Good afternoon, everyone, and welcome to the OraSure Technologies 2020 Second Quarter Financial Results Conference Call and Simultaneous Webcast. As a reminder, today's conference is being recorded. [Operator Instructions]

Good afternoon. With us today are Dr. Stephen Tang, President and Chief Executive Officer; and Mr. Roberto Cuca, Chief Financial Officer. Steve will provide an overview of our quarterly highlights, including an update on our COVID programs. Roberto will review the second quarter financials, and Steve will then provide updates on our other business areas and strategy. We will then open up the call for questions. Before I turn the call over to Dr. Tang, 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 and other financial performance, product development, performance, shipments and markets, business plans, regulatory filings and approvals, expectations and strategies. Actual results could be significantly different. Factors that could affect results are discussed more fully in the company's SEC filings, including its registration statement, its annual report on Form 10-K for the year ended December 31, 2019, its quarterly reports on Form 10-Q and its other SEC filings. Although forward-looking statements help to provide complete information about future process, listeners should keep in mind that forward-looking statements are based solely on information available to management as of today. The company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after this call. With that, I will turn the call over to our CEO, Dr. Steve Tang.

Thank you, Jeanne. On today's call, in addition to our customary overview of business operations and financial performance, I'm going to walk you through why we believe our antigen and antibody tests under development for COVID-19 are extremely well positioned to serve the needs of the testing market and to present an enormous revenue opportunity for OraSure. We think our biggest challenge after obtaining emergency use authorization from the FDA may very well be how to manufacture enough devices to keep pace with demand. We will also be reviewing our segments and highlighting how COVID-19 has helped or hindered various aspects of our business. The net takeaway on our financial performance for the remainder of the year is that we believe the back half of the year is looking very strong. As a result, we expect the company to post year-over-year revenue growth and to further execute on our innovation growth strategy. For those of you not familiar with OraSure, we are experts in rapid point-of-care testing for infectious disease, sample collection and stabilization for molecular testing and laboratory and bioinformatic services for microbiome analysis. These capabilities position us well to respond to the global testing needs the COVID-19 pandemic has created. We have a long and proven track record of applying our scientific and technological expertise to developing innovative sample collection kits and accurate tests for infectious diseases. We've been able to respond quickly to the COVID-19 pandemic, working with regulators like the FDA and other stakeholders while scaling up for global markets. We have existing broad, well-established channels of distribution across global public health, laboratories, employers, hospitals, physician offices, pharmacies and direct-to-consumer. And as we discussed last quarter, some existing products are already addressing certain aspects of the COVID-19 testing market. We're leveraging our expertise to address the…

Thanks, Steve. Net product and service revenues for the 3 months ended June 30, 2020 decreased 24% from the comparable period of 2019, primarily as a result of lower sales of our genomics products due to the timing of orders placed by one of our largest genomics customers and due to the impact of the COVID-19 pandemic, lower sales of our domestic HIV, HCV, risk assessment and microbiome products due to reduced research and testing as a result of the COVID-19 pandemic and the absence of cryosurgical sales, all partially offset by the inclusion of product revenues associated with COVID-19 testing and higher laboratory services revenues. International sales for the company's OraQuick HIV products decreased 28% compared to the second quarter of 2019. This decrease was due to delays in shipments, which moved from the end of the second quarter into the early third quarter. Importantly, even including the effect of the shipment timing on the quarter, the underlying international HIV Self-Test business is still showing strong double-digit growth on a year-to-date basis. Total product and service revenues for our DNA Genotek business unit were $18.1 million during the second quarter of 2020, an increase of 4% in the second quarter of 2019. This included $8.5 million in sales of oral fluid collection devices for COVID-19 molecular testing. Total laboratory service revenue in the second quarter of 2020 was $2.2 million compared to $1.2 million in the second quarter of 2019. Laboratory services in 2020 included the revenues generated by both of the company's laboratory services subsidiaries, which are now operating under the Diversigen brand. As we disclosed in our press release, we will not be providing financial guidance for the full year at this time. This is because of the unpredictability of both the negative and positive impacts of…

Thank you, Roberto. As Roberto mentioned, we're seeing both headwinds and tailwinds in our core businesses due to the COVID-19 endemic, but continue to execute across our diagnostics, sample collection and service business lines. Taking a deeper dive into our HIV business. The pandemic has had a negative impact on HIV testing nationwide as in-person testing programs have been forced to pause or shut down in an effort to comply with social distancing requirements. Overall, professional HIV testing in the U.S. declined 50% to 70% since the pandemic began according to the Centers for Disease Control and Prevention. However, our over-the-counter HIV in-home test has been able to offset declines in professional testing to some extent as public health agencies are providing our in-home, self-test to their clients. Consequently, our sales decline of 28% was far less than the 50% to 70% estimate by the CDC. During the past few months, several government agencies have recommended that organizations establish HIV self-testing programs to immediately address the challenges posed by COVID-19 and in-person HIV testing. These agencies, which include the CDC and the Department of Health and Human services, have also guided federally supported organizations to use grant money for HIV self-test kits. OraSure is working in collaboration with government agencies and public health organizations to ensure that those who need HIV tests are able to get them. The federal government's initiative, Ending the HIV Epidemic: A Plan for America, has set a bold goal of ending the HIV epidemic in the United States by 2030. We've been encouraged to see proposals to significantly increase federal funding for this initiative in fiscal year 2021. Accessing the difficult-to-reach populations will be key to achieving this goal and rapid testing that can be brought into communities is seen as an important tool. With…

[Operator Instructions] Our first question comes from Frank Takkinen with Lake Street Capital.

Congrats on all the solid progress this quarter so far. A couple of questions from me today. Starting with the antigen test. Just curious if you could take a little deeper dive on why you decided to switch that to nostril collection from the original oral swab collection. And then as a follow-up to that, assuming development stays on track from here on out, can you give us a little background on different milestones you're looking for between now and the fourth quarter launch, whether that's EUA submission, if that will be announced? And then how long you take -- how long you expect EUA to take given the high influx of EUA submissions?

Sure. Let me start the answer, Frank, and if I miss any portion of your question, please reask it. First of all, we had originally set out to have an oral fluid test, as you noted, and then we simply followed the science. And what the science led us to is the fact that nasal swabs, which are still pain-free, still convenient and still able to be self-administered, had a higher viral load and led to better accuracy for our tests. And so we've taken that into clinical trials where it is today. And so we simply followed the science to get the most accurate analyte type along with abiding by our principles of easy to use and convenient and pain-free. So that is -- that's why we settled on the nasal swab. We are currently in clinical trials, as I mentioned. I think the next milestone for us internally is a prototype block, which I think we are just a few weeks away from at this point. And then we have accounted for the cycle for approval for FDA to EUA, and that's why we set it on a fourth quarter launch. There is still some latitude provided that FDA's timing still holds. So I think we are extremely confident we've got an excellent product in the process. And having done this before with our HIV product, moving it from a professional product to an in-home product to a self-test and moving along the BARDA-funded Ebola rapid antigen test, I think we've been able to leverage all that expertise into this antigen test. So I think we're very confident, which is why we've also announced the increases in capacity for our various products, including the antigen product to -- will allow us to build product at risk to have a supply on hand when we actually launch in the fourth quarter. So if I didn't get all your questions or all aspects of the questions, please reask them, Frank.

No, that's great. I just had one more question on the antigen test. I guess a 2-parter on the antigen test. Could you talk about some of the different end markets you are in communications with? And if there's been any contract sizing been discussed, if it's whether it's back to work or back to school. I saw with some of your different EUAs you got on the collection side, but some of the end markets. And then could you also touch on how you were thinking about pricing?

Certainly. So we have not disclosed pricing as yet, but we believe it will be in line with pricing of our current portfolio of products and competitive in the marketplace. As far as use cases and applications, it's those discussions that have effectively informed our production capacity increases really for all the products. Not only the antigen test, but our sample collection for saliva, oral fluids, nasal swabs as well, as well as the antibody test. And so that's why you're seeing such a concerted effort for us to move those -- that capacity enhancement forward and to share with you today. As far as the use cases, I think it's pretty clear that this will be a first-of-a-kind product, the rapid antigen test. It really solves 2 key dimensions. It's convenient and it's accurate, and it enables self-collection and immediate results. So the combination of those factors lead us to exactly what you said, back to work, back to school applications. So we've received inbound interest from large employers, from schools, both K-12 and universities, government agencies. There's a wide distribution of potential large buyers, and so that's why we've ramped up. And I think it's everything you would expect that solves the current testing dilemma, which is the timing between when you get actually sampled and when you get the test result back. So we'll be refining that and dealing with the inbound demand in the coming months.

Great. And if I could just move to the collection side of the business. Could you talk a little bit about the size of the different testing or the testing capacity of the different companies that you have gotten EUAs with: Biocerna, P23, Phosphorous and CRL? Just kind of curious on which one of those are driving a lot of that COVID-related collection revenue. And if it's CRL, how do you expect that to inflect the revenues going forward?

Sure. So CRL is by far the biggest -- one of our customers that's announced an EUA. They're one of the biggest private reference labs in the country. And so I think that bodes well for how we are looking at revenue for the rest of the year for our molecular sample collection kits. So I can't really speak in detail about how the size of the EUAs, the size of the labs that have received EUAs, plays in. But I can share with you that there are several more EUAs in process as well as strong working relationships with labs that are using our sample collection device that may or may not need an EUA. So that's a bottoms-up revenue build that has caused us to look for additional capacity overall and project those revenues favorably for the rest of the year.

Perfect. And then if I could just squeeze one more in here, and I appreciate all the time.

Frank, actually, if you could reenter the queue so we can get some other questions from other analysts, that would be great. Thanks.

Your next question comes from Jacob Johnson with Stephens.

Maybe just a quick follow-up on that last answer. From a housekeeping perspective, did you recognize any revenues from CRL in 2Q? Or is that kind of a 3Q opportunity?

I don't think -- go ahead, Roberto, please.

So thanks for the question, Jacob. So typically, we don't identify which customers have been contributing to our revenues. As Steve mentioned, one of the important points there is that we are actually selling a lot of product to customers that haven't announced EUAs, but we do have a broad footprint of customers, which gives us a lot of optimism for the second half of the year.

Okay. That's helpful. And then last week, I think the FDA released some guidance for nonlaboratory COVID testing that's requiring 90% sensitivity and 99% specificity. How does that impact your rapid test? Or does it not really impact what you're trying to do?

So Jacob, are you referring to the template for over-the-counter products?

I believe so, yes. There was something the FDA released last week on

Yes. So we've obviously digested that because that's sort of key to our overall product strategy for the rapid antigen test. We don't see anything in those guidelines that surprises us. And they're all issues that we've tackled before with other products, in particular, our HIV in-home test. So I think we're -- it's swirling in our strike zone.

Our next question comes from Andrew Cooper with Raymond James.

Maybe first, just as we think about -- you mentioned back to school, back to work. As we think about what that looks like in terms of a 4Q launch, obviously, schools will have largely gone back. How do we think about, I guess, one, where in 4Q timing might be if you have any more detail you could give on that? And two, how you think about addressing that end market given the timing being a little bit after when most of the schools are, at least as of now, hoping to return students to campus?

Yes. It's an interesting question because usually, we would see students back in school right after Labor Day, right, or if not earlier, in some parts of the country. The key here is not only back to school, but staying back in school. And that the presumption there is that there won't be any infections that effectively shut down the schools that would cause them to move to another plan to reopen using better ways of ascertaining who is infected and who is not, in some parts of the country, notably in Philadelphia, the school district will go virtual until November and then make a decision whether to come back. So I don't believe we're missing significant opportunity because I don't think there are any better solutions out there to mass test students, K-12 students as well as higher ed students, undergraduate and graduate students, to bring them back safely to campus and keep them safe on campus. And so our launch in the fourth quarter, and the first fourth quarter begins in October, when we're trying to make it get full exposure to the quarter as much as possible, I think, gives us a sweet spot in the marketplace. So this will be first-of-the-kind product and instrument-free rapid test. And so I think there's plenty of room in the marketplace to have some very exciting opportunities of size for us.

Okay. Great. That's really helpful. And I guess, maybe one on the collection side, asking a little bit different way. Last quarter, you talked about the $3.6 million line of sight turning into $8.5 million or so. Can you give us the number for sort of what you feel like you have good line of sight to in this quarter? Even if it's just with the EUAs or kind of all customers combined, is there any sort of number you could give us to give us a little bit better sense of how things are tracking from that perspective?

So we haven't provided specific business unit line guidance. What I'll tell you is we expect it to be substantially greater than the $8.5 million that we achieved in the second quarter, but a lot of what the actual number becomes will depend on the timing of our manufacturing and of orders coming in. So for the same reasons that we're not providing full year guidance, there's some unpredictability around this. So we can't give you a specific number.

Sure. And maybe just one more. But as we think about the template that was referenced and sort of the decisions of where this product is being sold, is there anything you can share in terms of how you think about the launch and pushing this into market, especially as capacity ramps? Is it more of a clinical setting to start or more of a professional setting, I should say, and we should think about ASPs at sort of that level before you really ramp and then have the capacity to sell more to the broad consumer? Or is there a different way to be thinking about this?

So let me take it from the perspective of how we'll sequence the EUAs, okay? So we're going to follow the FDA requirement for the initial EUA, which is to typically start with authorization for prescription use then followed by over-the-counter authorization. So given latest discussions with FDA and the latest home use template, we're going to have a phased approach. So our initial launch will be into the professional market for testing symptomatic individuals or individuals that have come in contact with people infected with COVID-19 or suspected of COVID-19 infection. The second phase will be a prescription use self-test with the same intended use population as the professional product that I just mentioned. Then the third phase will be an over-the-counter product we'll be looking to obtain a claim for asymptomatic individuals. So the goal for the EUA is for the first 2 phases, so that's the professional use and then the prescription use self-test to happen in the fourth quarter and the OTC claim to happen soon thereafter. So once we're authorized to sell the rapid test at the health care professionals, public health institutions will follow as well as employers, schools and then consumers. And so you can see that phased approach opens up the market for a lot of different segments, market segments, and we'll address the pricing and volume issues from there.

Okay. Great. And maybe just one more on that. When we think about -- obviously, we've seen the template. But when we think about sort of that process of getting that last phase over-the-counter EUA, is it -- is the main sort of thing that you feel like the FDA is going to look for that somebody, the average Joe, can do this without a mistake and can get a correct answer and then know what do with that answer? Or what are kind of the steps that you need to do to be able to show that to give the FDA comfort? If you have a sense for that, that would be great.

Sure. It's very similar, Andrew, to the process we went to in 2012 to get our then HIV product from professional use to over-the-counter use. So I think we're one of the few companies that have actually done that for diagnostic product for infectious disease. So I think that we understand those challenges, and we understand basically what the FDA is looking for. So I think that's why we're very confident.

[Operator Instructions] Our next question comes from Brandon Couillard with Jefferies.

Maybe one for you, Roberto. You pointed to expectations for positive revenue growth in the back half of the year. Can you just sort of speak to the level of visibility there? Was that a true statement for both the third and the fourth quarter? And could you quantify the magnitude of the HIV Self-Test order felt that moved into the third quarter?

Sure. So what we said is that -- so we expect the second quarter to be the lowest revenue quarter of the year, and we expect the third and fourth quarters to be either flat or up for each of the 2 business units. And then -- and that's in the non-COVID-19 business. Then layered on top of that, obviously, we have the collections business, which we've achieved the $8.5 million of revenues in the second quarter and the antigen and antibody test businesses, which we expect to be launching in the fourth quarter, which is what contributes to our expected growth for the year. With respect to the HIV shipment, one of the -- I think one of the dynamics that's going on is that our HIV order lead time, our international order lead time, is longer than for our domestic orders. So what you saw is that in the first quarter, there was very little disruption to our HIV international business. So what I'd say is that the size of that order, the shift from the second to the third quarter, would have gotten us very close to flat versus 2019 into the second quarter. And then you did see -- we did see some disruption from COVID-19, which tapped the brakes on growth for the second quarter, but we expect some of that to be turning around in the third and fourth quarters.

Okay. Then my second question is really just broadly around the utility of oral fluid for COVID-19 testing. Two of your existing DNAG customers, who probably know more about oral fluid than anyone, Helix and Color Genomics, have both rolled out their own COVID testing services that don't use oral fluid collection devices. Can you just sort of speak to the level of visibility or sustainability of those customers that are using those DNAG collection devices and the utility of that is a best case collection sample?

Yes. So in the case of the customers that you mentioned for molecular sample kits, just keep in mind that the challenge of stabilizing DNA for genomic analysis is quite a different challenge in stabilizing RNA for infectious disease analysis. So I don't think there's any read-through on the fact that we have been successful with our customers with saliva for molecular analysis. And so there's no real way to translate that. Having said that, we believe that oral fluid is an effective -- appropriate sample type for many types of COVID-related diagnostics and screening test. And we've noted that we've locked in a prototype for antibody test that shows strong performance for oral fluids there. And we've also repeatedly seen that, technically, saliva collected with devices from DNA Genotek is an excellent sample type for collection, transport detection for the SARS-CoV-2 analysis, and that's supported by those multiple EUAs from independent laboratories. The vast majority of publication supports saliva as a good sample type alternative to nasopharyngeal swabs and support the use of saliva for self-collection, which has the opportunity to significantly increase testing opportunities. So obviously, we are very bullish in this area, which is why we're investing CapEx to increase manufacturing to the numbers that Roberto shared earlier.

[Operator Instructions] And I'm not showing any further questions at this time. I would now like to turn the call back over to Steve Tang for any further remarks.

We'd like to thank you for your participation on today's call and for your continued interest in OraSure. Have a great afternoon and evening, and please stay safe and be well.

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.