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OraSure Technologies, Inc. (OSUR)

Q3 2015 Earnings Call· Wed, Nov 4, 2015

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Transcript

Rena George-Beck

Operator

Welcome to OraSure Technologies 2015 Third Quarter Financial Results Conference Call and simultaneous webcast. [Operator Instructions]. OraSure Technologies issued a press release at approximately 4 p.m. Eastern Time today regarding its 2015 third quarter financial results and certain other matters. The press release is available on our website at www.orasure.com or by calling 610-882-1820. If you go to our website, the press release can be found by opening the Investor Relations page and clicking on the link for press releases. This call is also available real time on our website and will be archived there for seven days. Alternatively, you can listen to an archive of this call until midnight, November 11, 2015, by calling 855-859-2056 for domestic or 404-537-3406 for international. The access code is 52009076. With us today are Doug Michels, President and Chief Executive Officer and Ron Spair, Chief Operating Officer and Chief Financial Officer. Doug and Ron will begin with opening statements which will be followed with a question-and-answer session. Before I turn the call over to Doug, you should know that this call may contain certain forward-looking statements, including statements with respect to revenues, expenses, profitability, earnings or loss per share or other financial performance, product development performance, shipments and markets, business plans and regulatory filings and approvals. Actual results could be significantly different. Factors that could affect results are discussed more fully in the Company's SEC filings including its registration statements, its annual report on Form 10-K for the year ended December 31, 2014, its quarterly report on Form 10-Q and its other SEC filings. Although forward-looking statements help to provide complete information about future prospects, listeners should keep in mind that forward-looking statements may not be reliable. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after this call. With that, I would like to turn the call over to Doug Michels.

Doug Michels

Analyst

Great. Thanks, Rena and good afternoon, everyone and welcome to our call. The third quarter continued our strong performance in 2015. Consolidated net revenues were $29.9 million and they came in at the high end of our guidance for the quarter. The drivers for this performance were our molecular collection systems business and continued momentum for our rapid hepatitis C test. Molecular collection systems revenues increased 7% over the prior year period. Third quarter sales of our OraQuick rapid hepatitis C test increased 62% over the third quarter of 2014 and 23% sequentially from the second quarter of this year. Together with the exclusivity payments recognized under our HCV co-promotion agreement with AbbVie, total HCV-related revenues were $6.3 million for the third quarter. Revenue growth combined with favorable margins generated a $1.5 million net profit for the third quarter. This is the third consecutive quarter of profitable performance for the Company. Later in the call I will provide additional highlights regarding our business, but before I do that, Ron will provide more detail on our third quarter performance and expectations for the fourth quarter. So, with that, let me turn the call over to Ron.

Ron Spair

Analyst

Thank you, Doug and good afternoon, everyone. Our third quarter 2015 consolidated net revenues increased 7% to $29.9 million compared to $27.8 million reported in 2014. Our consolidated net product revenues of $25.7 million increased 5%, largely as a result of higher sales of our OraQuick HCV, Intercept and molecular collection systems products partially offset by lower sales of our OraQuick HIV product. Other revenues were $4.1 million in the current quarter, of which $3.4 million represents the recognition of exclusivity payments under the AbbVie agreement and $750,000 represents revenue associated with Ebola-related funding we received from the Biomedical Advanced Research and Development Authority or BARDA. Other revenues in the third quarter of 2014 included $3.4 million of AbbVie exclusivity payments. Total HCV-related revenues including the AbbVie exclusivity payments increased 21% to $6.3 million in the third quarter of 2015 compared to $5.2 million in the third quarter of 2014. Our HCV product revenues increased 62% to $2.9 million in Q3 from $1.8 million in the prior year. Sales of our OraQuick HCV professional product in the domestic market increased 47% in the third quarter of 2015 to $1.9 million from $1.3 million in the prior year. This increase is largely due to the addition of new HCV customers and higher sales to current customers who have expanded their HCV testing programs. International sales of our HCV test in the third quarter of 2015 increased 104% to $957,000 from $470,000 in the same period last year primarily due to the timing of purchases by a multinational humanitarian organization. Also contributing to the higher international sales was the expansion of our HCV business in Asia. Domestic sales of our professional HIV product decreased 23% to $5.5 million in the third quarter of 2015 compared to $7.2 million in the third quarter…

Doug Michels

Analyst

Okay, thanks, Ron. As noted earlier in the call, DNA Genotek had another very strong quarter. The $7.3 million in current quarter revenues represents the second highest quarterly revenue total in DNA Genotek?s history. Through the end of September 2015, DNA Genotek generated more than $22 million of revenue which represents growth of over 25% compared to the first nine months of 2014. The revenue split for the third quarter was largely consistent with prior quarters, with commercial customers representing 60% of the total and academic customers contributing the remaining 40%. Commercial revenues were up 20% year-over-year in the third quarter. The largest contributor to the growth of our commercial revenues was 23andMe which delivered $1.7 million of revenue for the quarter. This represents more than 200% growth over the third quarter 2014, when 23andMe was dealing with certain regulatory issues. You will note that DNA Genotek's third quarter revenues were down sequentially from the second quarter, as expected, primarily as a result of the ordering pattern of a large breast cancer genetic testing company. This customer made its initial purchase in second quarter to deploy our Oragene DNA sample collection product into its large network of collection centers. This initial purchase contributed to DNA Genotek?s record revenue performance in Q2. Although this customer purchased additional product in Q3, the amount purchased was naturally down from the initial stocking order last quarter. Overall, third quarter performance across a number of commercial customers was strong and we're very pleased with the advances we have made in this market. On our last call we discussed DNA Genotek?s new product initiatives in microbiome and tuberculosis and I am pleased to report that these initiatives are progressing as expected. We continue to acquire new customers in the microbiome space. We're also continuing to execute…

Operator

Operator

[Operator Instructions]. And our first question comes from the line of Brandon Coulliard with Jefferies. Your line is open, please go ahead.

Unidentified Analyst

Analyst

This is actually Kate in for Brandon. Could you maybe give a little more detail on the impact of AbbVie detailing what you saw in the quarter and how you expect detailing, the level of detailing to trend into 4Q? And just to clarify, do you expect domestic HCV up sequentially? Thanks.

Doug Michels

Analyst

This is Doug. Hi, Kate. Answer the last question first, so we indeed expect domestic HCV revenues to be up sequentially in Q4, so that's high confidence there. Relative to AbbVie detailing, Abbvie detailing was at a peak in the third quarter, so I think it remains to be seen if that level of detailing continues into Q4. We will obviously monitor that closely. As I think Ron emphasized, expenses in the third quarter were impacted by an increase in AbbVie detailing expenses and actually at this point in time, we have exhausted our obligation from a financial perspective to AbbVie detailing. So, we should see a sequential decrease in expenses associated with AbbVie detailing in the fourth quarter. That doesn't mean that their detailing will necessarily -- their detailing activity will be necessarily reduced, it just means that our financial obligation as it relates to AbbVie detailing will be reduced substantially in the fourth quarter.

Unidentified Analyst

Analyst

And just one question on Genotek. Did you have a comment on Genotek's current capacity utilization and what type of impact will the capacity expansion planned for next year, I believe, have on gross margins? Thank you.

Doug Michels

Analyst

Kate, we apologize, but we missed a large part of that question. Could you repeat that, please?

Ron Spair

Analyst

Yes, we're getting a lot of echo on your line, Kate. So, I don't know if you're on a speaker or if you can pick up?

Unidentified Analyst

Analyst

I was just wondering, could you comment on Genotek's current capacity utilization and what type of impact will the capacity expansion plan for next year, I believe, have on gross margins, if any? Thank you.

Doug Michels

Analyst

So, DNA Genotek has plenty of capacity to meet existing demand and expanded demand. We're going to be increasing capacity and that new capacity is going to come online in the first quarter of 2016. So, we do not expect any issues from a capacity constraint either in the near term or into 2016.

Ron Spair

Analyst

And we don't expect any effect on our gross margin profile, Kate, from bringing online that additional capacity.

Operator

Operator

[Operator Instructions]. Our next question comes from the line of Eric Criscuolo with Mizuho Securities. Your line is open, please go ahead.

Eric Criscuolo

Analyst · Mizuho Securities. Your line is open, please go ahead.

Did the relaunch of the 23andMe tests that just occurred, did that have any impact on the quarter? Was there any inventory stocking from them or do you expect this to affect more the quarters going forward?

Ron Spair

Analyst · Mizuho Securities. Your line is open, please go ahead.

So, they just recently relaunched their program here in the U.S. for carrier screening and we certainly have been coordinating our activities with them to make sure that we have sufficient product for them to accommodate what needs they may have. But I wouldn't say that we have seen any extraordinary purchasing from them in advance of the launch, but we certainly are prepared to support them in every way we can to make that launch successful and to have products available to respond to their needs.

Eric Criscuolo

Analyst · Mizuho Securities. Your line is open, please go ahead.

And the HCV international purchase that you referenced, I think it was the NGO, is that the same customer that you've been speaking about for the past year or two?

Doug Michels

Analyst · Mizuho Securities. Your line is open, please go ahead.

Yes, it is, Eric. In addition to that customer purchasing more than they typically have done in the quarter, I think in large part due to timing, we have seen nice growth in the Asian marketplace for our HCV test and that, too, was a contributing factor to increased HCV revenues in the international space.

Eric Criscuolo

Analyst · Mizuho Securities. Your line is open, please go ahead.

And then just lastly on the Ebola program and specifically the $7.2 million from the BARDA funding, can you remind me how that is going to be recognized by you?

Ron Spair

Analyst · Mizuho Securities. Your line is open, please go ahead.

Right. So, that $7.2 million, as Doug indicated, is there and available to fund our activities in support of securing 510(k) clearance for our rapid Ebola antigen test. And those activities include the finalization and locking in of the actual product itself, validating that, scaling that up from a manufacturing perspective, having sufficient product to conduct clinical trials in support of the 510(k) claim and then filing. And so all the costs associated with that, whether it be from R&D, clinical and regulatory, that will be reimbursed by BARDA as we progress through that phase of development. That is likely to take us out through the 2017 timeline and so we will recognize revenue coincident with the incurring of costs associated with that program. And we will give visibility as to how that is going to roll out as we move through time, but as you might suspect, the conduct of the clinical trials, the amount of money that we're going to spend for those clinicals, the accrual of patients, all is somewhat vague at the moment as far as timing and expense levels. But we will endeavor to give you as much visibility as we can as we move through the process.

Eric Criscuolo

Analyst · Mizuho Securities. Your line is open, please go ahead.

And then, I'm sorry, just one more on -- the expectations are still for not recognizing any performance fees from AbbVie; is that correct?

Ron Spair

Analyst · Mizuho Securities. Your line is open, please go ahead.

Yes, that is correct.

Operator

Operator

Thank you. And I'm showing no further questions at this time and I would like to turn the call back over to Doug Michels for any closing remarks.

Doug Michels

Analyst

Okay. I just want to thank everybody for being on the call this afternoon and look forward to talking to you again at the conclusion of Q4. Have a good afternoon and evening, everyone. Goodnight.