OraSure Technologies, Inc.

Welcome to the OraSure Technologies Incorporated 2021 Second Quarter Earnings Conference Call. My name is Adrienne, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star then 1 on your touch-tone phone. I'll now turn the call over to Scott Gleason, Head of Investor Relations at OraSure. Mr. Gleason, you may begin.

Thank you. Good afternoon and welcome to AuraSure Technology's second quarter 2021 earnings call. I am Scott Gleason, the Senior Vice President of Investor Relations and Communications. Presenting for AuraSure today are Dr. Steven Tang, our President and Chief Executive Officer, and Roberto Cuca, our Chief Financial Officer. As a reminder, today's webcast is being recorded and a slide presentation accompanying the webcast can be found on the Investor Relations website. Before we begin, You should know that the call may contain certain forward-looking statements, including statements with respect to revenues, expenses, profitability, earnings, or loss per share, and other financial performance, product development, performance, shipments and markets, business plans, regulatory filings, and approvals, expectations, and strategies. Actual results could be significantly different. Factors that could affect results are discussed more fully in the company's SEC filings. including its registration statements, its annual report on Form 10-K for the year ended December 31, 2020, 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 solely based 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'm pleased to turn the call over to Dr. Steven Tang.

Thanks, Scott, and thank you to everyone for joining our call today. This quarter, Warshaw saw an exceptionally strong recovery in our core business, and excluding COVID-19 product revenue, we grew 122% year over year and 48% sequentially. And while we still have a ways to go, the beginning of the return to a more normal activity for our customers is a welcome sign as we look to the second half of fiscal year 2021. The strengthening of our core allowed us to achieve strong financial results despite the anticipated slowdown in molecular solutions COVID revenue as PCR test volumes declined in the U.S. This quarter, we also achieved a major milestone with the receipt of three emergency use authorizations, EUAs, for our IntelliSwab COVID-19 rapid tests in the U.S., which we continue to believe will be a very important driver of incremental revenue and a source of growth for the company. The launch of our IntelliSwap test demonstrates the ability of the company to develop, launch, and market new products. And in the coming year, we will talk more about our renewed focus on innovation and our product pipeline as one of our strategic areas of focus. As we reflect on our strong quarterly results and our numerous COVID-19 launches, I would like to personally thank OraSure's dedicated employees around the world who have worked tirelessly to get us to this exciting point in our company's journey. I would now like to discuss our strategic priorities, which include capitalizing on the COVID-19 testing opportunities, expanding our sample collection and molecular services business into new sample types and testing modalities, and expanding our global reach and driving innovation with a focus on achieving higher growth through both internal R&D and M&A. First, as we look at the COVID-19 testing opportunity, this quarter we've received three EUAs for our IntelliSwab COVID-19 rapid tests for over-the-counter, OTC, professional point of care, and prescription home use. We believe IntelliSwab is competitively differentiated primarily because the test is remarkably simple to use. You just swab your nostrils with a gentle swab, Swirl the swab in a tube and see your test results in minutes. Unlike other rapid COVID tests, there is no confusing steps, no batteries, no electricity needed, and no mailing samples to a lab. We like to say it's as simple as swab, swirl, and see. Orsha knows this simplicity is absolutely crucial to adoption and ongoing use by consumers and clinicians. It ensures confidence in the results, and enables testing absolutely anywhere, including outreach testing to underserved communities, exactly where our HIV and HCV tests are used today. As is customary in medical device and diagnostics, the conversion of customer leads to purchase orders takes time. And recall that we were limited in our ability to promote this new product prior to receipt of our three EUAs in early June. So while we are in the initial phases of customer acquisition, we did begin shipping orders in June and continue to receive orders in July. We currently have customer inquiries representing over $25 million, including inquiries from over 15 countries that will accept FDA EUA product with appropriate country-specific documents and labeling. We believe the recent propagation of new variants has renewed the focus of global governments on a multi-pronged strategy to counter the pandemic consisting of vaccination, protection, and frequent testing. A study conducted by the National Institutes of Health and recently published in the Journal of Infectious Diseases indicated that antigen testing, when conducted every three days, has sensitivity equal to that of PCR lab-based testing. This supports the need for regular, fast, and frequent testing which will be needed in remote locations and at home. One of the most crucial requirements for this type of testing is the ease of use, and that's where IntelliSpa provides a real benefit. Our country's response to the pandemic is well characterized by the CDC program of protect, test, and vaccinate. We continue to believe that testing will be a critical component of the three-tiered response to counter the COVID-19 pandemic. As new variants such as Delta and Lambda propagate across the globe, there has been increasing demand for testing in multiple global markets. Additionally, as students return to schools and employees return to work, we believe testing will be vital for ensuring safety and hygiene for all. We've already seen several announcements around programs incorporating both vaccinated and unvaccinated individuals. Additionally, large funding pools have become available from the federal and state governments, including the CDC's $2.3 billion of funding for underserved and rural communities for which our test is ideally suited, an additional $1.6 billion from the Biden administration to address testing and mitigation in vulnerable communities, and $10 billion from the Biden administration to fund back-to-school testing. That adds up to $13.9 billion in federal funding to, in large part, address testing in congregate, underserved, and vulnerable communities. Places where vaccination rates are low and COVID-19 variants are now surging, and our IntelliSwab test is ideally suited. Lastly, as it pertains to COVID-19, I want to provide an update on our oral fluid antibody tests. The FDA recently responded to us and declined to further review our submission as they focused on areas of higher priority. However, we will continue to offer this product as a research use only test with several laboratories interested in COVID-19 antibody surveillance and research applications. Next, I would like to highlight one example of how we're trying to expand our sample collection business. As you know, we built the saliva sample collection portfolio by generating data to disrupt the standard of care for sample type, often blood, and then co-clearing our collection devices with relevant assays in the genomic space. We are now pursuing a similar strategy with first void urine collection with our Novacentis subsidiary, as we look to bring the non-invasive benefits of urine sample collection to new markets. This quarter, we had a significant publication in gynecologic oncology demonstrating the ability of Kali-P, Forrester's proprietary urine sample collection technology, to facilitate testing for human papillomavirus, HPV, using first-void urine samples from patients. In a study of approximately 500 women, the sensitivity and specificity of Kali-P-collected first-void urine samples was shown to be similar to the sensitivity and specificity of clinician-collected cervical samples using Abbott's real-time high-risk HPV assay for the detection of neoplasia. We have additional clinical studies in process with other major HPV test manufacturers that we expect to come out later this year. While there is still a significant pathway to full product validation and regulatory approval, we believe Colipi has the potential to transform cervical cancer screening to a better, less invasive, and more cost-effective modality. where women can have the sample collected for cervical cancer and other sexually transmitted diseases in the privacy of their own homes. The market potential for HPV screening represents greater than 30 million tests per year in the U.S. alone, making this a significant future opportunity. In regard to Colipi use for oncology, we also saw MDX Health, one of our top customers, using Colipi for cancer screening, receive a draft local coverage determination from Palmetto GBA, a Medicare administrative contractor, for their select MDX urine tests for prostate cancer risk assessment. Typically, these types of reimbursement coverage decisions are catalysts for more significant commercial adoption of laboratory tests. This was also a record quarter for our microbiome business in both the service and kit side, with over $6 million of total revenue. We now have over 50 commercial customers in microbiome testing, including over 30 biopharmaceutical companies conducting over 20 ongoing clinical studies. We're working with all the top five companies in the microbiome space, as well as five of the top 10 pharmaceutical companies in the United States. Early data around microbiome-based therapeutics has been positive, and some of these studies are beginning to advance to the phase three stage. with FDA, which will lead to increasing revenues as the number of samples evaluated increases. We also believe eventual regulatory approval of microbiome-based therapeutics will lead to further research investment in this area, which will benefit our business. Building on the growth of our microbiome business, in the second half of this year, we plan to offer a new gut metatranscriptome collection kit and metatranscriptome service in support of our customers' microbiome research. This is an important step toward the strategy of expanding sample types, analytes, and services as we pursue our multi-omic strategy. Another important strategic component of our molecular solutions business is expanding our long-term competitive position in the market. Investors have asked us about recent low-tech COVID-19 collection devices launched by other companies, and I believe it's important to highlight the unique features of our products. Our devices are designed for remote sampling collection for genetic sequencing. In addition to the well-proven, easy-to-use, consumer-friendly form factors, these feature proprietary patented designs and chemistries capable of stabilizing a variety of analytes under a broad range of storage conditions, allowing shipment and storage at ambient temperatures. Because the DNA and RNA is preserved, sample collection in our devices are suitable for surveillance-related sequencing, for variant detection as an example. While there are lower-cost devices in the market that can be used for COVID sample collection, they do not match our benefit profile. We continually innovate on both our physical design and chemistry, and as a result, have significant intellectual property protecting our technology, many with expirations extending out many years. Additionally, we are increasingly pursuing regulatory approvals in conjunction with our strategic customer relationships, such as the clearance received for our oral fluid collection device in conjunction with Helix for their whole exome test this year. Finally, we have established long-term contracts with some of our key customers, providing long-term visibility, and we are increasingly adding a broader range of services to customer agreements, such as fulfillment and customization services. Importantly, our customer base in these markets has become increasingly diverse. We have over 6,000 customers now with no single customer representing greater than 7% of our revenue in fiscal year 2020. Consequently, we believe we're in an extraordinarily strong competitive position as one of the global leaders in this market with our ability to address diverse markets such as consumer genomics, clinical genomics, and home testing, which are growing in the mid-teens, with our ability to expand our solution set to additional high-growth areas and sample modalities. Moving on to our strategy to expand our global reach and presence, we continue to see strong adoption of our Orquick HIV test internationally, driven by double-digit annual growth since 2016 of our HIV self-test, the only regulatory-approved oral fluid self-test for HIV in the world. We are already using our established distribution channels for HIV for the new IntelliSwab COVID-19 rapid tests, where we have inquiries from several countries as COVID-19 continues to spread outside the US. Across the Orsha portfolio, we continue to expand our global reach and now have over 400 product registrations in 95 countries. This not only applies to diagnostics, but also the molecular solutions. We're also looking to increasingly expand outside the United States with our collection kits using our COVID-19 collection devices. Finally, I'd like to discuss our strategic priority of driving innovation with a focus on higher growth spaces through internal R&D and M&A. I would like to provide some additional details relating to our business development efforts where we've been very active in assessing a number of opportunities and new technologies. From a prioritization standpoint, we're focused on companies and technologies which build upon the foundation of our existing business strategies and diagnostic and molecular solutions that would allow us to leverage our infrastructure and market expertise. In diagnostics, we recognize order-sure strength, and what sets us apart is our expertise in simpler, more effortless testing. With COVID-19, we saw in real time just how important this type of testing really is. So as we think about the future of diagnostics, Foreshore is ideally positioned to drive additional self-testing and more effortless testing at the point of care. We're actively investigating new technology platforms that can expand our menu of tests on a global basis and provide long-term competitive differentiation. With the molecular solutions business, we're really looking at innovative solutions which can expand our capabilities from a sample collection format expand our reach into new high-growth emerging areas of testing, further strengthening our competitive positioning, and expand the scope of data and services we can offer our clients. We ended the quarter with $229 million in cash and cash equivalents, and we believe there's significant opportunity to drive further growth and stockholder value through external M&A. Overall, I'm extremely excited about the outlook for the next 12 months at Oreshore. We're currently conducting our annual strategic review, which will incorporate both broad internal stakeholder input and outside expertise in order to ensure we're taking full advantage of the strategic opportunities in front of us. We will look to share the output of this review with investors when the review is complete, along with a broader look at the innovation occurring within our organization. And with that, I'm pleased to turn the call over to Roberto to discuss our financial results and outlook.