Information (USD $)	9 Months Ended
	Sep. 30, 2011	Oct. 24, 2011	Jun. 30, 2010
Document and Entity Information [Abstract]
Entity Registrant Name	QUIDEL CORP /DE/
Entity Central Index Key	0000353569
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 297,685,332
Entity Common Stock, Shares Outstanding		33,249,297

XML

Other Current Liabilities

9 Months Ended

Sep. 30, 2011

Other Current Liabilities [Abstract]

Other Current Liabilities

Note 5. Other Current Liabilities

Other current liabilities consist of the following (in thousands):

	September 30, 2011		December 31, 2010
Accrued liability for technology licenses	$	2,450	$	2,300
Customer incentives		2,112		1,740
Current portion of note payable to state agency		214		211
Other		2,258		1,256
	$	7,034	$	5,507

XML

Industry and Geographic Information

9 Months Ended

Sep. 30, 2011

Industry and Geographic Information [Abstract]

Industry and Geographic Information

Note 10. Industry and Geographic Information

The Company operates in one reportable segment. Sales to customers outside the U.S. represented $13.8 million (11%) and $13.9 million (17%) of total revenue for the nine months ended September 30, 2011 and 2010, respectively. As of September 30, 2011 and December 31, 2010, balances due from foreign customers were $2.7 million and $1.5 million, respectively.

The Company had sales to individual customers in excess of 10% of total revenue, as follows:

	Nine months ended September 30,
	2011			2010
Customer:
A		15	%		11	%
B		12	%		6	%
		27	%		17	%

As of September 30, 2011, accounts receivable from customers with balances due in excess of 10% of total accounts receivable totaled $7.3 million while, at December 31, 2010, accounts receivable from customers with balances due in excess of 10% of total accounts receivable totaled $3.2 million.

XML

Basis of Presentation

9 Months Ended

Sep. 30, 2011

Basis of Presentation [Abstract]

Basis of Presentation

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Quidel Corporation and its subsidiaries (the “Company”) have been prepared in accordance with generally accepted accounting principles in the U.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring accruals) have been included. The information at September 30, 2011, and for the three and nine months ended September 30, 2011 and 2010, is unaudited. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information, refer to the Company’s consolidated financial statements and footnotes thereto for the year ended December 31, 2010 included in the Company’s 2010 Annual Report on Form 10-K. Subsequent events have been evaluated up to and including the date these financial statements were issued.

For 2011 and 2010, the Company’s fiscal year will or has ended on January 1, 2012 and January 2, 2011, respectively. For 2011 and 2010, the Company’s third quarter ended on October 2, 2011 and October 3, 2010, respectively. For ease of reference, the calendar quarter end dates are used herein. The three and nine month periods ended September 30, 2011 and 2010 both included 13 and 39 weeks, respectively.

XML

Line of Credit

9 Months Ended

Sep. 30, 2011

Line of Credit [Abstract]

Line of Credit

Note 7. Line of Credit

The Company currently has a $120.0 million senior secured syndicated credit facility (the “Senior Credit Facility”), which matures on October 8, 2013. The Senior Credit Facility bears interest for base rate loans at a rate equal to (i) the higher of (a) the lender’s prime rate and (b) the Federal funds rate plus one-half of one percent, plus (ii) the applicable rate, or for Eurodollar rate loans the interest rate is equal to (i) the Eurodollar rate, plus (ii) the applicable rate. The applicable rate is generally determined in accordance with a performance pricing grid based on the Company’s leverage ratio and ranges from 0.50% to 1.75% for base rate loans and from 1.50% to 2.75% for Eurodollar rate loans. The agreement governing the Senior Credit Facility is subject to certain customary limitations, including among others: limitation on liens; limitation on mergers, consolidations and sales of assets; limitation on debt; limitation on dividends, stock redemptions and the redemption and/or prepayment of other debt; limitation on investments (including loans and advances) and acquisitions; limitation on transactions with affiliates; and limitation on annual capital expenditures. The Company is also subject to financial covenants that include a funded debt to adjusted EBITDA ratio (as defined in the Senior Credit Facility, with adjusted EBITDA generally calculated as earnings before, among other adjustments, interest, taxes, depreciation and amortization) not to exceed 3 to 1 as of the end of each fiscal quarter, and an interest coverage ratio of not less than 3.5 to 1 as of the end of each fiscal quarter. The Senior Credit Facility is secured by substantially all present and future assets and properties of the Company. As of September 30, 2011, the Company had $52.7 million available under the Senior Credit Facility. The Company’s ability to borrow under the Senior Credit Facility fluctuates from time to time due to, among other factors, the Company’s borrowings under the facility and its funded debt to adjusted EBITDA ratio. At September 30, 2011, the Company had $42.0 million outstanding under the Senior Credit Facility which was borrowed in connection with the acquisition of Diagnostics Hybrids, Inc. (“DHI”). At September 30, 2011, the Company was in compliance with all covenants.

During the third quarter of 2011, the Senior Credit Facility was amended for various matters, including amending the credit and security agreement to (i) permit investments in new foreign subsidiaries and (ii) allow certain indebtedness and liens related to the investments in new foreign subsidiaries.

XML

Lease Obligation

9 Months Ended

Sep. 30, 2011

Lease Obligation [Abstract]

Lease Obligation

Note 12. Lease Obligation

During 1999, the Company completed a sale and leaseback transaction of its approximately 78,000 square-foot executive, administrative, manufacturing and research and development facility in San Diego. The facility was sold for $15.0 million, of which $3.8 million was capital contributed by the Company. The sale was an all cash transaction, netting the Company approximately $7.0 million. The Company is a 25% limited partner in the partnership that acquired the facility. The transaction was deemed a financing transaction under the guidance in ASC Topic 840-40, Accounting for Sales of Real Estate. The assets sold remain on the books of the Company and will continue to be depreciated over the estimated useful life. The Company’s lease was initially for 15 years, with options to extend the lease for up to two additional five-year periods.

In December 2009, the Company amended the terms of its lease agreement which had no significant impact on the Company’s financial statements. The amended terms include a new ten-year lease term through December 2019, with options to extend the lease for up to three additional five-year periods. The Company will amortize the lease obligation over this new term. The amount of the monthly rental payments remain the same under the amendment. In addition, the Company has the option to purchase the general partner’s interest in the partnership in January 2015 for a fixed price. The Company has determined that the partnership is a variable interest entity (VIE). The Company is not, however, the primary beneficiary of the VIE as it does not absorb the majority of the partnership’s expected losses or receive a majority of the partnership’s residual returns. The Company made lease payments to the partnership in connection with the San Diego facility of approximately $0.8 million for each of the nine months ended September 30, 2011 and 2010.

XML

Stockholders' Equity

9 Months Ended

Sep. 30, 2011

Comprehensive Income (Loss) and Stockholders' Equity [Abstract]

Stockholders' Equity

Note 8. Stockholders’ Equity

In January 2011, the Company completed a public offering of 4.6 million shares of its common stock at $13.15 per share. The Company received proceeds, net of underwriting discounts and commissions, of $57.9 million ($12.43 per share) and incurred approximately $0.7 million in related offering expenses. The Company has and expects to continue to use the net proceeds of this offering for working capital and other general corporate purposes, which may potentially include the acquisition or development of new technology, the acquisition of diagnostic or related companies, products or businesses or the repayment of existing indebtedness.

During the nine months ended September 30, 2011, 207,532 shares of restricted stock were awarded, 12,842 shares of restricted stock were cancelled, 66,575 shares of common stock were issued due to the exercise of stock options and 48,529 shares of common stock were issued in connection with the Company’s employee stock purchase plan (the “ESPP”), resulting in net proceeds to the Company of approximately $1.0 million. Additionally, during the nine months ended September 30, 2011, 42,423 shares of outstanding common stock were repurchased for approximately $0.6 million, which represent shares repurchased in connection with payment of minimum tax withholding obligations for certain employees relating to the lapse of restrictions on certain restricted stock awards during the nine months ended September 30, 2011.

XML

Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

Note 6. Income Taxes

The Company’s effective tax rate for the nine months ended September 30, 2011 and 2010 was 34.0% and 32.9%, respectively. The Company recognized tax expense of $3.4 million and a tax benefit of $5.3 million for the nine months ended September 30, 2011 and 2010, respectively. For the nine months ended September 30, 2010, the income tax benefit includes a charge related to the re-valuation of the Company’s deferred tax assets due to a change in the statutory state tax rate. The difference between the September 30, 2011 and September 30, 2010 effective tax rate is primarily due to the exclusion of the federal research and development tax credit and certain acquisition related non-deductible transaction costs during the first nine months of 2010.

The Company is subject to periodic audits by domestic and foreign tax authorities. The Company’s federal tax years for 1995 and forward are subject to examination by the U.S. authorities due to the carry forward of unutilized net operating losses and research and development credits. With few exceptions, the Company’s tax years for 1999 and forward are subject to examination by state and foreign tax authorities. The Company believes that it has appropriate support for the income tax positions taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on its assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter.

XML

Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
OPERATING ACTIVITIES:
Net income (loss)	$ 6,675	$ (10,845)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation, amortization and other	12,063	8,779
Gain on sale of assets	8	2
Stock-based compensation expense	5,153	3,881
Change in deferred tax assets and liabilities	2,527	(947)
Changes in assets and liabilities:
Accounts receivable	(3,828)	3,694
Inventories	2,856	864
Income tax receivable	8,267	(1,306)
Prepaid expenses and other current assets	(977)	(243)
Accounts payable	(289)	(2,454)
Accrued payroll and related expenses	2,753	(1,689)
Accrued royalties	(1,858)	(3,877)
Accrued income taxes payable		(5,393)
Other current and non-current liabilities	521	(3,856)
Net cash provided by (used for) operating activities	33,871	(13,390)
INVESTING ACTIVITIES:
Acquisitions of property and equipment	(4,304)	(5,305)
Payment for licensed technology	(13,217)	(2,000)
Purchase of business, net of cash acquired of $3,150		(128,162)
Proceeds from sale of marketable securities		3,999
Other assets	(100)	65
Net cash used for investing activities	(17,621)	(131,403)
FINANCING ACTIVITIES:
Payments on lease obligation	(207)	(153)
Purchases of common stock	(625)	(9,181)
Borrowing from line of credit		75,000
Payments on line of credit	(30,000)	(3,000)
Issuance of common stock, net of cancellations	59,268	1,056
Other	(429)	(703)
Net cash provided by financing activities	28,007	63,019
Net increase (decrease) in cash and cash equivalents	44,257	(81,774)
Cash and cash equivalents, beginning of period	6,788	89,003
Cash and cash equivalents, end of period	51,045	7,229
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest	1,639	1,655
Cash paid during the period for income taxes	200	6,952
NON-CASH INVESTING ACTIVITIES:
Purchase of capital equipment by incurring current liabilities	157	369
Purchase of licensed technology by incurring current liabilities	$ 16,563

XML

Comprehensive Income (Loss)

9 Months Ended

Sep. 30, 2011

Comprehensive Income (Loss) and Stockholders' Equity [Abstract]

Comprehensive Income (Loss)

Note 2. Comprehensive Income (Loss)

Net income (loss) is equal to comprehensive income (loss) for the three and nine months ended September 30, 2011 and 2010, respectively.

XML

Computation of (Loss) Earnings Per Share

9 Months Ended

Sep. 30, 2011

Computation of (Loss) Earnings Per Share [Abstract]

Computation of (Loss) Earnings Per Share

Note 3. Computation of (Loss) Earnings Per Share

Diluted net income per share is reported based on the more dilutive of the treasury stock or the two-class method. Under the two-class method, net income is allocated to common stock and participating securities. The Company’s unvested restricted stock awards and certain unvested restricted stock units meet the definition of participating securities. Basic net income per share under the two-class method is computed by dividing net income adjusted for earnings allocated to unvested stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share under the two-class method is computed by dividing net income adjusted for earnings allocated to unvested stockholders for the period by the weighted average number of common and common equivalent shares outstanding during the period. The Company excludes stock options from the calculation of diluted net income per share when the combined exercise price, unrecognized stock-based compensation and assumed tax benefits upon exercise are greater than the average market price for the Company’s common stock because their effect is anti-dilutive. Stock options totaling 1.9 million for the nine months ended September 30, 2011 were not included in the computation of diluted earnings per share (“EPS”) as their effect was anti-dilutive. For the three months ended September 30, 2011 and the three and nine months ended September 30, 2010 there were no differences between the number of common shares used for the basic and diluted EPS computations as they were periods in which the Company incurred a net loss.

The following table sets forth the computation of basic and diluted EPS for the nine months ended September 30, 2011 (in thousands, except per share amounts):

Basic net income per share:
Net income	$	6,675
Less: income allocated to participating securities		(61	)
Net income allocated to common stockholders	$	6,614
Weighted average common shares outstanding — basic		32,833
Net income per share — basic	$	0.20
Diluted net income per share:
Net income	$	6,675
Less: income allocated to participating securities		(60	)
Net income allocated to common stockholders	$	6,615
Weighted average common shares outstanding — basic		32,833
Dilutive securities		356
Weighted average common shares outstanding — diluted		33,189
Net income per share — diluted	$	0.20

XML

Licensed Technology

9 Months Ended

Sep. 30, 2011

Licensed Technology [Abstract]

Licensed Technology

Note 11. Licensed Technology

On September 27, 2011, the Company entered into the Second Amendment (the “Amendment”) to Quidel/Inverness Settlement Agreement dated April 27, 2005 (the “Agreement”), as amended by an Addendum dated June 19, 2006, with Alere Inc. (formerly known as Inverness Medical Innovations, Inc.) (“Alere”).

The Amendment, which is effective as of April 1, 2011, amends certain royalty and other provisions in the Agreement and enables the Company to “buy-down” and “buy-out” its future royalty obligation under the Agreement for payments totaling $29.5 million. Under the Amendment, the Company made an initial cash payment of $13.8 million to Alere in September 2011 in connection with a buy-down of the Company’s royalty obligations for the period beginning July 1, 2011. In addition, the Company expects to exercise its buy-out right for any remaining future royalty obligation by exercising the Royalty Termination Option (as defined in the Amendment) in January 2012, thereby terminating the Company’s obligation to pay future royalties under the Agreement in exchange for a fixed cash payment in the amount of $15.7 million less the sum of specified third and fourth quarter 2011 royalties, resulting in the Company receiving a fully paid up license effective January 1, 2012. In association with the Amendment, the Company has recorded $26.9 million as intangible assets, net and $15.7 million as accrued royalties as of September 30, 2011.

In conjunction with Financial Accounting Standards Board Accounting Standard Update No. 2009-05, Fair Value Measurements and Disclosures (Topic 820), the Company assigned $28.8 million to the licensed technology and $0.7 million as a one-time charge to cost of sales. In determining the fair value allocation between the intangible asset licensed technology and the one-time charge to cost of sales, The Company assessed the past and estimated future revenue streams related to present and future products that use the patents that are subject to the Amendment. The effective life and related amortization of the licensed technology will be based on the higher of the percentage of usage or the straight-line method. This percentage of usage will be determined using the revenues generated from products covered by the patents that are subject to the Amendment. The terms of the Amendment provide for an estimated useful life of 3.5 years for this asset. The Company recorded $1.9 million of amortization expense in the three months ended September 30, 2011 included as a portion of cost of sales. As of September 30, 2011, the estimated future amortization expense associated with this intangible asset is $8.0 million, $8.0 million, $8.0 million, and $0.8 million for the years ending 2012, 2013, 2014, and 2015, respectively.

XML

Inventories

9 Months Ended

Sep. 30, 2011

Inventories [Abstract]

Inventories

Note 4. Inventories

Inventories are recorded at the lower of cost (first-in, first-out) or market and consist of the following (in thousands):

	September 30, 2011		December 31, 2010
Raw materials	$	5,547	$	7,262
Work-in-process (materials, labor and overhead)		4,081		5,375
Finished goods (materials, labor and overhead)		5,223		5,070
	$	14,851	$	17,707

XML

Consolidated Statements of Operations (Unaudited) (Parenthetical) (USD $) In Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Costs and expenses
Amortization of intangible assets	$ 1,670	$ 1,662	$ 5,009	$ 4,134

XML

Consolidated Statements of Cash Flows (Unaudited) (Parenthetical) (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011
INVESTING ACTIVITIES:
Net of cash acquired	$ 3,150

XML

Stock-Based Compensation

9 Months Ended

Sep. 30, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note 9. Stock-Based Compensation

The compensation expense related to the Company’s stock-based compensation plans included in the accompanying Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010 was as follows (in millions):

	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Cost of sales	$	0.1	$	0.1	$	0.4	$	0.5
Research and development		0.3		0.2		0.7		0.4
Sales and marketing		0.2		0.1		0.3		0.3
General and administrative		0.9		0.9		3.8		2.7
	$	1.5	$	1.3	$	5.2	$	3.9

Total compensation expense recognized for the three months ended September 30, 2011 and 2010 includes $1.0 million and $1.0 million related to stock options and $0.5 million and $0.3 million related to restricted stock, respectively. Total compensation expense recognized for the nine months ended September 30, 2011 and 2010 includes $3.6 million and $3.0 million related to stock options and $1.6 million and $0.9 million related to restricted stock, respectively. As of September 30, 2011, total unrecognized compensation expense related to non-vested stock options was $4.8 million, which is expected to be recognized over a weighted-average period of approximately 2.2 years. As of September 30, 2011, total unrecognized compensation expense related to non-vested restricted stock was $2.4 million, which is expected to be recognized over a weighted-average period of approximately 2.0 years. Compensation expense capitalized to inventory and compensation expense related to the Company’s ESPP were not material for the three and nine months ended September 30, 2011 and 2010.

The estimated fair value of each stock option award was determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions for the option grants.

	Nine months ended September 30,
	2011			2010
Expected option life (in years)		5.22			4.89
Volatility rate		0.47			0.52
Risk-free interest rate		2.05	%		2.40	%
Forfeiture rate		14.0	%		15.5	%
Dividend rate		0	%		0	%

The weighted-average grant date fair value of stock options granted during the nine months ended September 30, 2011 and 2010 was $5.73 and $6.86, respectively. The grant date fair value of restricted stock is determined based on the closing market price of the Company’s common stock on the grant date.

XML

Fair Value Measurement

9 Months Ended

Sep. 30, 2011

Fair Value Measurement [Abstract]

Fair Value Measurement

Note 13. Fair Value Measurement

ASC Topic 820, Fair Value Measurements and Disclosures requires the valuation of assets and liabilities subject to fair value measurements using a three tiered approach and fair value measurement be classified and disclosed by the Company in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

The Company believes that the carrying amount of its line of credit approximates fair value because it has a variable interest rate that reflects market changes to interest rates and changes in the Company’s leverage ratio. The fair value of the Company’s cash equivalents is determined based on Level 1 inputs. The Company uses Level 2 inputs to determine the fair value of its line of credit.

XML

Consolidated Balance Sheets (Unaudited) (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 51,045	$ 6,788
Accounts receivable, net	17,305	13,477
Inventories	14,851	17,707
Deferred tax asset - current	6,034	7,159
Income tax receivable	77	8,344
Prepaid expenses and other current assets	3,529	2,552
Total current assets	92,841	56,027
Property and equipment, net	31,785	31,755
Goodwill	71,013	71,013
Intangible assets, net	76,210	53,675
Other non-current assets	1,434	2,123
Total assets	273,283	214,593
Current liabilities:
Accounts payable	4,583	4,715
Accrued payroll and related expenses	5,766	3,013
Accrued royalties	16,217	2,262
Current portion of lease obligation	316	280
Other current liabilities	7,034	5,507
Total current liabilities	33,916	15,777
Long term debt	43,337	73,498
Lease obligation, net of current portion	6,033	6,276
Deferred tax liability--non-current	3,715	2,313
Income taxes payable	2,937	2,937
Other non-current liabilities	1,015	1,271
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value per share; 5,000 shares authorized; none issued or outstanding at September 30, 2011 and December 31, 2010
Common stock, $.001 par value per share; 50,000 shares authorized; 33,213 and 28,514 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively	33	29
Additional paid-in capital	172,932	109,802
Retained earnings	9,365	2,690
Total stockholders' equity	182,330	112,521
Total liabilities and stockholders' equity	$ 273,283	$ 214,593