UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 1, 2016
OraSure Technologies, Inc.
(Exact Name of Registrant as Specified in Charter)
| Delaware | 001-16537 | 36-4370966 | ||
| (State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
| 220 East First Street Bethlehem, Pennsylvania |
18015-1360 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: 610-882-1820
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 1.01 – Entry Into a Material Definitive Agreement.
On June 10, 2014, OraSure Technologies, Inc. (“OraSure”) entered into a Master Program Services and Product Co-Promotion Agreement (the “Agreement”) with AbbVie Bahamas Ltd., a wholly-owned subsidiary of AbbVie Inc. (“AbbVie”). Under the Agreement, the parties agreed, among other things, to co-promote OraSure’s OraQuick® rapid HCV antibody test in certain markets in the United States. The Agreement had an original term ending December 31, 2019.
In a First Amendment to Master Program Services and Product Co-Promotion Agreement, dated as of June 30, 2016 (the “Amendment”), the parties agreed to terminate the Agreement on December 31, 2016. As a result, the parties’ respective financial and other obligations under the Agreement will terminate at the end of 2016. Subject to their performance of certain financial and other obligations required through December 31, 2016, the parties also agreed to a mutual release and covenant not to sue for claims related to the Agreement.
On July 1, 2016, OraSure issued a press release announcing the Amendment. Copies of the press release and Amendment are attached as Exhibits 99.1 and 99.2 to this Form 8-K and are incorporated herein by reference.
Item 1.02 – Termination of a Material Definitive Agreement.
The information disclosed in Item 1.01 of this Form 8-K is incorporated herein by reference.
Item 7.01 – Regulation FD Disclosure.
On July 1, 2016, the Company held a webcast conference call with analysts and investors, during which Douglas A. Michels, the Company’s President and Chief Executive Officer, and Ronald H. Spair, the Company’s Chief Financial Officer and Chief Operating Officer, discussed the recently announced Amendment under which OraSure and AbbVie agreed to terminate the Agreement on December 31, 2016 and certain business developments. A copy of the prepared remarks of Messrs. Michels and Spair is attached as Exhibit 99.3 to this Form 8-K and is incorporated herein by reference.
The information in this Item and attached Exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall such information and Exhibit be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such a filing. The fact that the information and Exhibit are being furnished should not be deemed an admission as to the materiality of any information contained therein. The Company undertakes no duty or obligation to publicly update or revise the information contained in this Current Report or attached Exhibit.
2
Item 9.01 – Financial Statements and Exhibits.
(d) Exhibits
| Exhibit Number |
Description | |
| 99.1 | Press Release, dated July 1, 2016, announcing the amendment of the Master Program Services and Product Co-Promotion Agreement between OraSure and AbbVie. | |
| 99.2 | First Amendment to Master Program Services and Product Co-Promotion Agreement, dated as of June 30, 2016, between OraSure and AbbVie. | |
| 99.3 | Prepared Remarks of Douglas A. Michels and Ronald H. Spair for OraSure Technologies, Inc. Analyst/Investor Conference Call Held July 1, 2016. | |
3
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
| ORASURE TECHNOLOGIES, INC. | ||||||
| Date: July 1, 2016 | By: | /s/ Jack E. Jerrett | ||||
| Jack E. Jerrett | ||||||
| Senior Vice President, General Counsel and Secretary | ||||||
4
Index to Exhibits
| Exhibit Number |
Description | |
| 99.1 | Press Release, dated July 1, 2016, announcing the amendment of the Master Program Services and Product Co-Promotion Agreement between OraSure and AbbVie. | |
| 99.2 | First Amendment to Master Program Services and Product Co-Promotion Agreement, dated as of June 30, 2016, between OraSure and AbbVie. | |
| 99.3 | Prepared Remarks of Douglas A. Michels and Ronald H. Spair for OraSure Technologies, Inc. Analyst/Investor Conference Call Held July 1, 2016. | |
5
Exhibit 99.1
ORASURE TECHNOLOGIES AND ABBVIE AGREE TO AN EARLY TERMINATION OF
HCV CO-PROMOTION AGREEMENT
- Investor Conference Call Scheduled Today at 8:30 a.m. Eastern Time -
BETHLEHEM, Pa. – July 1, 2016 – OraSure Technologies (NASDAQ: OSUR), a market leader in point of care diagnostics, announced today that OraSure Technologies and AbbVie have mutually agreed to an early termination of their Master Program Services and Co-Promotion Agreement under which the companies have been co-promoting OraSure’s OraQuick® HCV Rapid Antibody Test in the United States. The agreement was originally scheduled to continue through December 31, 2019 and will now end on December 31, 2016.
Under the agreement, which was signed in June 2014, OraSure granted exclusive rights to AbbVie to co-promote the OraQuick® HCV test in certain U.S. markets and provided certain additional services in support of HCV testing in exchange for up to $75 million from AbbVie in exclusivity payments over the term of the agreement.
Following the termination of the agreement, AbbVie will be relieved of its co-promotion obligations, including its obligation to detail the OraQuick® HCV Rapid Test into physician offices, and will have no further financial obligations to OraSure. OraSure will no longer be obligated to compensate AbbVie for product detailing activities and will be free to pursue arrangements with other pharmaceutical companies to market and promote its OraQuick® HCV Rapid Antibody Test in the U.S.
As previously disclosed, the Company has been ratably recognizing the $75 million in aggregate exclusivity payments contemplated by the agreement over the original five and one-half year term. As a result of the shortened term, only a portion of the $75 million will be received by OraSure and an additional $5.4 million in exclusivity payments will be ratably recognized as revenue over the remainder of 2016.
“Demand for our OraQuick® HCV Rapid Test is growing,” said Douglas A. Michels, President and Chief Executive Officer of OraSure Technologies. “With newly available HCV therapeutics people can be cured of the disease over a relatively short period of time with minimal side effects. In addition, both government and non-government agencies are increasing efforts to identify new HCV patients. We believe these factors will continue to positively impact sales of our test.”
The OraQuick® HCV test is the first and only FDA-approved and CLIA-waived point of care test for detection of HCV infection in at-risk individuals. The simple platform enables healthcare providers to deliver a diagnosis in 20 minutes, using finger stick or venipuncture blood.
Conference Call
The Company will host a conference call and audio webcast today at 8:30 a.m. Eastern Time (5:30 a.m. Pacific Time). On the call will be Douglas A. Michels, President and Chief Executive Officer and Ronald H. Spair, Chief Financial Officer and Chief Operating Officer. The call will include prepared remarks by management on the early termination of the OraSure/AbbVie co-promotion agreement and on certain potential business opportunities that could positively impact the Company’s future growth. There will also be a question and answer session.
In order to listen to the conference call, please either dial (844) 831-3030 (Domestic) or (315) 625-6887 (International) and reference Conference ID #42635222 or go to OraSure Technologies’ web site at www.orasure.com and click on the Investor Relations page. Please click on the webcast link and follow the prompts for registration and access ten (10) minutes prior to the call. A replay of the call will be archived on OraSure Technologies’ web site shortly after the call has ended and will be available for seven days. A replay of the call can also be accessed until July 8, 2016, by dialing (855) 859-2056 (Domestic) or (404) 537-3406 (International) and entering the Conference ID 42635222.
About OraSure Technologies
OraSure Technologies is a leader in the development, manufacture and distribution of point-of-care diagnostic and collection devices and other technologies designed to detect or diagnose critical medical conditions. Its first-to-market, innovative products include rapid tests for the detection of antibodies to HIV and HCV on the OraQuick® platform, oral fluid sample collection, stabilization and preparation products for molecular diagnostic applications, and oral fluid laboratory tests for detecting various drugs of abuse. OraSure’s portfolio of products is sold globally to various clinical laboratories, hospitals, clinics, community-based organizations and other public health organizations, research and academic institutions, distributors, government agencies, physicians’ offices, commercial and industrial entities and consumers. The Company’s products enable healthcare providers to deliver critical information to patients, empowering them to make decisions to improve and protect their health.
For more information on OraSure Technologies, please visit www.orasure.com.
Important Information
This press release contains certain forward-looking statements, including with respect to expected revenues and earnings/loss per share. 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 our internal, direct sales force or third parties; ability to manufacture products in accordance with applicable specifications, performance standards and quality requirements; ability to obtain, and timing and cost of obtaining, necessary regulatory approvals for new products or new indications or applications for existing products; ability to comply with applicable regulatory requirements; ability to effectively resolve warning letters, audit observations and other findings or comments from the FDA or other regulators; 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, historic purchase levels or minimum purchase requirements for our products; impact of replacing distributors; inventory levels at distributors and other customers; ability of DNA Genotek to achieve its financial and strategic objectives and continue to increase its revenues; ability to identify, complete, integrate and realize the full benefits of future acquisitions; impact of
competitors, competing products and technology changes; impact of negative economic conditions, 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 or other products; changes in market acceptance of products based on product performance or other factors, including changes in CDC or other testing guidelines, algorithms or other recommendations; ability to fund research and development and other products and operations; ability to obtain and maintain new or existing product distribution channels; reliance on sole supply sources for critical products and components; availability of related products produced by third parties or products required for use of our products; history of losses and ability to achieve sustained profitability; ability to utilize net operating loss carry forwards or other deferred tax assets; volatility of OraSure’s stock price; uncertainty relating to patent protection and potential patent infringement claims; uncertainty and costs of litigation relating to patents and other intellectual property; availability of licenses to patents or other technology; ability to enter into international manufacturing agreements; obstacles to international marketing and manufacturing of products; ability to sell products internationally, including the impact of changes in international funding sources and testing algorithms; adverse movements in foreign currency exchange rates; loss or impairment of sources of capital; ability to attract and retain qualified personnel; exposure to product liability and other types of litigation; changes in international, federal or state laws and regulations; customer consolidations and inventory practices; equipment failures and ability to obtain needed raw materials and components; the impact of terrorist attacks and civil unrest; and general political, business and economic conditions. These and other factors are discussed more fully in the Company’s Securities and Exchange Commission filings, including its registration statements, Annual Report on Form 10-K for the year ended December 31, 2015, Quarterly Reports on Form 10-Q, and other filings with the SEC. Although forward-looking statements help to provide information about future prospects, readers should keep in mind that forward-looking statements may not be reliable. The forward-looking statements are made as of the date of this press release and OraSure Technologies undertakes no duty to update these statements.
###
Exhibit 99.2
FIRST AMENDMENT TO MASTER PROGRAM SERVICES
AND PRODUCT CO-PROMOTION AGREEMENT
This First Amendment to Master Program Services and Product Co-Promotion Agreement (this “Amendment”), between OraSure Technologies, Inc., a Delaware corporation, having its principal place of business at 220 East First Street, Bethlehem, PA 18015 (“OraSure”), and AbbVie Bahamas Ltd., a Bahamian limited corporation, having its principal place of business at Sassoon House, Shirley Street & Victoria Avenue, PO Box SS-5383, Nassau, New Providence, Bahamas (“AbbVie”), is entered into as of June 30, 2016. Both AbbVie and OraSure may be referred to herein individually as a “Party” and collectively as the “Parties”.
RECITALS
WHEREAS, the Parties have previously entered into that certain Master Program Services and Product Co-Promotion Agreement, dated as of June 10, 2014 (the “Original Agreement”); and
WHEREAS, the Parties desire to amend the Original Agreement as more fully set forth in this Amendment.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises and covenants contained in this Amendment, intending to be legally bound hereby, OraSure and AbbVie agree as follows:
AGREEMENT
| 1. | Definitions. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Original Agreement. |
| 2. | Amendment. As of the date hereof, the Original Agreement is hereby amended or modified as follows: |
2.1 Term. Section 8.1(a) of the Original Agreement is hereby amended by deleting the first and second sentence and replacing in lieu thereof the following sentence: “This Agreement shall commence on the Effective Date and shall continue in full force and effect until December 31, 2016 (the “Term”)”.
2.2 Transition. Section 8.7(d) of the Original Agreement is hereby amended by deleting the first paragraph and replacing in lieu thereof the following paragraph:
(d) Transition. Additionally, notwithstanding the foregoing or anything in this Agreement to the contrary, prior to the expiration of the Term or, if this Agreement is terminated, upon the termination of this Agreement:
| 3. | Payments. Notwithstanding any provision of the Original Agreement to the contrary, except for (i) AbbVie’s payment of the Database, Establishment Ownership and Exclusivity Fee payment due within thirty (30) days following the second anniversary of the Effective Date pursuant to Section 4.2 of the Original Agreement (the “Remaining AbbVie Fee”), (ii) OraSure’s payment of all remaining Co-Promotion Fees for 2016 pursuant to Section 4.1 of the Original Agreement (“Remaining OraSure Fee”), and (iii) any fees OraSure may incur arising out of OraSure’s obligation to fulfill its transition obligations under Section 8.7(d), as amended above, neither AbbVie nor OraSure shall have any further financial obligations, including without limitation the payment of fees or other consideration, under the Original Agreement. |
| 4. | Publicity. Neither Party shall issue any public announcement, press release or other public disclosure regarding the Original Agreement or this Amendment or its subject matter without the other Party’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, the Parties acknowledge and agree that OraSure will be issuing a press release announcing this Amendment, will hold a webcast conference call with analysts and investors to discuss the Amendment and will file a copy of the Amendment with the U.S. Securities and Exchange Commission (“SEC”). The text of the press release and SEC filing related to the Amendment and Original Agreement shall be subject to AbbVie’s prior review and approval, which shall not be unreasonably withheld, conditioned or delayed. |
| 5. | Mutual Releases and Covenant Not to Sue. |
5.1 By AbbVie. AbbVie, for itself and on behalf of (i) AbbVie’s parents, subsidiaries, Affiliates, predecessors, successors, and assigns (the “AbbVie Entities”) and (ii) the AbbVie Entities’ past, present, and future officers, directors, partners, managers, members, employees, agents, servants, and attorneys (collectively, with AbbVie and the AbbVie Entities, referred to as the “AbbVie Releasors”), covenants not to sue, waives, releases, and forever discharges (x) OraSure, (y) OraSure’s parents, subsidiaries, Affiliates, predecessors, successors, and assigns (the “OraSure Entities”), and (z) the OraSure Entities’ past, present, and future officers, directors, partners, managers, members, employees, agents, servants, and attorneys (collectively, with OraSure and the OraSure Entities, referred to as the “OraSure Releasees”), of and from any and all claims, controversies, actions, causes of action, suits, debts, accounts, bonds, covenants, contracts, agreements, promises, demands, damages, judgments, executions, costs, expenses, charges, liabilities, sums of money, doings, omissions, losses, exposures, and obligations of any kind whatsoever, at law or in equity, direct or indirect, known or unknown, matured or unmatured (“Losses”), that the AbbVie Releasors, or any of them, ever had, now has, or may have in the future by reason of, arising out of, or relating to any matter or cause whatsoever related to the Original Agreement (the “AbbVie Released Claims”); provided that AbbVie Released Claims shall not include Losses arising out of actions or omissions of OraSure following the date hereof or obligations set to be fulfilled after the date hereof, including without limitation the Remaining OraSure Fee and OraSure’s obligation to fulfill its transition obligations under Section 8.7(d), as amended above.
-2-
5.2 By OraSure. OraSure, for itself and on behalf of the OraSure Releasees, covenants not to sue, waives, releases, and forever discharges the AbbVie Releasors, of and from any and all Losses that the OraSure Releasees, or any of them, ever had, now has, or may have in the future by reason of, arising out of, or relating to any matter or cause whatsoever related to the Original Agreement (the “OraSure Released Claims”); provided that OraSure Released Claims shall not include Losses arising out of actions or omissions of AbbVie following the date hereof or obligations set to be fulfilled after the date hereof, including without limitation the obligation to pay the Remaining AbbVie Fee.
5.3 The Parties hereby acknowledge that the consequences of the foregoing mutual releases and covenants not to sue (“Mutual Releases”) have been explained to AbbVie and OraSure by their respective counsel. The Parties further acknowledge AbbVie or OraSure may hereafter discover facts different from, or in addition to, those which it now knows or believes to be true with respect to the matters released herein, and agrees that this Amendment and the Mutual Releases contained herein shall be and remain effective in all respects notwithstanding such different or additional facts or the discovery thereof.
| 6. | Effect of Amendment and Conflicts. This Amendment amends the Original Agreement and supersedes any conflicting or inconsistent terms set forth in the Original Agreement. All other terms and conditions set forth in the Original Agreement shall remain in full force and effect. All references to the Original Agreement or the Agreement shall be deemed to mean the Original Agreement as amended by this Amendment. |
| 7. | Severability. The invalidity or unenforceability of any particular provision, or a portion thereof, of this Amendment, including specifically the Mutual Releases, will not affect the remaining provisions, or portions thereof, and will be construed in all respects as if such invalid or unenforceable provision were omitted. |
| 8. | Governing Law. The rights of the Parties under this Amendment shall be subject to and governed by the laws of the State of Delaware, U.S.A. (without regard to conflict of law principles). |
| 9. | Entire Agreement. This Amendment and the Original Agreement as amended by this Amendment sets forth the entire agreement and understanding of the Parties with respect to the subject matter hereof, and supersedes all prior discussions, agreements and writings in relation thereto. All material representations and warranties on which the Parties have relied in connection with the negotiation of this Amendment, if any, are stated expressly in this Amendment. The Parties acknowledge, warrant, and represent that no promises, representations, or inducements, except as herein set forth, have been offered or made by the other to secure the execution of this Amendment, and that this Amendment is executed without reliance on any statements or any representations not |
-3-
| contained herein. The Parties knowingly waive: (i) any claim that this Amendment was induced by any misrepresentation or nondisclosure; and (ii) any right to rescind or avoid this Amendment based upon presently existing facts, known or unknown. |
| 10. | Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be an original, and all of which shall constitute together the same document. Each Party acknowledges that an original signature or a copy thereof transmitted by facsimile (or .pdf file) shall constitute an original signature for purposes of this Amendment. |
[Signature page follows]
-4-
IN WITNESS WHEREOF, the undersigned duly authorized officers of OraSure and AbbVie, respectively, hereby execute this Amendment as of the date first above written.
| ORASURE TECHNOLOGIES, INC. | ABBVIE BAHAMAS LTD. | |||||||
| By: | /s/ Douglas A. Michels | By: | /s/ Sophie Morlet | |||||
| Name: Douglas A. Michels | Name: Sophie Morlet | |||||||
| Title: President & CEO | Title: Director | |||||||
-5-
Exhibit 99.3
OraSure Technologies, Inc.
HCV Business Update
Analyst/Investor Conference Call – 8:30 a.m. EST
July 1, 2016
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 Rena. Good morning everyone and welcome to our call.
* * * *
In June 2014, OraSure Technologies entered into a Master Program Services and Co-Promotion Agreement with AbbVie, under which the companies agreed to co-promote OraSure’s OraQuick® HCV Rapid Antibody Test in certain markets in the United States. In addition, OraSure agreed to develop and make available a patient database in support of a patient care program developed and promoted by AbbVie under the agreement. This agreement had an original term ending on December 31, 2019.
As indicated in the press release issued earlier this morning, OraSure and AbbVie have mutually agreed to terminate the agreement on December 31, 2016. Upon termination, both parties will be relieved of their obligations under the agreement. AbbVie will no longer be required to detail or co-promote our HCV test and will owe no further compensation to OraSure. Similarly, OraSure will no longer be obligated to pay for AbbVie detailing activities or maintain the patient care database. Restrictions will also be lifted to allow us to pursue co-promotion or other arrangements with pharmaceutical companies.
Our work with AbbVie has been beneficial as we expanded our knowledge of the complexities that make up the HCV testing market. We now have stronger sales and marketing strategies, a more robust training program and a better understanding of the decision making process of our customers.
Our current HCV business is very strong and our outlook remains positive. During the past three years, we have reported significant growth in HCV sales. Total HCV product revenues rose from $3.9 million in 2012 to $11.4 million in 2015, an increase of almost 200% over that period. Year-over-year revenues were 57% higher in 2015 compared to 2014, and 42% higher in 2014 compared to 2013. More recently, HCV sales for Q1 of this year grew 59% domestically and 34% overall, compared to Q1 of 2015.
Future sales growth for our OraQuick® HCV test is expected in both domestic and international markets. The broad availability of new therapeutics for Hepatitis C infection offers patients a much higher chance for a cure, over a relatively short period and with minimal side effects. In addition, both government and non-government agencies are increasing their efforts to identify new HCV patients. We believe these factors will continue to drive higher demand for HCV diagnostics and for the OraQuick® HCV product specifically.
Beginning in 2017, we intend to mitigate the impact of lost AbbVie revenue through continued growth in HCV product sales as well as cost reductions directly associated with the AbbVie termination and cost improvements in other parts of our business.
We are especially encouraged by a number of key new business opportunities that are being pursued and that we believe are close to fruition.
| • | We recently entered into an agreement to supply our DNA specimen collection kit to a new genomics company that will be launching a wide array of services. This is an exciting and potentially significant new opportunity for our molecular collections business over time. We expect it to have a very positive impact beginning in 2017. More information on this new customer will be shared in the coming months. |
| • | We are in the later stages of negotiations of a significant new contract for the supply of our OraQuick® HCV Rapid test with a foreign government that is planning a country-wide testing program. If finalized, this would represent the largest contract for our OraQuick® HCV Rapid Test that has ever been realized. |
-2-
| • | We are also very pleased with sales of our OraQuick® HIV self-test, which is a new growth driver for our HIV business in the international marketplace. Our work with Population Services International (“PSI”), a leading global health organization, along with UNITAID, the WHO and health officials from Malawi, Zambia and Zimbabwe, to implement the Self-Testing in Africa or “STAR” pilot project, has gotten off to a great start and we believe shows tremendous promise for future growth. |
| • | Lastly, we continue to make progress on our OraQuick® Zika Rapid Test and we are in final stages of negotiations to secure funding for its continued development. |
We believe these initiatives could contribute meaningfully to revenue growth in 2017. This growth, together with cost reductions I mentioned will enable us to maintain profitability through next year.
So with that, let me now turn the call over to Ron for additional details on the financial and accounting impact of today’s announcement.
Financial and Accounting Impact – Ron Spair
Thanks Doug, and good morning everyone.
As you know, in exchange for providing exclusive co-promotion rights to AbbVie for our OraQuick® HCV test, the original agreement provided that OraSure would receive up to $75 million in exclusivity payments over the term of the Agreement, which originally was scheduled to run through December 31, 2019. Since the agreement was signed in June 2014, we have been recognizing these exclusivity payments ratably on a monthly basis over the original five and one-half year life of the agreement.
-3-
With the agreement now terminating at the end of 2016, there will be no further exclusivity payments received or recognized beginning next year. In addition, the shortened term will result in an additional $5.4 million in exclusivity payments being ratably recognized as revenue over the last six months of this year. As a result, the amount of revenues recognized from exclusivity payments will increase to $6.1 million per quarter, beginning in Q3.
The early termination of the AbbVie agreement will have no financial impact on our results for the second quarter of this year. When we provide our guidance for the third quarter during our regularly scheduled call in early August, we will incorporate the impact of the higher quarterly revenues to be recognized through the remainder of the year.
And, with that, I will now turn the call back over to Doug.
Conclusion – Doug Michels
Thanks Ron.
So as you have heard we have high expectations for the remainder of this year and in 2017. We expect continued solid growth in HCV and molecular testing and the addition of new potential revenue streams into the mix. We also are expecting our cost improvement initiatives to yield meaningful results. We look forward to updating you on our progress in the coming quarters.
With that, I would now like to open the floor to your questions. Operator please proceed.
[Q&A session]
Final Conclusion – Doug Michels
Thank you for participating on today’s call and for your continued interest in OraSure.
-4-
Important Information
This document contains certain forward-looking statements, including with respect to expected revenues and earnings/loss per share. 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 our internal, direct sales force or third parties; ability to manufacture products in accordance with applicable specifications, performance standards and quality requirements; ability to obtain, and timing and cost of obtaining, necessary regulatory approvals for new products or new indications or applications for existing products; ability to comply with applicable regulatory requirements; ability to effectively resolve warning letters, audit observations and other findings or comments from the FDA or other regulators; 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, historic purchase levels or minimum purchase requirements for our products; impact of replacing distributors; inventory levels at distributors and other customers; ability of DNA Genotek to achieve its financial and strategic objectives and continue to increase its revenues; ability to identify, complete, integrate and realize the full benefits of future acquisitions; impact of competitors, competing products and technology changes; impact of negative economic conditions, 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 or other products; changes in market acceptance of products based on product performance or other factors, including changes in CDC or other testing guidelines, algorithms or other recommendations; ability to fund research and development and other products and operations; ability to obtain and maintain new or existing product distribution channels; reliance on sole supply sources for critical products and components; availability of related products produced by third parties or
-5-
products required for use of our products; history of losses and ability to achieve sustained profitability; ability to utilize net operating loss carry forwards or other deferred tax assets; volatility of OraSure’s stock price; uncertainty relating to patent protection and potential patent infringement claims; uncertainty and costs of litigation relating to patents and other intellectual property; availability of licenses to patents or other technology; ability to enter into international manufacturing agreements; obstacles to international marketing and manufacturing of products; ability to sell products internationally, including the impact of changes in international funding sources and testing algorithms; adverse movements in foreign currency exchange rates; loss or impairment of sources of capital; ability to attract and retain qualified personnel; exposure to product liability and other types of litigation; changes in international, federal or state laws and regulations; customer consolidations and inventory practices; equipment failures and ability to obtain needed raw materials and components; the impact of terrorist attacks and civil unrest; and general political, business and economic conditions. These and other factors are discussed more fully in the Company’s Securities and Exchange Commission filings, including its registration statements, Annual Report on Form 10-K for the year ended December 31, 2015, Quarterly Reports on Form 10-Q, and other filings with the SEC. Although forward-looking statements help to provide information about future prospects, readers should keep in mind that forward-looking statements may not be reliable. The forward-looking statements are made as of the date of this call, and we undertake no duty to update these statements.
-6-