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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2002
or

For the transition period from                              to                             

Commission File Number: 0-10961

QUIDEL CORPORATION

(Exact name of Registrant as specified in its charter)

10165 McKellar Court, San Diego, California 92121
(Address of principal executive offices)

(858) 552-1100
(Registrant's telephone number, including area code)

        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 / /

        As of July 31, 2002, 28,809,418 shares of common stock were outstanding.

QUIDEL CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
June 30, 2002

INDEX

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PART I—FINANCIAL INFORMATION

ITEM 1. Financial Statements

QUIDEL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

See accompanying notes to condensed consolidated financial statements.

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QUIDEL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data, unaudited)

See accompanying notes to condensed consolidated financial statements.

4

QUIDEL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

See accompanying notes to condensed consolidated financial statements.

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Quidel Corporation

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note l. Basis of Presentation

        The accompanying unaudited condensed consolidated financial statements of Quidel Corporation (the "Company") have been prepared in accordance with generally accepted accounting principles 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 United States for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring accruals) have been included. The information at June 30, 2002, and for the three and six month periods ended June 30, 2002 and 2001, is unaudited. Operating results for the six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2001 included in the Company's 2001 Annual Report on Form 10-K.

Note 2. Comprehensive Earnings (Loss)

        The components of comprehensive earnings (loss) are as follows (in thousands):

Note 3. Computation of Earnings Per Share

        Basic earnings (loss) per share was computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if the income were divided by the weighted-average number of common shares and potentially dilutive common shares from outstanding stock options and warrants. Potential dilutive common shares were calculated using the treasury stock method and represent incremental shares issuable upon exercise of the Company's outstanding options. Potentially dilutive shares have not been included for the three and six months ended June 30, 2001 as their inclusion would be antidilutive.

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Note 4. Inventories

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

Note 5. Stockholders' Equity

        During the six months ended June 30, 2002, 111,240 shares of common stock were issued due to the exercise of common stock options and 16,586 shares of common stock were issued in connection with the employee stock purchase plan, resulting in proceeds to the Company of approximately $0.5 million.

        The company had approximately $1.0 million of warrants outstanding as of April 1, 2002. These warrants expired April 30, 2002.

Note 6. Accounting Changes

        In June 2001, the Financial Accounting Standards Board "FASB" issued Statement No. 141 "SFAS No. 141," "Business Combinations," and Statement No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses the accounting for acquisitions of businesses and is effective for acquisitions occurring on or after July 1, 2001. SFAS No. 142 addresses the method of identifying and measuring goodwill and other intangible assets acquired in a business combination, eliminates further amortization of goodwill, and requires periodic evaluations of impairment of goodwill balances. In addition, the useful lives of recognized intangible assets acquired in transactions completed before July 1, 2001 are to be reassessed and the remaining amortization periods adjusted accordingly. SFAS No. 142 is effective January 1, 2002.

        Effective January 1, 2002, the Company has adopted SFAS No. 142. With this adoption, we have reclassified the net book value assigned to the assembled workforce intangible at December 31, 2001 to goodwill, which totaled approximately $0.1 million, and then ceased to amortize approximately $13.3 million of goodwill. Based on the current values assigned to goodwill and assembled workforce, the elimination of goodwill amortization had a positive impact on reported net earnings of approximately $1.2 million for the six months ended June 30, 2002 as compared to the results reported for the six months ended June 30, 2001; and the Company expects the positive impact to be approximately $2.5 million for the year ended December 31, 2002 as compared to the year ended December 31, 2001. We completed our review for impairment of goodwill during the second quarter of 2002 and as of June 30, 2002, no such impairment existed.

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Note 7. Industry and Geographic Information

        The Company operates in one reportable segment. Sales to customers outside the United States (primarily Asia and Europe) totaled 24% and 23% for the six months ended June 30, 2002 and June 30, 2001, respectively. As of June 30, 2002 and December 31, 2001, balances due from foreign customers were $3.8 million and $6.4 million, respectively.

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

        As of June 30, 2002, accounts receivable from one customer with a balance due in excess of 10% of total accounts receivable totaled $3.7 million while at December 31, 2001, accounts receivable from three customers with balances due in excess of 10% of total accounts receivable totaled $7.0 million.

        For the six months ended June 30, 2002, the Company recorded revenue from domestic and foreign customers. The following presents net sales for the six months ended June 30, 2002 and 2001 and long-lived assets as of June 30, 2002 and December 31, 2001 by geographic territory:

Note 8. Restructuring

        In the first quarter of 2001, the Company implemented a restructuring plan (the "Restructuring") of certain of its operations. The Restructuring included a workforce reduction of approximately 15 employees and closure of the Company's facilities in the United Kingdom ("UK"). In the first quarter of 2001, the Company recorded a restructuring charge of approximately $0.6 million related to the Restructuring. The significant components of the Restructuring were $0.5 million for employee severance costs and $0.1 million in closing costs related to the UK facility and related asset impairments.

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

        In this section, all references to "we," "our," and "us" refer to Quidel Corporation and its subsidiaries.

Future Uncertainties

        This discussion contains forward-looking statements within the meaning of the federal securities laws that involve material risks 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. As such, no forward-looking statement can be guaranteed. Differences in operating results may arise as a result of a number of factors, including, without limitation, seasonality, adverse changes in the competitive and economic conditions in domestic and international markets, actions of our major distributors, manufacturing and production delays or difficulties, adverse actions or delays in product reviews by the United States Food and Drug Administration ("FDA"), and the lower acceptance of our new products than forecast. Forward-looking statements typically are identified by the use of terms such as "may", "will", "should", "might", "believe", "expect", "anticipate", "estimate" and similar words, although some forward-looking statements are expressed differently. The risks described in this report and in other reports and registration statements filed with the SEC from time to time should be carefully considered. The following should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Form 10-Q.

Overview

        We commenced our operations in 1979 and launched our first products, dipstick-based pregnancy tests, in 1984. The product base has expanded through internal development and acquisitions of other products. Our primary product areas are pregnancy and ovulation, infectious diseases, autoimmune diseases, osteoporosis and urinalysis. We discover, develop, manufacture and market rapid diagnostic products for point-of-care detection. These products provide simple, accurate and cost-effective diagnoses for acute and chronic medical conditions. Products are sold worldwide to professionals in the physician's office and clinical laboratories, and to consumers through organizations that provide private label, store brand products.

Results of Operations

Net Sales

        Net sales increased 12% to $17.4 million for the second quarter of 2002 from $15.5 million for the second quarter of 2001 and increased 9% to $38.1 million for the six months ended June 30, 2002 from $35.1 million for the six months ended June 30, 2001. The increase for the three months ended 2002 as compared to the three months ended 2001 was primarily due to increases in sales of our influenza, pregnancy, veterinary, infectious vaginitis and H. Pylori products, offset by a decrease in our Strep A products. The increase for the six months ended June 30, 2002 as compared to the six months ended June 30, 2001 was primarily due to an increase in our influenza and infectious vaginitis products, offset by a decrease in pregnancy and Strep A products.

Research Contracts, License Fees and Royalty Income

        Research contracts, license fees and royalty income decreased to $0.4 million for the three months ended June 30, 2002 from $0.5 million for the three months ended June 30, 2001 and was $0.9 million for both the six months ended June 30, 2002 and the six months ended June 30, 2001. The revenue for all periods is principally related to royalties received on a patented technology of ours utilized by a third-party.

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Cost of Sales and Gross Profit From Net Sales

        Gross profit from net sales increased to $8.2 million for the three months ended June 30, 2002 from $7.3 million for the three months ended June 30, 2001 and increased to $19.0 million for the six months ended June 30, 2002 from $17.9 million for the six months ended June 30, 2001. Gross profit as a percentage of net sales remained constant at 47% for both the three months ended June 30, 2002 and three months ended June 30, 2001 and decreased to 50% for the six months ended June 30, 2002 from 51% for the six months ended June 30, 2001. The relatively flat nature of the gross margin percentage for the three month periods ended June 30, 2002 and 2001 are primarily attributable to an increased net sales volume for the three months ended June 30, 2002, offset by underutilization of manufacturing capacity and costs resulting from lower production volumes in our Marburg, Germany facility, charges related to outsourcing our packaging line and mix and pricing related to our core products. The decrease in the gross margin percentage for the six months ended June 30, 2002 as compared to the six months ended June 30, 2001 are largely due to pricing pressures on our core products, underutilization of manufacturing capacity and costs resulting from lower production volumes in our Marburg, Germany facility, charges related to outsourcing our packaging line, a write-off of certain expired urinalysis products, higher royalties associated with increased influenza product sales and mix and pricing related to our core products, partially offset by an increased net sales volume for the six months ended June 30, 2002.

Research and Development Expense

        Research and development expense decreased to $1.5 million for the three months ended June 30, 2002 from $1.8 million for the three months ended June 30, 2001 and decreased to $3.1 million for the six months ended June 30, 2002 from $3.3 million for the six months ended June 30, 2001. Research and development expense as a percentage of net sales, decreased to 9% for the three months ended June 30, 2002 from 11% for the three months ended June 30, 2001 and decreased to 8% for the six months ended June 30, 2002 from 10% for the six months ended June 30, 2001. These decreases are primarily attributable to decreased spending for the three months ended June 30, 2002 compared to June 30, 2001 related to the acquisition of Litmus Concepts in December 2000 and greater operational efficiencies resulting from integration of resources in our Northern California operations in 2002, partially offset by increased costs of developing new products for the layered thin film platform in fiscal 2002.

Sales and Marketing Expense

        Sales and marketing expense increased to $3.8 million for the three months ended June 30, 2002 from $3.3 million for the three months ended June 30, 2001 and to $7.8 million for the six months ended June 30, 2002 from $7.4 million for the six months ended June 30, 2001. Sales and marketing expense as a percentage of net sales increased to 22% for the three months ended June 30, 2002 from 21% for the three months ended June 30, 2001 and decreased to 20% for the six months ended June 30, 2002 from 21% for the six months ended June 30, 2001. The absolute dollar increases for the three and six months ended June 30, 2002 as compared to the three and six months ended June 30, 2001 relate primarily to costs associated with the launch of our infectious vaginitis products and urinalysis instrument including public relations, advertising and consulting fees.

General and Administrative Expense

        General and administrative expense decreased to $2.2 million for the three months ended June 30, 2002 from $2.4 million for the three months ended June 30, 2001 and to $4.4 million for the six months ended June 30, 2002 from $4.6 million for the six months ended June 30, 2001. General and administrative expense as a percentage of net sales decreased to 12% for the three months ended June 30, 2002 from 15% for the three months ended June 30, 2001 and decreased to 12% for the six

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months ended June 30, 2002 from 13% for the six months ended June 30, 2001. These decreases were primarily due to decreases in legal and relocation expense.

Restructuring Charge

        In the first quarter of 2001, we implemented an expense reduction plan ("the Restructuring"). The Restructuring included a workforce reduction of approximately 15 employees and closure of our facilities in the United Kingdom ("U.K."). In the first quarter of 2001, we recorded a restructuring charge of approximately $0.6 million. The significant components of the Restructuring are $0.5 million for employee severance costs and $0.1 million in closing costs related to the UK facility and related asset impairments.

Amortization of Intangibles

        Amortization of intangibles decreased to $0.5 million for the three months ended June 30, 2002 from $1.0 million for the three months ended June 30, 2001 and to $1.0 million for the six months ended June 30, 2002 from $2.1 million for the six months ended June 30, 2001. This decrease was primarily due to the adoption of SFAS No. 142 in January 2002 and the resulting elimination of goodwill amortization.

Interest Expense

        Interest expense decreased to $0.2 million for the three months ended June 30, 2002 from $0.3 million for the three months ended June 30, 2001 and to $0.5 million for the six months ended June 30, 2002 from $0.7 million for the six months ended June 30, 2001. These decreases relate primarily to a decrease in the average borrowing outstanding under our line of credit.

Income Taxes

        Income tax provision was $0.2 million for the three months ended June 30, 2002 compared to $0.1 million for the three months ended June 30, 2001 and was $1.3 million for the six months ended June 30, 2002 compared to $0.8 million for the six months ended June 30, 2001.

Liquidity and Capital Resources

        Our principal sources of liquidity have historically been cash flow from operations and borrowings under our line of credit. Our principal requirements for cash currently are for the funding of operations and capital expenditures.

        Cash provided by operating activities was $7.5 million for the six months ended June 30, 2002 and $1.6 million for the six months ended June 30, 2001 and consisted of funding our working capital, less non-cash amortization and depreciation of $3.0 million for the six months ended June 30, 2002 and $4.4 million for the six months ended June 30, 2001, a decrease in receivables of $2.7 million for the six months ended June 30, 2002 compared to a decrease of $1.7 million for the six months ended June 30, 2001, a decrease in inventories of $1.4 million for the six months ended June 30, 2002 compared to a decrease of $2.0 million for the six months ended June 30, 2001, an increase in prepaid and other assets of $0.5 for the six months ended June 30, 2002 compared to an increase of $2.0 million for the six months ended June 30, 2001, a decrease in accounts payable of $1.0 million for the six months ended June 30, 2002 compared to a decrease of $2.4 million for the six months ended June 30, 2001, an increase in accrued payroll and related expenses of $0.1 million for the six months ended June 30, 2002 compared to a decrease of $0.4 million for the six months ended June 30, 2001, and a decrease in other accrued liabilities of $1.5 million for the six months ended June 30, 2002 compared to a decrease of $1.7 million for the six months ended June 30, 2001.

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        Cash used for investing activities was $2.4 million for the six months ended June 30, 2002 and $2.1 million for the six months ended June 30, 2001. For the six months ended June 30, 2002, the amount consisted primarily of cash used in connection with purchases of property and equipment of $2.1 million and a decrease in other assets of $0.3 million. For the six months ended June 30, 2001, the amount consisted primarily of cash used in connection with purchases of property and equipment of $2.8 million offset by proceeds from sale of property and equipment of $0.6 million. Cash used in financing activities was $2.4 million for the six months ended June 30, 2002 and cash provided by financing activities was $0.8 million for the six months ended June 30, 2001. For the six months ended June 30, 2002, the amount consisted of net repayments under our line of credit of $2.7 million, proceeds from issuance of common stock of $0.5 million, offset by payments on capital leases of $0.2 million. For the six months ended June 30, 2001, the amount consisted of net borrowings under our line of credit of $0.7 million, proceeds from issuance of common stock of $0.5 million, offset by payments on capital leases of $0.3 million

        As of June 30, 2002, our outstanding indebtedness included $10.9 million under capital leases (primarily our San Diego facility). Our previous credit facility of $7.5 million expired on June 30, 2002. There were no borrowings outstanding and we were in compliance with all covenants as of the expiration date. We currently have an unsecured line of credit of $5.0 million, which bears interest at the prime rate minus one quarter of one percent or LIBOR ("the London InterBank Offering Rate") plus two and one quarter percent and matures on September 1, 2002. There are currently no borrowings outstanding under this line of credit. We are currently negotiating a new credit facility. We anticipate this facility to be comprised of a $10.0 million revolver and a $10.0 million term loan, both with favorable pricing terms. We currently anticipate completing this new credit facility by approximately September 1, 2002.

        We plan approximately $2.0 million in capital expenditures for the next six months. The primary purpose for our capital expenditures is manufacturing equipment, facilities improvements and information technology. We plan to fund these capital expenditures with cash flow from operations and borrowings under our planned credit facility. We have no material commitments with respect to such planned expenditures as of the date of this filing.

        We also intend to continue searching for acquisition and technology licensing candidates. As such, we may need to incur additional debt, or sell additional equity, to successfully complete these acquisitions. Cash requirements fluctuate as a result of numerous factors, such as the extent to which we generate cash in operations, progress in research and development projects, competition and technological developments and the time and expenditures required to obtain governmental approval of our products. Based on the current cash position and the current assessment of future operating results, we believe that our existing sources of liquidity will be adequate to meet operating needs during the next twelve months.

Critical Accounting Policies and Estimates

        Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States ("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, restructuring and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be 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 under different assumptions or conditions.

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        We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. We record estimated reductions to revenue for customer programs and incentive offerings including special pricing agreements, price protection, promotions and other volume-based incentives. While we have increased customer incentive programs for the six months ended June 30, 2002 and 2001, if market conditions were to decline, we may take actions to further increase customer incentive offerings possibly resulting in an incremental reduction of revenue and gross margin at the time the incentive is offered. We record revenues from product sales, net of related rebates and discounts at the time the sale is recognized. We recognize an allowance for pricing rebates based upon the estimated amounts of rebates that will be claimed by the customers. Revenue from product sales are recorded upon passage of title and risk of loss to the customer. Title to the product and recognition of revenue passes upon delivery to the customer when sales terms are FOB destination and at the time of shipment when the sales terms are FOB shipping point. We also earn income for performing services under joint development agreements and licensing of technology. Milestone payments are considered to be payments received for the accomplishment of a discrete, substantive earnings event. The non-refundable payment arising from the achievement of a defined milestone is recognized as revenue when the performance criteria for that milestone have been met when substantive effort is required to achieve the milestone, the amount of the milestone payments appears reasonable and commensurate with the effort expended and collection of the payment is reasonably assured. Income from the grant of distribution rights is recorded when the event triggering payment to us has occurred as specified by the terms of the related distribution agreements and collectibility is reasonably assured. We maintain allowances for doubtful accounts for estimated losses resulting from the inability or willingness of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

        We periodically assess the impairment of goodwill, intangible and other long-lived assets, which requires us to make assumptions and judgments regarding the carrying value of these assets. The assets are considered to be impaired if we determine that the carrying value may not be recoverable based upon our assessment of the following events or changes in circumstances:

•

the asset's ability to continue to generate income from operations and positive cash flow in future periods;



•

any volatility or significant decline in our stock price and market capitalization compared to our net book value;



•

loss of legal ownership or title to the asset;



•

significant changes in our strategic business objectives and utilization of the asset(s); or



•

the impact of significant negative industry or economic trends.

        If the assets are considered to be impaired, the impairment we recognize is the amount by which the carrying value of the assets exceeds the fair value of the assets. In addition, we base the useful lives and related amortization or depreciation expense on our estimate of the period that the assets will generate revenues or otherwise be used by us. If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported results would increase.

        In 2002, Statement of Financial Accounting Standards No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets," became effective and, as a result, we ceased to amortize goodwill and indefinite-lived intangible assets. We currently expect that the elimination of goodwill and indefinite-

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lived amortization will have a positive impact on net earnings for the year ended December 31, 2002 of approximately $2.5 million. In lieu of amortization, we are required to perform an initial impairment review of our goodwill in 2002 and an annual impairment review thereafter. We completed our initial review during the quarter ended June 30, 2002 and concluded there was no impairment of our goodwill. In a future review, we cannot assure you a material impairment charge will not be recorded.

        We record a valuation allowance to reduce our deferred tax asset to the amount that we believe is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would increase earnings in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to earnings in the period such determination were made.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

        We are exposed to the risk of future currency exchange rate fluctuations, which is accounted for as an adjustment to stockholders' equity. Therefore, changes from reporting period to reporting period in the exchange rates between various foreign currencies and the U.S. dollar have had and will continue to have an impact on the accumulated other comprehensive loss component of stockholders' equity reported by us, and such effect may be material in any individual reporting period. We currently are not a party to derivative contracts or other arrangements that may reduce exchange rate risk.

        The fair market value of 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. Based on our market risk sensitive instruments outstanding at June 30, 2002 and December 31, 2001, we believe that there was no material market risk exposure to our consolidated financial position, results of operations or cash flows as of such dates.

Risk Factors

Our operating results may fluctuate as a result of factors that are outside our control, and this could have a negative effect on the price of our common stock.

        Fluctuations in our operating results, for any reason, that decrease sales or profitability could cause our growth or operating results to fall below the expectations of investors and securities analysts, and this could cause our stock price to decline. The market price of our common stock has fluctuated substantially in the past. Between June 30, 2001 and June 30, 2002, the price of our common stock, as reported on the Nasdaq National Market, has ranged from a low of $3.50 to a high of $8.75. We expect the market price of our common stock to continue to experience significant fluctuations in the future in response to a variety of factors, including fluctuation in our operating results.

        For the six months ended June 30, 2002, total revenues increased 9% to $39.0 million from $35.9 million for the six months ended June 30, 2001. We had net earnings of $1.9 million for the six months ended June 30, 2002 compared to a net loss of $0.4 million for the six months ended June 30, 2001. The increase in total revenues and earnings for the six months ended June 30, 2002 are primarily due to an increase in influenza and infectious vaginitis products, offset by decreases in our core products, as well as the elimination of goodwill amortization in 2002. We may not continue our revenue growth or continue to achieve profitability. Operating results may continue to fluctuate, in a given quarter or annual period, or from prior periods as a result of a number of factors, many of which are outside of our control.

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        Other factors that are beyond our control and that could affect our operating results in the future include:

•

seasonal fluctuations in our sales of Group A Strep and Influenza tests, which are generally highest in fall and winter, thus resulting in generally lower operating results in the second and third calendar quarter and higher operating results in the first and fourth calendar quarters;



•

changes in the level of competition, such as would occur if one of our larger and better financed competitors introduced a new product to compete with one of our products;



•

changes in economic conditions in our domestic and international markets, such as economic downturns, reduced consumer demand, inflation and currency fluctuations, particularly as we expand into markets outside Western Europe where economic conditions may differ from those prevailing at given times among developed nations;



•

delays in shipments of our products to customers or from suppliers which could result in manufacturing difficulties or from unexpected large customer orders which could strain our manufacturing resources; and



•

changes in sales levels, since a significant portion of our costs are fixed costs with the result that relatively higher sales could likely increase profitability but relatively lower sales would reduce revenue but would not reduce costs by the same proportion, and hence could cause operating losses.

Our operating results may also fluctuate as a result of factors that we do control, such as efforts in introducing new products or developing new markets. We may have to expend considerable resources in order to pursue these steps, and this could have a negative effect on our profits.

        We must change the mix of products we sell from time to time. For example, while we do not believe that we currently have major products that are nearing the end of their life cycle, we may in the future be required to replace aging products. We also attempt to focus on products with relatively higher margins. The development, manufacture and sale of our diagnostic products require a significant investment of resources. We may incur increased operating expenses as a result of our increased investment in sales and marketing activities, manufacturing scale-up and new product development associated with our efforts to:

•

expand our business line;



•

expand the LTF technology platform menu of analytes;



•

develop products with higher margins internally, or in collaborations with the external pharmaceutical community; and



•

expand our business geographically.

        The funds for these projects have in the past come primarily from our business operations and a working capital line of credit. If our business slows and we become less profitable, and as a result have less money available to fund research and development, we will have to decide at that time which programs to cut, and by how much. This decision will be based on a number of factors, including the amount of the funding shortfall, how promising a particular project appears to be, and how close the project is to being commercially available. Our operations will be adversely affected if our net sales and gross profits do not correspondingly increase, or if our product development efforts are unsuccessful or delayed. Development of new markets also requires a substantial investment of resources, such as new employees, offices and manufacturing facilities, and, if adequate financial, personnel, equipment or real estate resources are not available, we may be required to delay or scale back market developments.

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Unexpected significant increases in demand for our products could require us to spend considerable resources to meet the demand, or harm our customer relationships if we are unable to meet demand.

        If we experience unexpected significant increases in the demand for our products, we may be required to expend additional capital resources to meet these demands. These capital resources could involve the cost of new machinery, or even the cost of new manufacturing facilities. This would increase our capital costs, which could affect our earnings. If we are unable to develop necessary manufacturing capabilities in a timely manner, our net sales could be adversely affected. Failure to cost-effectively increase production volumes, if required, or lower than anticipated yields or production problems encountered as a result of changes that we may make in our manufacturing processes to meet increased demand, could result in shipment delays as well as increased manufacturing costs, which could also have a material adverse effect on our net sales.

        Unexpected increases in demand for our products could also require us to obtain additional raw materials in order to manufacture products to meet the demand. The majority of raw materials and purchased components used to manufacture our products are readily available. However, some of these materials are currently obtained from a sole supplier or a limited group of suppliers. We have long-term supply agreements with these vendors. The reliance on sole or limited suppliers and the failure to maintain long-term agreements with other suppliers involve several risks, including the inability to obtain an adequate supply of raw materials and components and reduced control over pricing, quality and timely delivery. Although we attempt to minimize our supply risks by maintaining an inventory of raw materials and continuously evaluating other sources, any interruption in supply could have a material adverse effect on our net sales or cost of sales.

The loss of key distributors or an unsuccessful effort to directly distribute our products could lead to reduced sales.

        Although we have distribution agreements with approximately 80 distributors, the market is dominated by a small group of these distributors. Five of our distributors, which are considered to be among the market leaders, accounted for approximately 55% and 50% of our net sales for the six months ended June 30, 2002 and June 30, 2001, respectively. While we believe our relationship with our distributors is good, the loss of a major distributor may have an adverse effect on our net sales. The loss or termination of our relationship with any of these key distributors could significantly disrupt our business unless suitable alternatives can be timely found. Finding a suitable alternative may pose challenges in our industry's competitive environment, and another suitable distributor may not be found on satisfactory terms. For instance, many distributors already have exclusive arrangements with our competitors, and others do not have the same level of penetration into our target markets as our existing distributors. We could expand our efforts to distribute and market our products directly; however, this would require an investment in additional sales and marketing resources, including hiring additional field sales personnel, which would significantly increase our future selling, general and administrative expenses. In addition, our direct sales, marketing and distribution efforts may not be successful.

We may not achieve market acceptance of our products among physicians and other healthcare providers, and this would have a negative effect on future sales growth.

        A large part of our business is based on the sale of rapid POC diagnostic tests that physicians and other healthcare providers can administer in their own facilities without sending samples to laboratories. Thus, clinical reference laboratories and hospital-based laboratories are significant competitors for our products, and provide many of the diagnostic tests used by physicians and other healthcare providers. Our estimated market share in fiscal 2001 for some of our key products was 56% in pregnancy, 50% in Group A Strep and 36% for Influenza tests. Our future sales depend on, among other matters, capture of sales from these laboratories by achieving market acceptance from physicians

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and other healthcare providers. If we do not capture sales at the levels we have budgeted for, our net sales may not grow as much as we hope and the costs we have incurred will be disproportionate to our sales levels. We expect that these laboratories will compete vigorously to maintain their dominance of the testing market. Moreover, even if we can demonstrate that our products are more cost-effective or save time, physicians and other healthcare providers may resist changing their established source for these tests.

Intense competition with other manufacturers of POC diagnostic products may reduce our sales.

        In addition to competition from laboratories, our POC diagnostic tests compete with similar products made by our competitors. We have a large number of multinational and regional competitors making investments in competing technologies, including several large pharmaceutical and diversified healthcare companies. These competitors include Abbott Laboratories, Beckman Coulter Primary Care Diagnostics and Becton Dickinson. In November 1999, Abbott Laboratories ceased manufacturing certain diagnostic products in its primary manufacturing facility in conjunction with a consent decree from the FDA. Currently we are not aware of a date at which Abbott Laboratories may re-enter the market. A number of our competitors have a potential competitive advantage because they have substantially greater financial, technical, research and other resources, and larger, more established marketing, sales, distribution and service organizations than we have. Moreover, some competitors offer broader product lines and have greater name recognition than we have. If our competitors' products are more effective than ours, or are cheaper, our net sales could be adversely affected. Competition also has the effect of limiting the prices we can charge for our products.

To remain competitive, we must continue to develop or obtain proprietary technology rights; otherwise, other companies may increase their market share by selling products that compete with our products.

        Our competitive position is heavily dependent on obtaining and protecting our proprietary technology or obtaining licenses from others. Our ability to compete successfully in the diagnostic market depends on continued development and introduction of new proprietary technology and the improvement of existing technology. If we cannot continue to obtain and protect proprietary technology, our net sales and gross profits could be adversely affected. Moreover, our current and future licenses may not be adequate for the operation of our business.

        We have a license agreement with Becton Dickinson related to our Pregnancy and Group A Strep products, which products account for 54% and 64% of our net sales during the six months ended June 30, 2002 and June 30, 2001, respectively. The license agreement expires in 2004. Our ability to obtain patents and licenses, and their benefits, are uncertain. We have 191 issued patents and approximately 70 applications are pending. Our patents have expiration dates from 2002 to 2019. There are no patents that are expiring in the near term which we consider material to our business. However, our pending patent applications may not result in the issuance of any patents, or if issued, the patents may not have priority over others' applications or may not offer protection against competitors with similar technology. Moreover, any patents issued to us may be challenged, invalidated or circumvented in the future. Further, we have patents issued in Canada, Germany, France, United Kingdom, Italy, Spain, Australia, Belgium, Korea, Norway, Lithuania, the Netherlands, Austria, Switzerland, Sweden and South Africa. Therefore, third parties can make, use, and sell products covered by our patents in any country in which we do not have patent protection. We license the right to use our products to our customers under label licenses that are for research purposes only. These licenses could be contested, and, because we cannot monitor all potential unauthorized uses of our products around the world, we might not be aware of an unauthorized use and might not be able to enforce the license restrictions in a cost-effective manner. Also, we may not be able to obtain licenses for technology patented by others or on commercially reasonable terms.

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We may be involved in intellectual property infringement disputes which are costly and could limit our ability to use some technologies in the future.

        There are a large number of patents and patent applications in our product areas, and we believe, based on experience and published reports, that litigation in our industry regarding patent and other intellectual property rights is prevalent and will continue. We are not currently involved in any litigation in this area, but our involvement in litigation to determine rights in proprietary technology could adversely affect our net sales because:

•

in common with any major litigation, it would likely consume a substantial portion of managerial and financial resources;



•

of the developing state of the law in this area, in the U.S. and around the world, its outcome would be uncertain and a court may find the third-party claims valid and that we have no successful defense to such claims;



•

an adverse outcome could subject us to significant liability in the form of penalties, special and punitive damages, or future royalty payments affecting our future earnings;



•

failure to obtain a necessary license upon an adverse outcome could prevent us from selling our current products or other products we may develop; and



•

of the developing state of the law, protection of our rights may not be available under the law or may be inadequate.

The uncertainty and cost of regulatory approval for our products may have a negative effect on our profitability.

        The testing, manufacture and sale of our products are subject to regulation by numerous governmental authorities, principally the FDA and corresponding state and foreign regulatory agencies. The FDA regulates all of our products except our veterinary products, which are regulated by the U.S. Department of Agriculture. Our future performance depends on, among other matters, our estimates as to when and at what cost we will receive regulatory approval for new products. However, complying with laws and regulations of these regulatory agencies can be a lengthy, expensive and uncertain process making the timing and costs of approvals difficult to predict. Our net sales would be negatively affected by delays in the receipt of or failure to receive approvals or clearances, the loss of previously received approvals or clearances or the placement of limits on the use of the products.

We are subject to numerous government regulations in addition to FDA regulation and compliance with changes could increase our costs.

        In addition to the FDA and other regulations described previously, numerous laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances impact our business operations. If these laws change, are amended, or are added to, the costs of compliance with these laws could substantially increase our costs. While we believe that we currently comply with these laws in all material respects, compliance with any future modifications of these laws or laws regulating the manufacture and marketing of our products could result in substantial costs and loss of sales or customers. Because of the number and extent of the laws and regulations affecting our industry, and the number of governmental agencies whose actions could affect our operations, it is impossible to reliably predict the full nature and impact of future legislation or regulatory developments relating to our industry. We do not estimate that we will have material capital expenditures for environmental control facilities for the remainder of our current fiscal year or the succeeding fiscal year. To the extent the costs and procedures associated with meeting new requirements are substantial, our business and results of operations could be adversely affected.

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We use hazardous materials in our business that may result in unexpected and substantial claims against us relating to handling, storage or disposal.

        Our research and development and manufacturing activities involve the controlled use of hazardous materials, including chemicals and biological materials such as dimethyl sulfate, sodium nitrite, acetaldehyde, acrylamide, potassium bromate and radionuclides. The risk of accidental contamination or injury from these materials cannot be completely eliminated. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. These regulations include federal statutes popularly known as CERCLA, RCRA and the Clean Water Act. Compliance with these laws and regulations is expensive. If any governmental authorities were to impose new environmental regulations requiring compliance in addition to that required by existing regulations, these future environmental regulations could impair our research, development or production efforts by imposing substantial costs on our business. In addition, because of the nature of the penalties provided for in some of these environmental regulations, we could be required to pay substantial fines, penalties or damages in the event of noncompliance with environmental laws or the exposure of individuals to hazardous materials. Further, any accident could partially or completely shut down our research and manufacturing facilities and operations.

Our net sales could be affected by third-party reimbursement policies and potential cost constraints.

        We sell many of our products to physicians and other healthcare providers. They will not use our products if they do not get reimbursed for the cost by their patients' healthcare insurers or payors, such as Blue Cross, Blue Shield, Medicare, or other public or private healthcare programs. Our net sales could be adversely affected by changes in reimbursement policies of these governmental or private healthcare payors. In the U.S., healthcare providers such as hospitals and physicians that purchase diagnostic products generally rely on third-party payors, principally private health insurance plans, federal Medicare and state Medicaid, to reimburse all or part of the cost of the procedure. We believe that the overall escalating cost of medical products and services has led to and will continue to lead to increased pressures on the healthcare industry, both foreign and domestic, to reduce the cost of products and services, including our products. Given the efforts to control and reduce healthcare costs in the U.S. in recent years, currently available levels of reimbursement may not continue to be available in the future for our existing products or products under development. Third-party reimbursement and coverage may not be available or adequate in either U.S. or foreign markets, current reimbursement amounts may be decreased in the future and future legislation, regulation or reimbursement policies of third-party payors may reduce the demand for our products or our ability to sell our products on a profitable basis.

If we are not able to manage our growth strategy, and if we experience difficulties integrating acquired companies or technologies after the acquisition, our earnings may be adversely affected.

        During 1999 and 2000, we acquired three businesses, Litmus Concepts, Inc., Metra Biosystems Inc. and the urine test strip business from Dade Behring. Our business strategy contemplates further increased growth in the number of employees, the scope of operating and financial systems and the geographic area of our operations, including further expansion outside the U.S., as new products are developed and commercialized. We may experience difficulties integrating our own operations with those of companies or technologies that we have acquired or we may acquire, and as a result we may not realize our anticipated benefits and cost savings within our expected time frame, or at all. Because we do not have a large executive staff, future growth may also divert management's attention from other aspects of our business, and will place a strain on existing management, as well as on our operational, financial and management information systems. Furthermore, we may expand into markets in which we have less experience or incur higher costs. Should we encounter difficulties in managing

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these tasks, our growth strategy may suffer and our net sales and gross profits could be adversely affected.

Our business could be negatively affected by the loss of key personnel or our inability to hire qualified personnel.

        Our future success depends in part on our ability to retain our key technical, sales, marketing and executive personnel and our ability to identify and hire additional qualified personnel. Competition for these personnel is intense, both in the industry in which we operate and also in the geographic area (Northern San Diego County) where our headquarters and many of our operations are located. If we are not able to retain existing key personnel, or identify and hire additional qualified personnel, our business could be negatively impacted. In addition, we expect to further grow our operations, and our needs for additional management and other key personnel will increase.

We are exposed to business risks which, if not covered by insurance, could have an adverse effect on our profits.

        We maintain insurance that we believe is appropriate to protect us against the kinds of insurable risks, such as product liability claims or business interruptions, that companies of our size and companies in our industry typically insure against. However, there is a risk that claims may be made against us for types of damages, or for amounts of damages, that are not covered by our insurance. For example, there is a risk of product liability claims arising from our testing, manufacturing and marketing of medical diagnostic devices, both those currently being marketed as well as those under development. We currently have a product liability policy providing coverage up to $10 million, and our claims to date have not been material. However, it is possible that potential product liability or other claims may exceed the amount of our insurance coverage or may be excluded from coverage under the terms of our policy. Also, if we are held liable, our existing insurance may not be renewed at the same cost and level of coverage as presently in effect, or may not be renewed at all. If we are held liable for a claim against which we are not indemnified or for damages exceeding the limits of our insurance coverage, whether arising out of product liability matters or from some other matter, that claim could have a material negative effect on our results of operations.

We face risks relating to our international sales and foreign operations, including the risk of currency fluctuations, which could increase our costs or stifle our growth opportunities.

        Our products are sold internationally, primarily to customers in Japan and Europe, including Germany, Italy and Poland. Sales to foreign customers accounted for 24% and 23% of our net sales for the six months ended June 30, 2002 and 2001, respectively, and are expected to continue to account for a significant percentage of our net sales. In December 2001, we began manufacturing our urinalysis products in Marburg, Germany. Any delays or problems encountered in the integration of this process could result in shipment delays and increased manufacturing costs and could have a material adverse effect on our results of operations. International sales and manufacturing operations are subject to inherent risks which could increase our costs and stifle our growth opportunities. These risks include:

•

exposure to currency exchange fluctuations, such as the 11% increase in the value of the Euro against the U.S. dollar for the six months ended June 30, 2002 and the 6% drop in the value of the German and Italian currencies against the U.S. dollar during fiscal 2001;



•

longer payment cycles and greater difficulty in accounts receivable collection;



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compliance with multiple foreign laws, tariffs or other barriers as we continue to expand into new countries and geographic regions;



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difficulties in obtaining export licenses;

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•

reduced protection for, and enforcement of, intellectual property rights, particularly as we expand our business beyond Europe;



•

political and economic instability in some of the regions that we may expand into in the future; and



•

potentially adverse tax consequences.

        Even that portion of our international sales which is negotiated for and paid in U.S. dollars is 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 and our anticipated foreign operations, as could changes in the general economic conditions in those markets. For the six months ended June 30, 2002, for example, the value of the Euro increased 11% against the U.S. dollar, while in fiscal 2001, the value of the German and Italian currencies dropped 6% against the U.S. dollar. To date, we have not reflected that change in currency value in our selling prices. In order to maintain a competitive price for our products in Europe, however, we may have to provide discounts or otherwise effectively reduce our prices, resulting in a lower margin on products sold in Europe. In January 1999, a new currency called the "Euro" was introduced in certain Economic Monetary Union countries ("EMU Countries"). During 2002, EMU Countries are operating with the Euro as their single currency. As of yet, we have not seen any unusual costs associated with the use of the Euro, but we continue to monitor its impact on our operations. Continued change in the values of European currencies or changes in the values of other foreign currencies could have a negative impact on our business, financial condition and results of operations. Although we do not currently hedge against exchange rate fluctuations, any measures we take to hedge against exchange rate fluctuations may not adequately protect us from their potential harm.

We rely on a continuous power supply to conduct our operations, and California's current energy crisis could disrupt our operations and increase our expenses.

        California has recently experienced an energy crisis that could have disrupted our operations and significantly increase our expenses. In the event of an acute power shortage, that is, when power reserves for the State of California fall below 1.5%, California has on some occasions implemented, and may in the future continue to implement, rolling blackouts throughout California. We currently have a backup generator with limited capacity. We have no alternate source of power in the event of a blackout, and our current insurance does not provide coverage for any damages that we or our customers may suffer as a result of any interruption in our power supply. If blackouts interrupt our power supply, we would be temporarily unable to continue operations at our facilities. Any such interruption in our ability to continue operations at our facilities could damage our reputation, harm our ability to retain existing customers and to obtain new customers, and could result in lost revenue, any of which could substantially harm our business and results of operations. Furthermore, our utility expenses have increased substantially and could continue to be negatively impacted by the California energy crisis.

Future sales by existing stockholders could depress the market price of our common stock and make it more difficult for us to sell stock in the future.

        Sales of our common stock in the public market, or the perception that such sales could occur, could negatively impact the market price of our securities and impair our ability to complete equity financings. We currently have outstanding the following shares of common stock:

•

Approximately 28.8 million shares of common stock that have been issued in registered offerings and are freely tradable in the public markets.

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•

In addition, approximately 5.7 million shares of common stock are issuable upon exercise of stock options outstanding as of June 30, 2002 under our various stock option plans at a weighted average exercise price of $4.63 per share.



•

We have in effect registration statements under the Securities Act registering approximately 6.5 million shares of common stock reserved under our employee stock option and purchase plans.

        We are unable to estimate the number of shares of common stock that may actually be resold in the public market since this will depend on the market price for the common stock, the individual circumstances of the sellers and other factors. We also have a number of institutional stockholders that own significant blocks of our common stock. If these stockholders sell large portions of their holdings in a relatively short time, for liquidity or other reasons, the prevailing market price of our common stock could be negatively affected.

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PART II—OTHER INFORMATION

ITEM 1. Legal Proceedings

        We received a letter dated April 24, 1992 from the United States Environmental Protection Agency (the "EPA") notifying us that we are a potentially responsible party for cleanup costs at a federal Superfund site, the Marco of Iota Drum Site (the "Marco Site"), near Iota, Louisiana. Documents gathered in response to such letter indicate that we sent a small amount of hazardous waste to facilities in Illinois. It is possible that, subsequently, such waste could have been shipped to the Marco Site. The EPA letter indicates that a similar notice regarding the Marco Site was sent by the EPA to over 500 other parties. At this time, we do not know how much of our waste may have reached the Marco Site, the total volume of waste at the Marco Site or the likely site remediation costs. There is, as in the case of most environmental litigation, the theoretical possibility of joint and several liability being imposed upon us for damages that may be awarded.

        We are involved in litigation matters from time to time in the ordinary course of business. Management believes that any and all such actions, in the aggregate, will not have a material adverse effect on us. We maintain insurance, including coverage for product liability claims, in amounts which management believes appropriate given the nature of our business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Our Annual Meeting of Stockholders was held on May 21, 2002. All of the directors nominated for election as stated in our Proxy Statement were elected as follows:

ITEM 5. OTHER EVENTS

        Effective as of June 17, 2002, Richard C.E. Morgan resigned from our board of directors.

ITEM 6. Exhibits and Reports on Form 8-K

(a)

Exhibits

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⁽¹⁾

Indicates a management plan or compensatory plan or arrangement.

(b)

Reports on Form 8-K filed in the quarter ended June 30, 2002

On April 11, 2002, we filed a current report on Form 8-K announcing the appointment of Ernst & Young LLP as our new auditors.

On April 23, 2002 we filed a current report on Form 8-K/A to amend our April 4, 2002 Form 8-K, to make it clear that we appointed Ernst & Young LLP as our independent auditors to replace Arthur Andersen LLP as our independent public accountants. Arthur Andersen LLP was dismissed as our independent auditors on the recommendation of our audit committee.

On May 13, 2002 we filed a current report on Form 8-K announcing the amendment of our Rights Agreement, dated as of December 31, 1996, with American Stock Transfer & Trust Company, as Rights Agent, to modify the definition of "Exempt Person".

On May 29, 2002 we filed a current report on Form 8-K announcing the further amendment of our Rights Agreement, dated as of December 31, 1996, with American Stock Transfer & Trust Company, as Rights Agent, to eliminate provisions relating to "Continuing Directors" and to restate in its entirety the Rights Agreement.

SIGNATURE

        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.

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QuickLinks

ITEM 1. Financial Statements

QUIDEL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)

QUIDEL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data, unaudited)

QUIDEL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, unaudited)

Quidel Corporation Notes to Condensed Consolidated Financial Statements (Unaudited)

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

ITEM 1. Legal Proceedings
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER EVENTS
ITEM 6. Exhibits and Reports on Form 8-K