Full Press Release Details
OraSure Technologies, Inc.
Analyst/Investor Conference Call
Prepared Remarks of Douglas A. Michels and
Please see Important Information at the conclusion of the following prepared remarks.
Introduction Doug Michels
Thanks Judy, and good afternoon everyone.
As indicated in our press release, we continued our
solid performance in 2011 with a strong second quarter. Both our revenues and bottom line exceeded our guidance.
In addition, we made good
progress on the strategic front. The most recent development is our announced plan to acquire DNA Genotek Inc., the leading provider of oral fluid collection devices for molecular diagnostic applications. This represents a significant step for our
Company, and we look forward to completing this acquisition in the third quarter. As I will discuss more in a few minutes, we have also continued to make good progress in our major clinical programs.
I will start the call today with some additional commentary on the DNA Genotek acquisition. Ron will follow with financial highlights from the quarter,
and then I will close by providing an update on our clinical programs and certain other business developments. We will then take your questions.
Acquisition of DNA Genotek Doug Michels
We are very excited about the acquisition of DNA Genotek and believe this transaction is compelling for a number of reasons.
Once closing occurs, we will be working closely with DNA Genotek management to build upon our core competencies and plan
our future goals and objectives. I look forward to updating you as we finalize our strategy for the combined companies. For now, I can share a few thoughts about how DNA Genotek may contribute to our future growth.
In short, we believe the DNA Genotek acquisition will provide substantial strategic, commercial and operational benefits to
OraSure and help set the stage for our future growth.
And with that, I will turn the call over to Ron for his financial update.
Second Quarter 2011 Financial Results Ron Spair
Thanks Doug, and good afternoon everyone.
Second quarter 2011 revenues were $19.1 million compared to $19.2 million reported in 2010. Our product revenues increased 6% as higher sales of our infectious disease and substance abuse testing products
were partially offset by lower sales of our cryosurgical systems products and lower insurance risk assessment revenues. The overall increase in product revenues was offset by lower licensing and product development revenues caused by the absence of
a $1.0 million milestone payment received in the second quarter of 2010 under our HCV collaboration with Merck.
Infectious disease testing revenues were $11.3 million in the second quarter of 2011 compared to $10.0 million in the second
quarter of 2010. The overall 13% increase was driven by a 10% increase in domestic OraQuick sales and a 171%
increase in international OraQuick sales. The higher domestic sales resulted primarily from new or expanded
HIV-testing programs implemented in the U.S., as well as variability in customer ordering patterns. International sales increased largely because certain private and government customers were able to make purchases for HIV testing during the
In substance abuse testing, revenues increased from $3.1 million in the second
quarter of 2010 to $3.2 million in the second quarter of 2011, primarily as a result of a 9% increase in sales of our
Intercept drug testing system. This increase was largely due to improvements in the workplace market as hiring
conditions have slowly begun to improve and we are seeing the results of our focused sales and marketing efforts.
cryosurgical revenues decreased 10% compared to the second quarter of 2010. Higher professional diagnostic sales in the U.S. were offset by lower international professional sales and reduced OTC sales.
OTC sales decreased $433,000 when compared to 2010 largely as a result of the lower sales to our European
OTC distributor, Reckitt Benckiser, partially offset by higher sales to our Latin American OTC distributor, Genomma.
side, domestic sales increased 9% while international sales decreased 9%. The higher domestic sales reflect the continued efforts of our manufacturers sales representatives and improved focus by our distributors. Furthermore, we are beginning
to see orders from those customers that had previously worked through their inventory of less expensive international product that was diverted into the domestic professional market in 2009 and part of 2010. The lower international sales were caused
by decreased sales in Asia and Australia, partially offset by higher sales in the European market.
Our insurance risk assessment sales
decreased from $1.6 million in 2010 to $1.4 million in 2011. This is a result of both order timing and the continued general softness of the life insurance market.
Gross Margin Ron Spair
Turning to Gross Margin, our overall margin
for Q2 of 2011 was 64% compared to 63% reported for the second quarter of 2010. Gross margin in the second quarter 2010 benefited from the $1.0 HCV milestone payment received from Merck during that period. Gross margin for 2011 benefited from lower
direct labor costs and improved absorption of overhead costs as a result of staffing optimization and a change to automated manufacturing during 2011. These changes accounted for 3.2% of margin improvement for the second quarter of 2011. This gain
more then offset the negative margin impact associated with the absence of the HCV milestone revenues in 2011.
Operating Expenses Ron Spair
Our total operating expenses for the second quarter increased $1.9 million or 15%, compared to the second quarter of 2010. Research
and development expenses increased by approximately $2.1 million due to higher clinical trial costs associated with our
OraQuick HIV OTC program. Sales and marketing expenses decreased by approximately $258,000 as a result of lower
consulting costs, partially offset by higher staffing costs. General and administrative expenses were essentially flat for the quarter.
From a bottom line perspective, we reported a GAAP net loss of $2.4 million, or $0.05 per share, which beat our guidance. This compares to a net loss of
$553,000, or $0.01 per share, for the same period of 2010. EBITDA in Q2 2011 was a loss of $1.5 million, or $0.03 per share, versus a gain of $174,000, or $0.00 per share, in Q2 2010.
Cash Flow from Operations and Liquidity Ron Spair
our balance sheet and cash flow, our cash balance remained strong at $75.4 million at June 30th.
We generated $1.7 million in cash flow
from operations compared to $1.9 million generated in the second quarter of 2010.
Third Quarter 2011 Financial Guidance Ron
Turning to guidance for the third quarter of 2011, since the DNA Genotek acquisition has not yet closed, we will only
provide guidance for the third quarter exclusive of this business. Once the closing occurs and we have had an opportunity to complete a purchase price allocation, we would then expect to be in position to update our guidance.
With that caveat, we are projecting revenues of approximately $19.0 to $19.5 million and a loss per share of
approximately $0.07 for the third quarter of 2011. The projected loss includes charges associated with additional spending for our HIV-OTC trial and certain deal related expenses associated with our acquisition of DNA Genotek.
And now back to Doug.
Programs Update Doug Michels
Thanks, Ron. Turning to our clinical programs
OraQuick HCV Doug Michels
Our CLIA waiver submission for the OraQuick HCV test remains pending before the FDA, and we have been in active dialogue with the agency. We have received a request for additional data from the FDA, which will
require us to design and perform a relatively small study. We expect the study itself to last only about a week, but with set-up and close-out activities this work will take us into the 4th quarter to complete. We hope to get this information to the FDA as quickly as possible upon completion of the study in
order to facilitate the prompt completion of the agency s review of our application. We remain confident that our submission is approvable.
During the second quarter, we continued to pursue commercialization of the
OraQuick HCV test. We have been active on many fronts as we plan to maximize this opportunity.
HIV OTC Doug Michels
Turning to our OraQuick HIV OTC product, you will recall that the
final phase of clinical testing, which was started at the end of last year, involves the use of our test in an unobserved setting. One of the study objectives specified by the FDA was to identify at least 100 HIV infected, but undiagnosed
individuals. In order to meet this requirement, we expected to enroll and test approximately 4,000-5,000 participants in our study. This trial is progressing well, and we remain on track to complete this study here in the third quarter.
In planning for our FDA submission, we have decided to split our filing into three separate parts or modules, the timing of which will be spaced to allow
the FDA sufficient review time between modules. This is an accepted technique used to start the formal review process as early as possible. The first module, which we expect to file later this month, will contain data from all studies performed
prior to the final phase that is currently under way. The second module will contain information about our manufacturing and Customer Care Call Center. The final module will contain the results of the unobserved clinical trial and is anticipated to
be filed around the end of this year.
As the clinical program has progressed, we have also been preparing for the commercial launch of the OTC
product. Activities include updating our market research, identifying appropriate advertising and public relations firms, developing a robust retail sales strategy and determining who will be the commercial provider of our 24/7 customer care center.
These activities have been ongoing for some time and will continue through the end of this year and into 2012.
OraQuick HIV Shelf Life Doug Michels
Turning to product stability since our last call, we formally requested approval for a shelf life extension for our OraQuick HIV test to 30 months. I am pleased to report that this extension was approved by both the FDA and by our notified body in Europe. This is important not only for our
current professional business but also for our HIV OTC product as the retail market typically requires a shelf life of 24 months or more.
Drugs-of-Abuse High Throughput Oral Fluid Assays Doug Michels
In substance abuse, we remain on track to launch the high throughput oral fluid drug assays developed with Roche Diagnostics later
this year. During the second quarter, the FDA issued a 510(k) clearance for the amphetamines assay. With this latest approval, the initial launch panel will consist of assays for PCP, cocaine, opiates, methamphetamine and amphetamine. The launch of
these new assays for use with our Intercept collection device, is expected in the fourth quarter.
As for the THC assay (marijuana), good progress has been made. We believe the final technical issues have been resolved and final clinical studies are
expected to be completed by the end of the year. Our goal is to have Roche submit this assay for 510(k) clearance later this year or sometime during the first quarter of 2012.
A final area I would like to address relates to the most recent addition to our infectious disease product line - the OraSure QuickFlu test. We have launched this product and are just beginning to
enter this seasonal business. Recently, we signed an agreement with a leading group purchasing organization, or GPO, serving the hospital market. We are in active discussions with several other major GPO s and anticipate that additional
agreements will be signed.
So in summary, we have accomplished much on multiple fronts. We have achieved a significant business development milestone with the announced agreement to acquire DNA Genotek, we delivered a strong second
quarter and we continue to make progress on all of our major clinical programs. We remain extremely optimistic and excited about our future.
And with that, I will now open the floor to your questions. Operator please proceed.
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