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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): August 5, 2020

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.000001 par value per share		OSUR		The NASDAQ Stock Market LLC

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))

Indicate by a check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 

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Item 2.02 – Results of Operations and Financial Condition.

On August 5, 2020, OraSure Technologies, Inc. (the “Company”) issued a press release announcing its consolidated financial results for the quarter and six months ended June 30, 2020 and certain other matters. A copy of the press release is attached as Exhibit 99.1 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.

Item 7.01 – Regulation FD Disclosure.

 

On August 5, 2020, the Company held a webcast conference call with analysts and investors, during which Stephen S. Tang, Ph.D., the Company’s President and Chief Executive Officer, and Roberto Cuca, the Company’s Chief Financial Officer, discussed the Company’s consolidated financial results for the quarter and six months ended June 30, 2020, and described certain business developments. A copy of the prepared remarks of Dr. Tang and Mr. Cuca is attached as Exhibit 99.2 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.

Item 9.01 – Financial Statements and Exhibits.

(d) Exhibits

 

Exhibit Number		Description
99.1		Press Release, dated August 5, 2020, announcing consolidated financial results of OraSure Technologies, Inc. for the quarter and six months ended June 30. 2020 and certain other matters.
99.2		Prepared Remarks of Stephen S. Tang, Ph.D. and Roberto Cuca for OraSure Technologies, Inc. Second Quarter 2020 Analyst/ Investor Conference Call Held August 5, 2020.
Exhibit 104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

 

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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: August 5, 2020		By:		/s/ Jack E. Jerrett
				Jack E. Jerrett
				Senior Vice President, General Counsel and Secretary

 

 

Exhibit 99.1

 

 

OraSure Technologies, Inc. Announces 2020 Second Quarter Financial Results and Update on COVID-19 Testing Programs

BETHLEHEM, PA, August 5, 2020 (GLOBE NEWSWIRE) -- OraSure Technologies, Inc. (NASDAQ: OSUR), a leader in point-of-care diagnostic tests, specimen collection devices, and microbiome laboratory and analytical services, today announced its financial results for the three and six months ended June 30, 2020.

 

“In the second quarter, our work to leverage our scientific and technological expertise against the COVID-19 pandemic has already generated meaningful revenue. Our sample collection devices are being used for the collection, both in at-home and professional settings, and transport of samples for COVID-19 molecular testing. We are also developing a COVID-19 rapid antigen in-home self-test and an ELISA-based oral fluid COVID-19 antibody test, both of which we now expect to launch in the fourth quarter,” said Stephen S. Tang, Ph.D., President and Chief Executive Officer. “We are confident, given our ongoing initiative to scale up our production capacity, that OraSure will be able to deliver substantially increased volumes of collection and testing products, while ensuring that they meet the highest quality standards as we contribute to the fight against this global crisis. At the same time, we have continued to serve our existing customers across our business lines and to identify opportunities for business development that will contribute to longer-term sustainable growth.”

 

“We further strengthened our balance sheet in June with the completion of an equity offering that included investments from top institutional healthcare investors, bringing us to $265.8 million in cash and investments as of June 30, 2020, with no debt,” said Roberto Cuca, Chief Financial Officer. “Although we are not providing formal guidance for the remainder of 2020 due to the uncertainty of the effect of the pandemic on our operations, we continue to anticipate that sales of our existing and new products for COVID-19 testing will offset the negative impact of the pandemic on our non-COVID-19 business.”

 

Second Quarter Financial Highlights

 

 

 

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-  International sales of the Company’s OraQuick® HIV products decreased 28% compared to the second quarter of 2019. This decrease was due to delays of shipments which moved from the end of the second quarter into the early third quarter.

-  Total laboratory service revenues in the second quarter of 2020 were $2.2 million compared to $1.2 million in the second quarter of 2019. Laboratory services in 2020 include the revenues generated by both of the Company’s laboratory service subsidiaries, which are now operating under the Diversigen brand.

 

 

 

 

COVID-19 Program Update

 

OraSure is well positioned to support multiple modes for COVID-19 testing, including PCR/Molecular, Antigen, and Antibody testing. To support capacity building for the Company’s existing products and anticipated new product launches, the Company is executing on a series of capital investments intended to ensure scaled-up capacity to meet both current and anticipated substantial COVID-19-related demand.

 

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The pan-SARS-coronavirus antigen rapid in-home self-test project has been funded in whole or in part with Federal funds from the Department of Health and Human Services, Office of the Assistant Secretary for Preparedness and Response; Biomedical Advanced Research and Development Authority, under Contract No. 75A50120C00061. The SARS-CoV-2 antibody test has been funded in whole or in part with federal funds from the Department of Health and Human Services, Office of the Assistant Secretary for Preparedness and Response; Biomedical Advanced Research and Development Authority, under Contract No. 75A50120C00122.

Additional Second Quarter Business Highlights

 

 

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Financial Results for the Three Months Ended June 30, 2020

 

Net product and service revenues for the second quarter of 2020 decreased 24% from the comparable period of 2019, primarily as a result of lower sales of the Company’s genomics products due to the timing of orders placed by one of the Company’s largest genomics customers and due to the impact of the COVID-19 pandemic. The decline is also a result of lower sales of the Company’s OraQuick® HIV, OraQuick® HCV, and risk assessment products due to reduced research and testing as a result of the COVID-19 pandemic, and the absence of cryosurgical systems revenues, partially offset by the inclusion of product sales related to COVID-19 and higher laboratory services revenues.

Royalty income from a litigation settlement associated with a molecular collection device was $727,000 and $1.1 million for the second quarters of 2020 and 2019, respectively. Other revenues were $195,000 and $445,000 for the second quarter of 2020 and 2019 respectively.

Gross profit percentage was 59% and 64% for the three months ended June 30, 2020 and 2019, respectively. Gross profit percentage in the second quarter of 2020 was negatively affected by lower labor utilization as the Company increased its manufacturing headcount with full-time and temporary employees to prepare for expected production expansion later in the year, a less favorable overall product mix as a result of higher sales of lower gross profit products and services, and the decline in other revenues which contribute 100% to the Company’s gross profit percentage.

For the three months ended June 30, 2020, operating expenses were $26.7 million, an increase of $6.9 million from the $19.7 million reported for the three months ended June 30, 2019. This increase was due primarily to increased spending associated with COVID-19 product development, increased staffing costs, higher bad debt associated with uncollectible customer accounts, higher legal fees, and the inclusion of Diversigen operating expenses, all partially offset by lower spending on market studies, tradeshows and travel.

The Company generated an operating loss of $9.4 million in the second quarter of 2020 compared to operating income of $5.3 million in the second quarter of 2019.

During the second quarter of 2020 and 2019, the Company recorded income tax expense of $1.3 million and $1.4 million, respectively. Income tax expense in both periods largely consists of foreign taxes due.

Financial Results for the Six Months Ended June 30, 2020

Net product and service revenues for the six months ended June 30, 2020 decreased 10% from the comparable period of 2019, primarily as a result of lower sales of the Company’s genomics products due to the timing of orders placed by one of the Company’s largest genomics customer and due to the impact of the COVID-19 pandemic. The decline is also a result of lower sales of the Company’s domestic OraQuick® HIV, OraQuick® 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, partially offset by the inclusion of product revenues associated with COVID-19 testing, higher laboratory services revenues and increased international sales of the Company’s OraQuick® HIV Self-Test.

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For the six months ended June 30, 2020, royalty income from a litigation settlement associated with a molecular collection device was $1.2 million compared to $2.2 million for the six months ended June 30, 2019. Other revenues were $460,000 and $1.2 million for the first six months of 2020 and 2019, respectively.

Gross profit percentage was 55% and 63% for the six months ended June 30, 2020 and 2019, respectively.  Gross profit percentage in the first six months of 2020 was negatively affected by a less favorable product mix as a result of higher sales of lower gross profit products and services, lower labor utilization rates, increased international freight costs, the decline in other revenues which contribute 100% to the Company’s gross profit percentage, and higher scrap and spoilage expense.

For the six months ended June 30, 2020, operating expenses were $50.8 million, an increase of $9.2 million from the $41.6 million reported for the six months ended June 30, 2019. This increase was due primarily to increased spending associated with COVID-19 product development, increased staffing costs, higher bad debt expense associated with uncollectible customer accounts, higher legal fees, and the inclusion of Diversigen operating expenses, all partially offset by lower spending on market studies, tradeshows and travel.

The Company generated an operating loss of $17.4 million in the first six months of 2020 compared to operating income of $1.5 million in the first six months of 2019.

During the first half of 2020, the Company recorded income tax expense of $2.0 million compared to income tax expense of $1.4 million recorded in the first six months of 2019. This tax increase largely reflects the higher pre-tax income generated by the Company’s Canadian subsidiary.

For the six months ended June 30, 2020, the Company used $2.2 million in cash from operations compared with $4.7 million generated in the same period of 2019. The Company’s cash and investment balance totaled $265.8 million at June 30, 2020, compared to $189.8 million at December 31, 2019.

 

Full-Year 2020 Guidance

 

As announced last quarter, the Company has withdrawn its full-year 2020 financial guidance due to the unpredictable impact – both positive and negative – of the ongoing COVID-19 global pandemic on its results of operations, and the Company will not be reinstating financial guidance at this time.

 

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Financial Data

 

Consolidated Financial Data

(in thousands, except per-share data)

Unaudited

 

 

 

 

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Conference Call

 

The Company will host a conference call and audio webcast for analysts and investors to discuss the Company’s 2020 second quarter results and certain business developments, beginning today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). On the call will be Dr. Stephen S. Tang, President and Chief Executive Officer, and Roberto Cuca, Chief Financial Officer. The call will include prepared remarks by management and a question and answer session.

In order to listen to the conference call, please dial 844-831-3030 (Domestic) or 315-625-6887 (International) and reference Conference ID #3276612 or go to OraSure Technologies’ web site, www.orasure.com, and click on the Investor Relations page. Please click on the webcast link and follow the prompts for registration and access 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 midnight, August 12, 2020, by dialing 855-859-2056 (Domestic) or 404-537-3406 (International) and entering the Conference ID #3276612.

 

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Given the circumstances globally, it is recommended to dial-in at most 15 to 20 minutes prior to the call start to reduce waiting times. If a participant will be listen-only, they are encouraged to listen via the webcast on OraSure’s Investor Relations page.

 

About OraSure Technologies

 

OraSure Technologies empowers the global community to improve health and wellness by providing access to accurate, essential information. Together with its wholly-owned subsidiaries, DNA Genotek, Diversigen, CoreBiome (now operating under the Diversigen brand), UrSure, and Novosanis, OraSure provides its customers with end-to-end solutions that encompass tools, services and diagnostics. The OraSure family of companies is a leader in the development, manufacture, and distribution of rapid diagnostic tests, sample collection and stabilization devices, and molecular services solutions designed to discover and detect critical medical conditions. OraSure’s portfolio of products is sold globally to clinical laboratories, hospitals, physician’s offices, clinics, public health and community-based organizations, research institutions, government agencies, pharma, commercial entities and direct to consumers. 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 successfully manage and integrate acquisitions of other companies in a manner that complements or leverages our existing business, or otherwise expands or enhances our portfolio of products and our end-to-end service offerings, and the diversion of management’s attention from our ongoing business and regular business responsibilities to effect such integration; the expected economic benefits of acquisitions (and increased returns for our stockholders), including that the anticipated synergies, revenue enhancement strategies and other benefits from the acquisitions may not be fully realized or may take longer to realize than expected and our actual integration costs may exceed our estimates; impact of increased or different risks arising from the acquisition of companies located in foreign countries; ability to market and sell products, whether through our internal, direct sales force or third parties; impact of significant customer concentration in the genomics business; failure of distributors or other customers to meet purchase forecasts, historic purchase levels or minimum purchase requirements for our products; 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 U.S. Food and Drug Administration (“FDA”) or other regulators; the impact of the novel coronavirus (“COVID-19”) pandemic on our business and our ability to successfully develop new products, validate the expanded use of existing collector products and commercialize such products for COVID-19 testing; 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; ability to meet increased demand for the Company’s products; impact of replacing distributors; inventory levels at distributors and other customers; ability of the Company to achieve its financial and strategic objectives and continue to increase its revenues, including the ability to expand international sales; ability to identify, complete, integrate and realize the full benefits of future acquisitions; impact of competitors, competing products and technology changes; 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 or urine testing, collection or

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other products; market acceptance and uptake of microbiome informatics, microbial genetics technology and related analytics services; changes in market acceptance of products based on product performance or other factors, including changes in testing guidelines, algorithms or other recommendations by the Centers for Disease Control and Prevention (“CDC”) or other agencies; 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; impact of contracting with the U.S. government; impact of negative economic conditions; ability to maintain sustained profitability; ability to utilize net operating loss carry forwards or other deferred tax assets; volatility of the Company’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 that could affect our results are discussed more fully in our SEC filings, including our registration statements, Annual Report on Form 10-K for the year ended December 31, 2019, Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, 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. Readers are cautioned not to place undue reliance on the forward-looking statements. The forward-looking statements are made as of the date of this press release and OraSure Technologies undertakes no duty to update these statements.

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EXHIBIT 99.2

 

OraSure Technologies, Inc.

2020 Second Quarter

Analyst-Investor Conference Call

August 5, 2020

 

Prepared Remarks of Dr. Stephen S. Tang and Roberto Cuca

 

Please see “Important Information” at the conclusion of the following prepared remarks

 

 

 

Operator Remarks

 

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. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press “star” then the number 1 on your telephone keypad.  If you would like to withdraw your question, press the # key.

 

Jeanne Mell, VP Corporate Communications

 

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

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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, 2019, its quarterly reports 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 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. Stephen Tang.

 

Introduction – Steve Tang

 

Thank you, Jeanne.

 

On today’s call, in addition to our customary overview of business operations and financial performance, I am 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 present an enormous revenue opportunity for OraSure. We think our biggest challenge after obtaining Emergency Use Authorization (EUA) 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 the 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 who are not as 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.

 

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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 testing market.

 

We are leveraging our expertise to address the COVID-19 pandemic in three specific ways:

 

 

 

 

Additionally, we are applying our operational expertise and experience to substantially ramp up our manufacturing capacity to meet existing and anticipated demand on all three fronts. Roberto will provide additional details on this later in the call.

But first, I’d like to take a step back to review the current state of the pandemic and OraSure’s place in the international response. To date, there are more than 18 million total confirmed COVID-19 cases in the world, with more than 4 million cases in the United States alone, according to Johns Hopkins University. Sadly, numerous U.S. states are experiencing a summer surge of cases, hospitalizations and deaths. Central to the debate about how to best reduce the spread of the virus and alleviate the misery of millions of people is testing, which a recent

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Rockefeller Foundation report cites as, quote, the only way out of the present disaster, end quote. The Foundation notes that widespread testing to detect asymptomatic individuals is crucial to containing the spread of the pandemic in workplaces, schools, and communities, and specifically calls for point-of-care antigen tests to increase testing capacity, speed and convenience.

 

As a leading company with more than 20 years of proprietary knowledge in oral fluid testing, self-collection and rapid in-home results, and with our broad, well-established global distribution channels, we are well positioned to become a substantial contributor to reducing the spread of COVID-19. The timing, too, is fortuitous: as we enter the fall season, when students return to school, while we continue to try to reopen our economies, and our communities face the compounding problem of seasonal flu, we expect to bring important new diagnostic tools to market.

Further, while we are all hopeful for a vaccine very soon, it’s important to understand that vaccines may not be 100% effective, some people may decide not to get vaccinated, and manufacturing and distribution capacities may not provide worldwide coverage.  For these reasons, we believe expanded testing options will be needed over the long term.

The antigen test we are developing – the OraQuick Coronavirus Rapid Antigen Self-Test – would quickly detect active COVID-19 infection at the point of sample collection, with no instrumentation needed to interpret results, and no need to transport samples to a lab for analysis. Pending regulatory approvals and launch, individuals would be able to obtain the test, take it on their own, AND read their own results a short time later. This could be invaluable in opening up economies, keeping them open, and enabling the safe return to work, school and group events. We initially plan this test to receive an EUA for testing individuals who are either symptomatic or suspected of being infected and eventually for asymptomatic individuals.  The test is built on the proven OraQuick lateral flow platform, which is the foundation for OraSure’s current “in-home” and professional rapid diagnostics for HIV, professional HCV test, and 510(k) cleared Ebola device. Versions of our HIV Test are already used by millions of people around the world each year. We are leveraging this expertise to bring the OraQuick Coronavirus Rapid Antigen Self-Test to market.

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When we started test development, we intended to use oral fluid as the sample type, as in our HIV test. However, as research and development progressed, we found we could achieve greater sensitivity, and the best possible accuracy, by using samples collected with a simple, fast swab just inside of the nostril. To be clear, this easily and comfortably self-collected lower nostril sample is very different from the use of the long nasopharyngeal swabs you may have seen, or even experienced yourself. Our solution would be a quick, painless swab, that lay people and medical professionals alike can easily administer anytime, anywhere. To date, there are no tests for active COVID-19 infection that provide a result shortly after sample collection AND require no instrumentation.

 

The Rockefeller Foundation report on testing specifically calls for rapid, convenient tests like the antigen test OraSure is developing to help get to the 30 million tests per week many believe are needed by November to reduce the spread of COVID-19. This massive need is why we’re investing heavily in capacity expansion now, in parallel with our clinical studies, so that we can be in a strong position upon authorization.

 

The antigen test is currently in human clinical testing, which will provide the necessary, real use data to file for FDA Emergency Use Authorization, or EUA, and enable us to bring this test widely to market, targeting a Q4 launch.

 

As we announced in April, we have received just over seven-hundred thousand dollars from BARDA to help bring the test to EUA.

 

We are also developing an Enzyme-Linked Immunosorbent Assay (ELISA) for the detection of human anti-SARS-CoV-2 antibodies in oral fluid specimens. This test is based on our existing ELISA microplate platform, which uses oral fluid samples to test for drugs of abuse, with the platform formulated to detect COVID-19 antibodies. To date, there are no oral fluid antibody tests commercially available with automated assays.

 

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With this test, human antibodies found in oral fluid would be collected easily and conveniently, via a wand and pad, and eluted into our existing oral fluid specimen collection device buffer, for storage and transport, and later dispensed onto the ELISA microplate, for laboratory testing.

 

Like our antigen test, our antibody test development is backed by BARDA, from whom we received over six-hundred thousand dollars, in funding, in June.

 

We now expect to file for EUA for the ELISA test and subsequently launch, in the fourth quarter – a slight delay from our initial timeline, due to challenges in obtaining a sufficient number of positive clinical samples against which to run the tests. We have since expanded the number of sites we use for clinical testing, and are confident that this issue is resolved.

 

We recently completed the final product design and believe we will have an assay with expected high sensitivity that is currently in clinical testing. We are working to increase capacity ahead of FDA authorization and launch.

 

I’ll turn last to our molecular collection capabilities in COVID-19, which are already generating revenue.

 

Our goal for this segment of our business is to broaden the reach of COVID-19 molecular testing by enabling non-invasive, reliable sample collection that can be done in a variety of supervised and unsupervised settings.  We do this by collaborating with our customers, including reference labs, large diagnostic platform companies, academic institutions and employer groups, to validate our devices with their assays. Our devices are currently being used in significant population screening programs by employer groups, government agencies and educational institutions.

 

The devices are used for polymerase chain reaction, or “PCR” testing, which detects genetic material of the COVID-19 virus.  To date, three devices from our DNAGenotek subsidiary, including the ORAcollect RNA collection kit, OMNIgene ORAL saliva collection device, and Oragene®•Dx device, have been included in EUAs granted to four customers – Clinical

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Reference Laboratory, or CRL, Biocerna, P23 Labs, and Phosphorous – permitting these devices to be used for supervised and unsupervised COVID-19 sample collection.  To meet the regulatory requirements for inclusion in these EUAs we have successfully demonstrated viral inactivation by our stabilization chemistries and consumer ease of use. To further increase the reach of molecular testing, we are also generating data in support of additional global regulatory clearances for our products. We expect more customer EUAs incorporating our products to follow.

 

We generated $8.5M in revenues from the COVID-19 use of our existing molecular collection products in the second quarter and expect continued strong contribution.

 

We are excited about these three opportunities to address COVID-19 and expect to continue to see significant revenue from both the Molecular Solutions and Infectious Disease business units. Importantly, we expect that gains from these existing and new COVID-19 products will offset any impact on our core business from declines in both genomic research and the HIV and HCV testing markets resulting from COVID-19. We are continuing to grow by investing in COVID-19 and are putting ourselves in a position to come out of the pandemic stronger, with opportunities across all business areas.

 

I will now turn the call over to Roberto for detail on our quarterly financials and our efforts to expand our manufacturing capacity.

 

Financial Results – Roberto Cuca

 

Thanks, Steve.

 

Net product and service revenues for the three 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;

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and the absence of cryosurgical sales, partially offset by the inclusion of product revenues associated with COVID-19 testing and higher laboratory services revenues.

 

International sales of the Company’s OraQuick® HIV products decreased 28% compared to the second quarter of 2019. This decrease was due to delays of shipments which moved from the end of the second quarter into the early third quarter. Importantly, even including the effect of this 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 DNAGenotek business unit were $18.1 million during the second quarter of 2020, an increase of 4% from 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 revenues in the second quarter of 2020 were $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 service 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 the COVID-19 pandemic on our operations.  However, we do want to share the following color on our expectations for the business:

 

With respect to the full year, we expect that, excluding cryosurgical revenues from 2019, non-COVID-19 revenues in both the infectious disease and molecular collections lines of business will be down in 2020 compared to the year ago period, with molecular collections bearing the greater impact.  However, we anticipate that revenue opportunities for our COVID-19 sample collection products and tests will more than offset this year-on-year decrease in our non-COVID-19 lines of business such that total revenues will be higher in 2020 vs. 2019.  The majority of this contribution will come from our Molecular Solutions business unit which, as I just mentioned, has already achieved $8.5M in COVID-19 related revenues in the second quarter of this year.

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Within 2020, we expect that the just-completed second quarter will be the lowest revenue quarter.  We expect that non-COVID-19 revenues will be flat or improved for each business unit in the third and fourth quarters compared to the second quarter, and COVID-19 product sales will add to this performance.  Of note, at the time of our first quarter earnings call on May 6, we announced that we had line of sight via purchase orders to $3.6 million in molecular collections COVID-19 revenues, and we ended the quarter with $8.5 million of these sales.  This suggests that sales were ramping within the second quarter and in fact we expect that revenues for these products will be materially greater in the third and fourth quarters.

 

With that, let me turn to manufacturing capacity where, as we’ve disclosed previously, we’re making investments to significantly expand the number of tests and collection devices we’ll be able to provide to help combat the pandemic.

 

First, we are currently able to manufacture the three product lines being used for COVID-19 molecular sample collection at the rate of approximately 35 million units a year.  Of these, 7-8 million units are expected to be used for non-COVID-19 applications.  The capital expenditures that are underway in the Molecular Solutions business unit should expand this capacity to a rate of approximately 75 million units annually in the second quarter of next year and further to 80 million units in the third quarter.

 

Next, I’ll talk about our in-development antigen test based on our OraQuick rapid test platform. Today at our sites in Bethlehem and Thailand, we are able to manufacture approximately 35 million OraQuick tests a year, of which around half are expected to go to HIV, HCV and Ebola testing.  We have initiated the installation of new lines at both sites that will expand this capacity to about 55 million tests annually by the first quarter of next year and further to 70 million tests annually by the third quarter of 2021.

 

Finally, for our antibody test, our current capacity is approximately 10 million units a year, of which about 3 million units are devoted to existing products.  We plan to double this capacity by

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installing lines at a third-party site.  This work requires a longer lead time and we expect it will be completed by Q4 2021.

 

To support these capacity expansion activities we are planning to hire over 150 additional full time employees to manufacture the additional volume of products.  We are also continuing to investigate the possibility of partnering with or sublicensing to third parties to further expand our ability to meet anticipated demand in all areas, which would be additive to the capacity that I just outlined.

 

Summing up, we ended the second quarter in a strong financial position with no debt and $265.8 million in cash, including $95 million in net proceeds from an equity offering in June, and are well capitalized to support future growth.

 

With that, I will turn the call back over to Steve.

 

Steve Tang

 

Thank you, Roberto.

 

As Roberto mentioned, we are seeing both headwinds and tailwinds in our core businesses due to the COVID-19 pandemic, but continue to execute across our diagnostics, sample collection, and services 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 50-70% since the pandemic began, according to the Centers for Disease Control and Prevention (CDC). 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-tests to their clients. Consequently, our sales decline of 28% was far less than the 50-70% estimated by the CDC.

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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 have been encouraged to see proposals to significantly increase federal funding for the initiative in FY 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 the only FDA approved, “in-home” self-test on the market, OraSure is well-positioned to play a key role in the Plan for America – and capitalize on the market opportunity it represents. Launching innovative efforts like rapid HIV self-testing programs will be critical in our continued fight to end the HIV epidemic, particularly in the face of COVID-19.

 

Augmenting our efforts in the HIV market is our recent acquisition of UrSure, Inc., a company developing and commercializing products that measure adherence to medications that prevent and treat HIV. This cash transaction closed in July and supports our strategy of expanding our core offerings to include additional diagnostic products, particularly point-of-care tests that complement our current infectious disease portfolio and pipeline. We will be able to offer a full HIV portfolio that covers the spectrum from screening to treatment adherence, two pillars of the Plan for America initiative.

 

Beyond HIV, we also have the first and only FDA-approved CLIA-waived rapid HCV test. Our revenue in this area was affected significantly in the second quarter as a result of COVID-19, but we anticipate an eventual return to more normal levels of revenue after the pandemic begins to resolve and test sites reopen.

 

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Similarly, we see long-term opportunities in our Substance Abuse Testing business in future periods, as federal guidelines now permit oral fluid drug testing.

 

Moving on to our sample collection products and laboratory service businesses outside of COVID-19:

 

We are seeing a continued increase in demand for saliva collection devices among customers who historically used a mix of blood and saliva samples, as in-clinic sample collection of blood remains difficult. We continue to launch new collection devices, expanding our range of sample types and analytes, to meet the needs of research and academic institutions. For example, our OMNImet™•GUT collection kit for metabolomics, launched in June, is the first and only commercially available research-use-only device for in-home, self-collection of fecal samples for metabolomics.

Despite year over year growth, our services business remains challenged by the shutdown of university labs and by other sample access delays due to COVID-19.  However, there are some encouraging developments that will set the stage for future opportunities. We continue to build relationships and execute clinical studies with pharmaceutical and biotechnology companies.  Additionally, we have several small, ongoing pilot studies in the direct to consumer wellness area and believe this is a growth opportunity.

From an industry perspective, several microbiome therapeutic companies, including Rebiotix and Vedanta, have reported positive results from their clinical trials, and Seres Therapeutics is expected to report in late Q3 2020.  These are all considered bellwethers for the industry as positive results will continue to drive investment in microbiome research. Given our industry leading capabilities, we are well positioned here.

I’d also like to give a brief update on our Novosanis subsidiary. We continue to see advancements in the validation of first void urine, as a valuable tool in the detection of various cancers, and recently achieved CE-IVD marking for our new small volume Colli-pee devices, compatible with several large automated diagnostic platforms.  

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Complementing our internal growth is a strong business development strategy. We are aiming for significant increases in revenue through organic growth and acquisitions, and we are using our robust balance sheet to create revenue and shareholder value. COVID-19 has certainly complicated the business development picture, but it has also opened up new opportunities and new technologies in Infectious Disease for us to explore and purse. So let me assure you that we are not sitting on the sidelines. We continue to engage in the pursuit of business development opportunities that are accretive to our innovation growth strategy, and we remain committed to doing the right deal, for the right price, at the right time for our company and our shareholders.

In closing, we are honored to be a part of the fight against COVID-19 and to apply our expertise to filling an unmet need in the testing paradigm, while continuing to execute across our core business. Given our ongoing initiative to scale up our production capacity, we are confident that we will be able to deliver substantially increased volumes of COVID-19 collection and testing products, while ensuring that they meet the highest quality standards, as we contribute to the fight against this global crisis. We wish everyone, and their families, good health and look forward to providing future updates.

 

With that, I will open the call up to your questions.

 

[Q&A SESSION]

 

Final Conclusion – Steve Tang

 

Thank you for participating in today’s call and for your continued interest in OraSure. Have a good afternoon and evening. Stay safe and be well.

 

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 successfully manage and integrate acquisitions of other companies in a manner

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that complements or leverages our existing business, or otherwise expands or enhances our portfolio of products and our end-to-end service offerings, and the diversion of management’s attention from our ongoing business and regular business responsibilities to effect such integration; the expected economic benefits of acquisitions (and increased returns for our stockholders), including that the anticipated synergies, revenue enhancement strategies and other benefits from the acquisitions may not be fully realized or may take longer to realize than expected and our actual integration costs may exceed our estimates; impact of increased or different risks arising from the acquisition of companies located in foreign countries; ability to market and sell products, whether through our internal, direct sales force or third parties; impact of significant customer concentration in the genomics business; failure of distributors or other customers to meet purchase forecasts, historic purchase levels or minimum purchase requirements for our products; 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 U.S. Food and Drug Administration (“FDA”) or other regulators; the impact of the novel coronavirus (“COVID-19”) pandemic on our business and our ability to successfully develop new products, validate the expanded use of existing collector products and commercialize such products for COVID-19 testing; 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; ability to meet increased demand for the Company’s products; impact of replacing distributors; inventory levels at distributors and other customers; ability of the Company to achieve its financial and strategic objectives and continue to increase its revenues, including the ability to expand international sales; ability to identify, complete, integrate and realize the full benefits of future acquisitions; impact of competitors, competing products and technology changes; 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 or urine testing, collection or other products; market acceptance and uptake of microbiome informatics, microbial genetics technology and related analytics services; changes in market acceptance of products based on product performance

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or other factors, including changes in testing guidelines, algorithms or other recommendations by the Centers for Disease Control and Prevention (“CDC”) or other agencies; 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; impact of contracting with the U.S. government; impact of negative economic conditions; ability to maintain sustained profitability; ability to utilize net operating loss carry forwards or other deferred tax assets; volatility of the Company’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 that could affect our results are discussed more fully in our SEC filings, including our registration statements, Annual Report on Form 10-K for the year ended December 31, 2019, Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and other filings with the SEC. These and other factors that could affect our results are discussed more fully in our Securities and Exchange Commission (“SEC”) filings, including our registration statements, Annual Report on Form 10-K for the year ended December 31, 2019, 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. Readers are cautioned not to place undue reliance on the forward-looking statements.  The forward-looking statements are made as of the date of this call and we undertake no duty to update these statements.

 

 

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