Full Press Release Details
OraSure Technologies, Inc.
Analyst/Investor Conference Call
Prepared Remarks of Douglas A. Michels and Ronald H. Spair
Important Information at the conclusion of the following prepared remarks.
Thanks Judy, and good afternoon everyone.
I am pleased to announce that we delivered a solid third quarter and that both our revenues and bottom line exceeded our previously issued guidance. Ron Spair will begin today s discussion with some
highlights from our third quarter financial results, followed by guidance for the rest of 2010.
I will then discuss our major clinical
programs and certain other business matters.
We will conclude by opening the floor for your questions.
And with that, I will turn things over to Ron.
Third Quarter 2010 Financial Results Ron Spair
Thanks Doug, and good afternoon everyone.
Before discussing our sales performance for the third quarter, I believe we need to take a brief look back at
the prior year. As you may recall, our third quarter 2009 revenues included the elimination of a $2.2 million backlog for OraQuick HIV orders existing at June 30, 2009. Had the backlog been fulfilled in the second quarter of 2009, we would
have reported an increase in the third quarter of 2010 in overall infectious disease revenues when compared to the third quarter of 2009. This growth was largely due to higher domestic OraQuick sales volume as the cautionary spending we saw in
the early part of the year by our public health customers subsided somewhat and led to an increase in spending during the third quarter of 2010 as certain of these customers approached their fiscal year end. Internationally, OraQuick HIV revenues declined during the third quarter, as a result of price competition, changes in the use of our test
within government testing algorithms and lower funding for HIV testing initiatives.
In substance abuse testing, revenues decreased 8% from
$3.3 million in the third quarter of 2009 to $3.0 million in the third quarter of 2010, as a result of lower domestic sales of our Intercept drug testing system and the absence of laboratory equipment sales, partially offset by a 17% or $83,000
increase in international Intercept sales due to variability in ordering patterns experienced with our largest customer.
2010 cryosurgical revenues increased 12% compared to the third quarter of 2009 due to a 39% increase in professional sales in the domestic market. The higher U.S. professional sales were caused by elimination of the diversion issue and the impact of
adding our new manufacturer s sales representative organizations.
OTC cryosurgical sales decreased 12% to $992,000 when compared to the
same period of 2009, primarily as a result of the ordering patterns of our Latin American OTC distributor, Genomma.
Gross Margin Ron Spair
Turning to Gross Margin, our overall margin for Q3 of 2010 was 62% compared to 64% reported for the third quarter of 2009. As you
may recall, OraQuick HIV production during the third quarter of 2009 had increased significantly in order to fill the backlog of orders existing at June 30, 2009. This increased production allowed for a higher absorption of overhead costs
and consequentially drove a higher gross margin for the prior year quarter. Gross margin in the current quarter is more representative of normalized production levels and benefited from an improved product mix and lower scrap.
Operating Expenses Ron Spair
Our total operating expenses for the third quarter decreased $603,000 compared to 2009 primarily as a result of a decrease in sales and marketing expenses of 12% or approximately $635,000, as a result of
decreased staffing, consulting, and market research expenses.
On the bottom line, we reported net income of $274,000, or $0.01 per share, for Q3 of 2010. This compares to net income of $1.8 million, or $0.04 per
share, in the third 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 at $73.7 million.
During the current quarter, we generated $3.3 million in cash flow from operations compared to $4.3 million generated during the third quarter of 2009.
Fourth Quarter 2010 Financial
Turning to guidance for the fourth quarter of 2010, we are projecting revenues of approximately $18.0 to
$18.5 million. When preparing our projections, we took note of the increase in funding at the federal level to supplement the state and local funding available to test and treat HIV. While we believe these grants will positively impact our results
by stimulating product purchases by grant recipients, the timing and extent of these purchases over the next few quarters is hard to predict.
From a bottom line perspective, we expect to be spending heavily during Q4 on research and development activities related to the CLIA waiver studies for our OraQuick HCV test, the initiation of our final OraQuick HIV over-the-counter clinical trial and the development of our next generation OraQuick HIV test. These expenditures, together with the revenues projected for Q4, will produce a loss per share in the $0.08 to $0.09 range.
And with that, I will turn things back over to Doug.
Clinical Programs Update Doug Michels
Thanks, Ron. During the third
quarter, there were a number of positive developments in our major clinical programs.
OraQuick HCV Doug Michels
As you know, last quarter we received FDA approval of our OraQuick
HCV test for use with venous whole blood specimens. Since that approval, we have been focused on gaining approval for additional specimen types and executing our CLIA waiver studies.
During the third quarter, we filed our premarket approval ( PMA ) supplement for fingerstick whole blood with the FDA. We have been in regular dialogue with the agency regarding our submission,
and we were advised that audits were recently conducted at two of our clinical sites. These audits are a routine part of the PMA review process that is designed to verify the quality and integrity of our clinical data. This activity confirms that
our fingerstick submission is under active review by the FDA.
As previously discussed, we still plan
to pursue an oral fluid claim for this product, although the filing of a PMA supplement remains on hold pending further discussions with the FDA. Our strategy is to further progress our fingerstick submission before we move forward on oral fluid.
With respect to a CLIA waiver, the studies required for fingerstick and venous whole blood have been started and are progressing on schedule.
We expect the CLIA studies to wrap up by the end of this year. Our plan is to file a CLIA waiver request as soon as possible after approval of a fingerstick claim is granted by the FDA. We also expect to pursue CLIA waiver for oral fluid once our
PMA supplement for this claim is filed and approval is received.
HIV OTC Doug Michels
With respect to our rapid HIV over-the-counter test, final validation of our labeling is complete. We have submitted a formal investigational device
exemption, or IDE, to the FDA containing this validation data and we are anticipating final approval of our study protocol for the final phase of clinical testing.
Site selection, training and preparation and IRB review for the final clinical studies is well underway. We have also been working with our call center contractor to update and finalize call scripts and
prepare for operation of the call center in connection with the final clinical studies. We still plan to begin the final phase of clinical testing this quarter. As previously indicated, we expect enrollment will continue through mid-2011 and, of
course, we will continue to provide updates as appropriate.
Throughput Oral Fluid Assays Doug Michels
In substance abuse testing, submissions for FDA 510(k) clearance remain pending
for the high throughput oral fluid assays for opiates, PCP, amphetamines, methamphetamines and cocaine developed under our collaboration with Roche Diagnostics. In response to requests from the FDA for more data, additional studies are now being
executed for these assays. We expect the studies to be completed and the data submitted to the FDA in the next couple of months.
likely timing for FDA 510(k) clearance of the initial panel five assays is the first half of 2011. Commercial launch of these assays would occur as soon as possible after final FDA clearance is received. We would also expect to complete testing and
submit for 510(k) approval for the THC assay during the early part of 2011.
OraQuick HIV Shelf Life Doug Michels
As you know, an important objective of the Company has been to extend the shelf life for our OraQuick HIV test. This is important for several reasons:
Data from our real time stability studies indicate that the product is extremely stable, and we recently filed a request to extend our dating from 18 months to 24 months. Given the FDA s approval of
similar extensions in the past, we expect to hear something back from the agency in the relatively near future.
OraQuick Manufacturing Automation Doug Michels
Another ongoing program has been to automate manufacturing for our OraQuick HIV test. As discussed in prior calls, the validation of our manufacturing process was approved by the FDA, and I am pleased to report that we have begun
manufacturing our test using this fully-automated equipment. We expect that automation will reduce costs and improve our gross margin, particularly as sales volumes increase for this important product line.
Organizational Change Doug Michels
On the organizational front, Tony Bernardo recently joined OraSure as our new Senior Vice President, Business Development. Tony has over 30 years of healthcare experience including general management,
business development, operations, and research and development. He has nearly 20 years experience in the diagnostics field with companies such as Inverness Medical, Dade International and Instrumentation Laboratory. We are very happy that Tony has
joined our management team and believe he will be a significant contributor to our company s future success.
Finally, before we take your questions, I would like to provide an update on an important issue affecting our
business - the status of government funding for HIV testing.
As previously discussed, ongoing economic challenges have caused funding
cuts at both the state and local levels, resulting in lower purchases in the public health market, primarily during the first half of this year. Although we believe these difficult conditions will continue for the foreseeable future, the third
quarter benefitted from the need by some customers to fully spend their HIV testing budgets before the September 30 end of their fiscal year. This same pressure to complete year-end spending may also benefit our fourth quarter results as well.
While state and local HIV/AIDS budgets
have been impacted by the economy and in some cases jurisdictions have curtailed HIV testing activity, on the federal funding side, there continue to be favorable developments.
We continue to believe that the Federal government s ongoing priority and support for HIV testing and prevention will help mitigate somewhat the negative economic conditions adversely affecting our
public health customers at the state and local levels.
And with that, I will now open the floor to your questions.
Conclusion Doug Michels
Thank you for participating on today s call and for your continued interest in OraSure. Have a good afternoon and evening.
Important Information
This document contains certain forward-looking statements,
including with respect to expected revenues, earnings/loss per share, and expected clinical development, regulatory filings and approvals. Forward-looking statements are not guarantees of future performance or results. Known and unknown factors that
could cause actual performance or results to be materially different from those expressed or implied in these statements include, but are not limited to: ability to market and sell products, whether through an internal, direct sales force or third
parties; ability to manufacture products in accordance with applicable specifications, performance standards and quality requirements; changes in relationships, including disputes or disagreements, with strategic partners or other parties and
reliance on strategic partners for the performance of critical activities under collaborative arrangements; failure of distributors or other customers to meet purchase forecasts or minimum purchase requirements for the Company s products;
impact of replacing distributors and success of direct sales efforts; inventory levels at distributors and other customers; impact of competitors, competing products and technology changes; impact of the economic downturn, high unemployment and poor
credit conditions; reduction or deferral of public funding available to customers; competition from new or better technology or lower cost products; ability to develop, commercialize and market new products; market acceptance of oral fluid testing