Full Press Release Details
OraSure Technologies, Inc.
Analyst/Investor Conference Call
Prepared Remarks of Douglas A. Michels and Ronald H. Spair
Please see Important Information at the conclusion of the following prepared remarks.
Introduction Doug Michels
Thanks Judy, and good afternoon everyone.
will start today s call with an update on several recent developments, including our Q1 performance. Ron will then follow with a more detailed overview of our Q1 results and guidance for the second quarter. I will conclude the call with a brief
discussion of our major clinical programs and certain other business developments. We will then open the floor for your questions.
Q1 Performance Doug Michels
As indicated in our press release, revenues for the first quarter were $17.9 million. This represents an increase over the comparable
period of 2009, but fell below our top-line guidance for the quarter. Despite the lower than expected revenues, we exceeded our guidance on the bottom line. The revenue shortfall was driven primarily by lower than expected domestic sales of our
OraQuick ADVANCE HIV test and international sales of our over-the-counter ( OTC ) cryosurgical
wart removal product.
Continuing economic challenges have had a greater than expected impact on some of our
OraQuick customers. Funding cuts at both the state and local levels
resulted in lower sales during the quarter, primarily in the public health segment which depends heavily on public funding. Reduced funding also impacted our
OraQuick sales to hospitals, but to a lesser degree.
Funding challenges are not new and we built our 2010 plan and first quarter forecast anticipating their impact. However, it is becoming more apparent
that the extent and timing of the reductions and their impact on our business can be very difficult to predict with precision. For example, during the first quarter several large customers unexpectedly reduced their purchases from committed levels
previously communicated to us. In fact, one state s reduction did not occur until after an early March meeting of the state legislature, which focused on reducing expenditures by the Department of Health. Several other jurisdictions were unable
to expand their HIV testing programs in the first quarter as previously planned.
Funding issues were more pronounced
where customers had accumulated higher levels of product inventory. As you may recall, we reported strong results in the third and fourth quarters of 2009 in part because several public health customers made large purchases of
OraQuick tests during those periods. This is not unusual as customers often try to spend unused funds prior to
the September 30 or December 31 ends of their respective fiscal years. However, because of continued funding cuts associated with testing initiatives, some of these customers were unable to deploy their purchased inventory at normal or
expected rates. This in turn adversely affected their Q1 purchases.
Reduced funding has also placed increased pressure on pricing for our
OraQuick HIV test. While we continue to maintain a premium on price compared to our competitors, and our 2010
forecast did reflect a lower average selling price, the price degradation during the first quarter was somewhat greater than expected.
Despite the state and local funding challenges, our
OraQuick HIV test continues to be a key tool in the fight against HIV/AIDS. HIV testing is strongly supported
at the Federal level as evidenced by the CDC s funding decisions during the past few years, and we expect this to continue. In fact, on April 1, 2010, the CDC announced a $31.5 million expansion of its program to fund HIV testing in
healthcare settings. As a result, total funding of $142.5 million is planned for the 3-year period beginning October 2010. We believe this will mitigate some of the funding issues currently being experienced by our public health and hospital
With respect to our cryosurgical business, we experienced lower than expected sales of our OTC wart removal product in Latin
America during Q1. As explained on prior calls, our distributor, Genomma, launched our product in Brazil beginning late last year. The launch has gone well and the product has been well received by retailers and consumers. However, late in Q1
Genomma decided to cancel two purchase orders which we had included in our forecast. These orders totaled more than $500,000 and were cancelled in order to give Genomma more time to gauge the level of consumer purchases so as to avoid an inventory
build up at retail outlets.
Looking forward, we believe the economic climate and funding challenges will continue to impact our business for
the rest of 2010, particularly here in the U.S. While the exact impact is difficult to predict at this time, we believe revenues for the year may well be at or near the levels recorded in 2009. Ron will provide more detail on our specific
expectations for the second quarter later in the call.
Regarding some key accomplishments for the quarter, we recently
completed a facility and quality systems audit performed by the FDA in connection with our premarket approval ( PMA ) application for the
OraQuick HCV test. This audit occurred during March and went well. We have submitted our formal response, which
we believe satisfies all the FDA s observations and clears the path for approval of our OraQuick HCV test
for use with whole blood.
The completion of the audit was the result of excellent work by a cross-functional group of employees from our
Regulatory, Quality, Operations and R&D groups. Their efforts are very much appreciated.
Organizational Change
One final comment before Ron provides his update, relates to an organizational matter. Manuel Mendez, who joined OraSure last year
and has led our Sales and Marketing group, will be leaving the Company to pursue another opportunity. We appreciate Manuel s contributions and wish him well in his new endeavor. A search for his successor is underway. In the interim, I will
directly manage the Sales and Marketing function as I have done at times in the past.
And with that, I will turn things over to Ron.
First Quarter 2010 Financial Results Ron Spair
Thanks Doug and good afternoon everyone.
First quarter 2010 revenues were $17.9 million, representing a 4% increase from
the $17.3 million reported in 2009. Increased licensing and product development revenues and increased sales of our cryosurgical systems products were partially offset by a decline in infectious
disease testing and insurance risk assessment revenues.
Our first quarter 2010 licensing and product development revenues include a $1.0
million milestone payment received from Merck as a result of our achievement of certain regulatory objectives pursuant to our collaboration agreement for the development and promotion of our OraQuick rapid HCV test.
Infectious disease testing revenues were $9.5 million in the first quarter of 2010 compared to $10.5 million in the first quarter of 2009. As we
discussed during the previous call, we have observed that an increasing number of our public health customers are supplying hospitals with OraQuick HIV tests purchased from us. This overlap makes it difficult to separately track OraQuick
sales to these markets. Since this trend is likely to continue, we began reporting public health and hospital sales as a combined domestic market beginning with the first quarter.
The overall 9% decline in our infectious disease revenues in the first quarter of 2010 was a result of decreased
OraQuick HIV sales in both the domestic and international markets. Domestic OraQuick sales were down 6%
primarily due to lower average selling prices and lower volumes. International OraQuick revenues declined 27%
largely as a result of some customer losses caused by increased price competition as well as the non-recurrence of customer orders from the prior year period.
Moving to substance abuse testing, revenues remained flat at $2.7 million in the first quarter of 2010 compared to the first quarter
of 2009 as lower sales of our Intercept drug testing system were offset by increased sales of the
Q.E.D. rapid saliva alcohol test.
First quarter 2010 cryosurgical revenues increased 40% compared to the first quarter of 2009. International
OTC sales increased $952,000 when compared to sales in the same period of 2009 largely as a result of $1.1 million of sales to our Latin American OTC distributor, Genomma, in support of the launch of our product in Brazil. This was partially offset
by lower European OTC sales to our distributor, SSL, during the first quarter.
On the professional side, a 28% increase
in sales of Histofreezer in the United States was offset by a 57% decrease of
Histofreezer sales in the international market. Domestic sales were up largely due to increased purchases by
our distributors in anticipation of price increases implemented in January and April 2010. The decline in international sales is largely due to a discontinuance of sales to certain foreign distributors that had been diverting product to the U.S.
We believe our efforts to stop diversion by certain foreign distributors along with the addition of two
manufacturer s sales representative organizations ( MROs ), are having a positive impact on our domestic
Histofreezer business. On the OTC front, we expect additional orders from Genomma for Brazil despite the first
quarter cancellations and we expect that sales this year to SSL for Europe will be higher than last year.
Our insurance risk assessment sales
decreased from $1.6 million in 2009 to $1.4 million in 2010 due to variations in laboratory ordering patterns and a decrease in the issuance of new insurance policies.
Gross Margin Ron Spair
Turning to Gross Margin, we are pleased that our overall margin for Q1 of 2010 remained at 64%, essentially unchanged from Q1 of 2009. Gross margin in the
current quarter benefited from the increase in licensing and product development revenues as well as a decrease in royalty and licensing expenses. However, these benefits were offset by an
increase in unabsorbed overhead costs due to lower product production in light of existing inventory levels as well as the lower selling price realized by our
Operating Expenses Ron Spair
Our total operating expenses for the first quarter increased $747,000 or 6%, compared to 2009. Lower Research and Development costs were offset by higher
Sales and Marketing and General and Administrative spending.
Research and Development expenses for Q1 declined 7% or
approximately $246,000 from the first quarter of 2009, primarily due to a decrease in clinical trial spending associated with our
OraQuick HIV OTC programs as well as a decrease in validation and vendor qualification costs for those same
Sales and Marketing expenses increased 13% or approximately $672,000, as a result of additional market research
activities, increased recruiting and consulting costs and commissions paid to the two new manufacturer s sales representative organizations that we retained during the first quarter to support sales of our
Histofreezer product in the U.S. physician office market.
General and Administrative expenses also increased approximately 7% or by $322,000, primarily due to increased consulting costs, partially offset by a
decrease in legal expenses.
From a bottom line perspective, we reported a net loss of $2.2 million, or $0.05 per share, which exceeded our guidance. This compares to a net loss of
$1.6 million, or $0.04 per share for the same period of 2009.
Cash Flow from Operations and Liquidity Ron Spair