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.
indicated in our press release, both revenues and our bottom line exceeded our guidance and each of our business lines performed well during the second quarter. Our results also reflect a $1 million milestone payment under our Hepatitis C
( HCV ) collaboration with Merck, which we earned one quarter ahead of schedule.
Today, Ron will start the call with a detailed
overview of our second quarter financial results and will provide guidance for the third quarter. I will then review several recent regulatory approvals, and provide an update on our major clinical programs and certain other business matters. We
will then conclude by opening the floor for your questions.
And with that, I will turn things over to Ron.
Second Quarter 2010 Financial Results Ron Spair
Thanks Doug, and good afternoon everyone.
Q2 Discussion Ron Spair
Before I get into the details, I would like to put our Q2 results in context with the guidance provided during the first quarter call.
Revenues for the second quarter of 2010 were $19.2 million, exceeding our guidance range of $17.0 to $17.5 million. As Doug noted, our current quarter revenues include a $1.0 million payment received from Merck as a result of our achievement of
commercial objectives pursuant to our collaboration agreement for the development and promotion of our OraQuick
rapid HCV test in Europe. After backing out the earlier than expected milestone payment, we still exceeded the high end of our guidance. In addition, we experienced sales growth across all of our product lines.
From a bottom line perspective, we reported a net loss of $553,000, or $0.01 per share in Q2 2010, compared to a forecasted loss of
$0.07 to $0.08 per share. The higher revenues and lower than projected operating expenses helped to reduce our net loss for the quarter. R&D expenses came in lower due to the timing of clinical trial spend for our
OraQuick HCV test and for other R&D projects. Sales and marketing and general and administrative expenses
were also lower then expected due to timing of recruiting and staffing expenses.
Second quarter 2010 revenues of $19.2 million represented an 11% increase from the $17.3 million reported in 2009. As you may recall,
our second quarter 2009 revenues were negatively impacted by a manufacturing issue related to our OraQuick HIV
test, which resulted in a backlog at June 30, 2009 of $2.2 million.
Infectious disease testing revenues were $10.0 million in the second
quarter of 2010 compared to $9.4 million in the second quarter of 2009. This also represents an approximate $493,000 increase from the first quarter of 2010. The overall 6% increase in our infectious disease revenues in the second quarter of 2010
to 2009 was the result of a 12% increase in OraQuick HIV
sales in the domestic market, partially offset by a 36% decrease in international sales. Domestic OraQuick
sales during the second quarter of 2009 were negatively impacted by the OraQuick manufacturing issue. Had the
$2.2 million backlog been filled in the prior year period, we would have experienced a decline in sales for the second quarter of 2010 when compared to the second quarter of 2009, primarily as a result of decreased sales volume resulting from
reduced public health funding by state and local governments and slightly lower average selling prices. International
OraQuick HIV revenues declined largely as a result of some customer losses caused by price competition, changes
in government testing algorithms and the non-recurrence of one-time customer orders from the prior year period.
substance abuse testing, revenues increased 4% from $2.9 million in the second quarter of 2009 to $3.1 million in the second quarter of 2010, as increased sales of our
Intercept drug testing system in the domestic market were partially offset by decreased sales of
Intercept in the international market.
Second quarter 2010 cryosurgical revenues increased 8% compared to the second quarter of 2009 due to a 95% increase in professional
sales in the domestic market. The higher U.S. professional sales were caused by the continued elimination of the diversion issue, the introduction of a newly reconfigured
Histofreezer product line in the U.S., an overall price increase implemented in April 2010, and the impact of
adding our new manufacturer s sales representative organizations. International sales partially offset this increase with a 58% decline, largely due to decreases in the European and Latin American markets.
OTC cryosurgical sales decreased 13% to $1.3 million when compared to the same period of 2009, primarily as a result of decreased sales to our Latin
American OTC distributor, Genomma, which were partially offset by higher sales to our European OTC distributor, SSL.
Our insurance risk assessment sales increased to $1.6 million in 2010 from $1.5 million in 2009.
Gross Margin Ron Spair
Turning to Gross Margin, our overall margin for Q2 of 2010 was 63%, a significant increase over the 57% reported for the second quarter of 2009. Gross
margin in the current quarter benefited from the higher licensing and product development revenues, a more favorable product revenue mix, and an improvement in scrap and spoilage expense levels when compared to the second quarter of 2009. These
benefits were partially offset by an increase in unabsorbed overhead costs due to lower product production and severance costs related to a reduction in force during the second quarter.
Operating Expenses Ron Spair
Our total operating expenses for the second quarter decreased $2.5 million compared to 2009. Second quarter 2009 operating expenses included a $3.0
million impairment charge related to license payments for certain HCV patents, which we previously capitalized.
and Development expenses for Q2 increased 25% or approximately $596,000 from the second quarter of 2009, primarily as a result of increased staffing costs, increased laboratory supplies expense related to new product development, and increased
clinical trial spending associated with our OraQuick HIV OTC program. These increases were partially offset by
lower clinical costs for our OraQuick HCV test.
Sales and Marketing expenses increased 6% or approximately $321,000, as a result of increased consulting and advertising expenses, partially offset by
decreased staffing costs.
General and Administrative expenses decreased approximately 8% or by $361,000, primarily due to lower legal
expenses, partially offset by an increase in staffing costs.
On the bottom line, we reported a net loss of $553,000, or $0.01 per share, for Q2 2010. This compares to a net loss of $5.2 million or $0.11 per share in
the second quarter of 2009.
Cash Flow from 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 increasing during the quarter to
$74.5 million. Our working capital of $77.0 million at June 30, 2010 is down compared to the working capital balance at December 31, 2009 of $89.4 million, largely due to the reclassification of our long-term debt to a current liability as
a result of its maturity date in June 2011 and a reduction in cash and cash equivalents.
During the second quarter of 2010, we generated $1.9
million in cash flow from operations compared to $1.0 million generated during the second quarter of 2009. The increase is largely the result of our lower net loss coupled with a decrease in prepaid expenses and other assets of $1.3 million largely
due to the collection of a federal tax refund of $673,000, a decrease in inventories and an increase in accrued expenses and other liabilities. Offsetting these increases in cash was an increase in accounts receivable and a decrease in accounts
payable. Day sales outstanding was 62 days at June 30, 2010 compared to 58 days at June 30, 2009.
Third Quarter 2010 Financial Guidance Ron Spair
Turning to guidance for the third quarter of 2010, we are projecting revenues of approximately $17.5 to $18.0 million and a loss per share of
approximately $0.03 to $0.04.
And with that, I will turn things back over to Doug.
Second Quarter Regulatory Developments Doug Michels
Thanks Ron. During the second quarter, we received several important regulatory approvals.
The most important of these was the FDA approval of our
OraQuick Hepatitis C test for use with venous whole blood specimens, which we previously announced. It is the
first rapid HCV test to be approved by the FDA, and we formally launched this product at the annual meeting of the American Association for Clinical Chemistry ( AACC ) at the end of July. We are now actively selling this product to our
customers. We expect sales of this product during the second half of 2010, but sales of any magnitude will likely require approval of one or more additional specimen types, along with receipt of a CLIA (Clinical Laboratory Improvement Amendments of
A second important approval we received relates to the shelf life for our
OraQuick HIV test. During the second quarter, the FDA approved a dating extension for this product from 12 to
18 months. We also received approval from our notified body to extend dating to 18 months in Europe. As a result, we will soon be selling our
OraQuick HIV test both domestically and around the world with this longer dating. Real time stability studies
are ongoing and, assuming the product continues to meet our stability criteria, we would expect to seek approval of further shelf life extensions in the future.
A final regulatory approval received during the second quarter relates to our
manufacturing operations. As you may know, some time ago we decided to invest in automated manufacturing equipment for our OraQuick
ADVANCE HIV product. This equipment has now been validated and approved by the FDA for use in the
manufacture of our OraQuick HIV test. This equipment will enable us to produce larger quantities at lower cost
and will be critical to our ability to meet future demand for this important product. The first automated production lot will come off the line this week.
Clinical Programs Update Doug Michels
Turning to our major clinical programs, there are several important developments to report.
Now that we have received venous whole blood approval for our
OraQuick HCV test, we are focusing our efforts on gaining approval for additional specimen types and
implementing our CLIA waiver studies.
As disclosed previously, the FDA required additional clinical studies to support claims for fingerstick
whole blood and oral fluid. We completed these studies and were prepared to submit a pre-market approval ( PMA ) supplement seeking approval of both claims once we received venous whole blood approval. However, prior to submitting the PMA
supplement, we shared our data with the FDA as part of our discussions on the CLIA waiver study protocols. The FDA recently provided feedback on our data.
The FDA s primary comments related to the lower sensitivity of our test in oral fluid and fingerstick whole blood when compared to venous whole
blood. As a result of these comments, and in consultation with the FDA, we have decided to separate the submissions for fingerstick whole blood and oral fluid. A PMA supplement was recently sent to the FDA for the fingerstick claim.
We still intend to pursue an oral fluid claim for our