Full Press Release Details
OraSure Technologies, Inc.
2009 Fourth Quarter and
Analyst/Investor Conference Call
Douglas A. Michels and Ronald H. Spair
Please see Important Information at the conclusion of the following
prepared remarks. The following remarks include a discussion of certain non-GAAP financial measures. Non-GAAP reporting is provided to help you better understand the Company s business and certain items which impacted the Company s
results. However, non-GAAP financial results are not meant to be considered as a stand-alone measurement of performance, or as a substitute for, or as superior to, GAAP results. You should be aware that non-GAAP measures have inherent limitations
and should be used only in conjunction with OraSure s consolidated financial statements prepared in accordance with GAAP. The Company issued a press release on February 10, 2009 which includes a table detailing the non-GAAP measures
together with the corresponding GAAP results and a reconciliation to GAAP. You are encouraged to review these items.
Introduction Doug Michels
Good afternoon everyone and welcome to the call.
I am pleased to report that
our financial performance during the fourth quarter of 2009 was strong. We exceeded our guidance on both the top and bottom lines and ended the year with positive momentum. For the full year, when compared to 2008, our revenues grew, we improved our
gross margin, and reduced our use of cash flow from operations. We also continued to make progress on our major clinical programs. We accomplished all of this despite a very difficult economic environment and the unexpected challenge we experienced
in manufacturing our OraQuick HIV test.
Later in the call, I will highlight some of the more important accomplishments during 2009 and provide some expectations for 2010. However, before I do that, Ron is going to discuss our 2009 financial
performance and provide financial guidance for the first quarter of 2010.
We will conclude the call by opening the floor for any questions you may have.
And with that, I will turn things over to Ron.
2009 Full Year Financial Results Ron Spair
Thanks Doug and good afternoon everyone. I will start with a
brief review of our full-year 2009 financial results and will follow that with more detail on the fourth quarter.
2009 revenues were $77.0 million, representing an 8.3% increase from the $71.1 million reported in 2008. Increased sales
in the infectious disease, cryosurgical systems, and insurance risk assessment markets were partially offset by declines in sales of our substance abuse testing products and a reduction in license and product development revenues.
The overall 21% growth in our infectious disease revenues in 2009 was primarily a result of the higher average selling price for our
OraQuick ADVANCE HIV test realized under the direct sales model into the U.S. Hospital Market which we
implemented last year along with continued volume growth in public health.
Our cryosurgical revenues increased 2% in 2009 compared to 2008.
The increase is a result of higher sales into the international OTC market primarily to Genomma, our Latin American OTC distributor. Genomma successfully worked through its excess inventory levels from 2008, resumed purchasing from us for the
Mexican market during the second quarter of 2009 and prepared for the Brazilian launch in December 2009. This increase was offset by lower sales into the international professional market of 24% as we ceased doing business with several international
distributors that we believe were diverting product to the U.S. market.
Our substance abuse business decreased 14% in
2009 primarily as a result of lower sales of our Intercept devices and assays. Intercept continued to be negatively impacted in 2009 by the current recession and high unemployment levels in the domestic
economy. However, we have seen this business stabilize during Q3 and Q4. Our primary drug testing lab partners have also indicated that they have seen stabilization in the downward trend of workplace testing.
Licensing and product development revenues decreased to $1.9 million in 2009 from $2.3 million in 2008 as a
result of lower royalty-bearing sales by our licensee.
Gross Margin Ron Spair
Our margin for the full year 2009 was 61%, an increase from 58% in 2008. Gross margin was favorably impacted primarily by our switch to the direct sales
model for hospitals in 2009 and its related higher average selling price. Also benefiting margin during the year was an improvement in manufacturing efficiencies.
Operating Expenses Ron Spair
for the year were $55.9 million compared to $52.6 million in 2008. 2008 operating expenses included a $4.9 million pre-tax gain related to a lump sum payment received under a favorable litigation settlement entered into during that year. 2009
operating expenses included a $3.0 million pre-tax impairment charge recorded in the second quarter related to the net book value of previously capitalized payments under a HCV patent license agreement and a $1.5 million pre-tax litigation
settlement related to our patent infringement litigation with Inverness which was settled in the fourth quarter of 2009. Increased spending in sales and marketing and general and administrative expenses of $307,000 and $561,000, respectively, also
contributed to the overall increase in operating expenses during 2009. Partially offsetting these increases was a decline in research and development costs of $6.9 million as a result of reduced clinical trial spending on our OraQuick HIV OTC and OraQuick HCV tests.
Net Income (Loss) Ron Spair
Excluding the impairment charge in 2009 and the litigation settlements in 2009 and 2008, our adjusted pre-tax loss was $4.0
million in 2009 compared to an adjusted pre-tax loss of $13.6 million in 2008.
Now, I will turn to our quarterly results.
2009 Q4 Financial Results Ron Spair
Our fourth quarter performance
exceeded our prior guidance, on both the top and bottom lines.
Total revenues for Q4 were $20.9 million, a 21% increase from the same period in 2008.
Overall infectious disease revenues increased 44% in the fourth quarter of 2009. Public health sales were up 19% over the comparable period of 2008. Hospital sales increased over 100% compared to the
fourth quarter of 2008 due to the higher average selling price realized under the direct sales model implemented at the beginning of 2009 and higher volumes.
We are observing that an increasing number of our public health customers are also supplying hospitals with OraQuick HIV tests purchased from us. This is a positive development as it indicates increased support of hospital testing initiatives by public health agencies. However, this
overlap is making it more difficult to separately track OraQuick sales to these markets. Since this trend is
likely to continue, we intend to begin reporting public health and hospital sales as a combined market beginning in 2010.
International OraQuick revenues were $2.1 million compared to $930,000 as a result of a 90% increase
in sales to Africa. This increase was due to intra-year customer ordering patterns. Higher sales in Asia and Europe also contributed to the increase.
Fourth quarter 2009 cryosurgical revenues increased 8% compared to the fourth quarter of 2008 with revenue increases in the OTC market offset by decreases in the professional market.
International OTC cryosurgical sales were $1.8 million in the fourth quarter as a result of increased purchases by our Latin American OTC distributor,
Genomma. As previously explained, Genomma resumed purchasing product from us in the second quarter 2009 after working through its excess inventory levels from 2008. In addition, Genomma launched our OTC cryosurgical wart removal product in Brazil
during the fourth quarter. Sales to our European OTC distributor, SSL, declined $539,000 in the fourth quarter as compared to the fourth quarter of 2008. This decline was the result of an inventory build in the fourth quarter of 2008, which was not
repeated in the fourth quarter of 2009, and a decrease in SSL s transfer price in 2009.
Gross Margin Ron Spair
Turning to Gross Margin, our margin for Q4 of 2009 was 59%, an increase from 56% for Q4 of 2008. The increase was largely due to the higher average selling
price from our direct sales model as well as improvements in manufacturing efficiencies and a decrease in scrap and spoilage expense.
Operating Expenses Ron Spair
Research and Development expenses for Q4 were down 14%
or approximately $731,000 from 2008, primarily due to a $1.0 million patent license milestone payment made in the fourth quarter of 2008 which was required as a result of the filing of our OraQuick HCV pre-market approval application with the FDA. This $1.0 million favorable variance was offset by an increase in clinical trial costs associated with
our OraQuick HCV test during the current quarter.
Sales and Marketing expenses increased 5% or approximately $273,000, mostly due to an increase in market research costs as we prepare to
launch our OraQuick HCV test in the European market in 2010.
General and Administrative expenses decreased approximately $1.0 million primarily due to higher costs accrued in 2008 in connection
with the ending of our OraQuick distribution agreement with Abbott Laboratories as well as a decrease in legal
fees in 2009 resulting from the settlement of the patent infringement lawsuit filed against us by Inverness Medical and Church & Dwight.
During the quarter, we entered into several agreements with Inverness to settle the lawsuit. Pursuant to the
terms of these agreements, we paid Inverness $3.0 million and Inverness granted us non-exclusive, worldwide licenses to certain lateral flow patents. We expensed $1.5 million of our payment directly through our statement of operations with the
remaining balance recorded as a prepaid expense.
Net Income (Loss) Ron Spair
From a net loss perspective, and excluding the settlement expense for the Inverness litigation, our adjusted pre-tax loss would have been $2.0 million, or
$0.04 per share. This compares to a pre-tax loss of $5.7 million or $0.12 per share for the same period in 2008.
Operations and Liquidity Ron Spair
Turning briefly to our balance sheet and cash flow, our cash balance remained strong
with cash and short-term investments of $79.7 million and working capital of $89.4 million at December 31, 2009. During 2009, we used $293,000 in cash flow from operations compared to $2.5 million used during 2008. Day sales outstanding
increased to 65 days from 60 days in 2008. This was caused by an increase in our hospital receivables as well as an increase in hospital shipments in the fourth quarter of 2009 compared to the fourth quarter of 2008.
Q1 Financial Guidance Ron Spair
Turning to guidance For the first quarter of 2010, we are projecting revenues of approximately $19.0 to $19.5 million and a net loss per share of approximately $0.06 to $0.07.
And with that, I will turn things back over to Doug.
Clinical Programs Update Doug Michels
Thanks Ron. We made progress in all of our major clinical programs
during 2009. This progress will help fuel our growth in 2010 and beyond.
OraQuick HCV Doug Michels
A major milestone last year was the receipt of CE mark approval for our OraQuick HCV test. As you
know, CE mark approval is required to sell the product in the 27 member countries of the European Union.
Although some European countries
have individual registration requirements, many simply require notification that CE mark approval has been obtained. We have notified virtually all member countries of the EU and we are pursuing several country-specific registrations where needed.
Our launch plans for OraQuick HCV in Europe are under development. We are identifying distributors and we are discussing the promotional support to be provided under our collaboration with
Schering/Merck. We intend to announce the commercial launch of our test at a meeting of the Association for the Study of the Liver, or EASL, scheduled for April of this year. While we believe there is a public health need for rapid HCV testing in
Europe, the actual commercialization and uptake of the test will likely be a gradual process as we attempt to create awareness and product acceptance.