Good afternoon, everyone, and welcome to the OraSure Technologies 2020 3rd 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 speakers' remarks, there will be a question and answer period. With no more than one follow-up question related to the same topic.
Once the follow-up is completed, a questioner can rejoin the queue for further questions. I'll turn the call over to Gene Mehl, Vice President of Corporate Communications for OraSure.
Thank you, operator. With us today are Doctor. Stephen Tang, President and Chief Executive Officer and Mr. Roberto Cuca, Chief Financial Officer. Doctor.
Tang and Mr. Cuca will begin with opening statements, which will be followed with a question and answer session. Before I turn the call over to Doctor. Tang, you should know that this call may contain certain forward looking statements, including statements with respect to revenues, expenses, profitability, earnings or loss per share and other financial performance, product development, performance, shipments and markets, business plans, regulatory filings and approvals, expectations and strategies. Actual results could be significantly different.
Factors that could affect results are discussed more fully in the company's SEC filings, including its registration statements, its annual report on Form 10 ks 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 Doctor. Stephen Tang.
Thank you, Gene, and thank you, everyone, for joining us today. I know last night was a late night for many, so I appreciate your attention and interest this afternoon. I hope you and your families are faring well during these challenging times. As you will hear today, OraSure had a strong quarter. Our molecular sample collection devices are widely used for lab based COVID-nineteen molecular tests.
We've submitted our lab based oral fluid SARS CoV-two antibody test to the FDA for emergency use authorization or EUA, and we expect our rapid coronavirus antigen test to be ready for EUA submission in Q1 2021. Overall, our ability to address the COVID-nineteen pandemic through sample collection has contributed positively to our business in the 3rd quarter. We generated $48,000,000 in revenue this quarter, a 33% increase over the prior year. This performance was driven by our Molecular Solutions business unit. Our products continue to be in demand as the need for COVID-nineteen testing continues to rise.
The Molecular Solutions business unit generated $18,400,000 in COVID-nineteen related sales in Q3, which is more than double the COVID-nineteen revenue achieved in the first half of the year. Globally, we're seeing what appears to be the 3rd wave of the pandemic as the number of COVID-nineteen cases surges here in the U. S. And around the world. COVID-nineteen forecasts are not completely in alignment, but most predict that the current impact will be felt for another year or 2 years, with COVID-nineteen existing at some level in perpetuity as the disease becomes endemic.
While there is hope that a vaccine will be approved by year end or early 2021, we expect it will take quite some time for a vaccine to be broadly available in the U. S. And internationally. Until then and beyond, testing will continue to play a critical role in managing the pandemic. We expect OraSure to continue to play an important and growing role to address the massive and persistent need for COVID-nineteen testing and sample collection.
During our Q2 earnings call, I cited an estimate from the Rockefeller Foundation that called for 1,500,000,000 COVID-nineteen tests per year to get the pandemic under control. Since then, the foundation has increased its estimate to approximately 2,300,000,000 tests per year in the U. S. Alone.
With this
in mind, we expect there will be continued to be strong demand for COVID-nineteen testing for the foreseeable future, and we are prepared to help meet that need with our innovative solutions for testing and sample collection. All of Orsher's COVID-nineteen products are centered on the easy self collection of samples by individuals in an area which we have long experience. Our products are designed to make it easier to obtain results either through oral fluid sample collection for PCR and antibody testing or through a full diagnostic test that consumers can conduct on their own. I'd like to address our current COVID-nineteen innovations, beginning with sample collection for molecular or PCR testing, which is the gold standard when it comes to detecting active COVID-nineteen infection. Our experience in innovating devices to facilitate at home self collection of samples has led to significant interest in our collection devices for molecular COVID-nineteen testing.
Devices made by DNA Genetech subsidiary support both PCR and sequencing based COVID-nineteen tests. And these collection kits are now being used for collection at home by consumers or by laboratory staff and healthcare providers. Notably, 2 of our sample collection devices, oralcollect RNA and Omnigene oral received EUAs from the FDA in October. Both EUAs allow for the collection, stabilization and transport of saliva specimens suspected containing SARS CoV-two RNA. The authorization also allows the products to be used as a component of an authorized or cleared self collection kit for unsupervised home use.
This means the devices can be part of a kit that is authorized under his own EUA for the use of an individual to collect saliva specimens at home. It's important to note that these devices are not COVID tests. They are components of the tests that would be run-in a lab. DNA Genentech's customers, which are typically laboratories offering COVID-nineteen test pipeline, would use devices as a sample saliva selection method for their lab based COVID-nineteen tests. OmniGene Oral and oralcollect RNA are 2 of 3 molecular test collection kits that have been included in 6 EUAs DNA Genotec customers obtained from the FDA.
But the EUAs are only one part of the molecular success story. About half of the 3rd quarter sales of molecular sample collection devices for COVID applications were to customers not currently holding EUAs with the balance of customers operating their COVID test as laboratory developed tests or LDTs. Use of DNA Genentech collection kits continues to grow in back to work settings, back to school programs and laboratory testing. For example, 30,000 students were tested at the University of Kansas before returning to campus using kits from clinical reference laboratory and 64 State University of New York campuses are testing students and employees with tests developed by Quadrant Biosciences. Our Aurigene DX saliva collection device is available at Albertsons Companies Pharmacies throughout the U.
S. As part of phosphorus diagnostics COVID-nineteen testing program and back to work programs are integrating COVID-nineteen testing, monitoring, assessment and access to telemedicine visits for companies through Azopa Inc. Additionally, Costco is selling COVID-nineteen saliva collection kits in conjunction with P23 Labs, which received an FDA EUA for the laboratory test workflows with their PCR tests. The workflow includes Omnigene Oral as the saliva collection device. Easy self collection of samples is essential to ensuring the safety of workers and students and their families by helping to curtail the spread of the virus as people resume normal aspects of life.
We expect the sales of molecular collection kits for COVID-nineteen testing to continue to grow within the U. S. With existing and new customers, but also outside the U. S. As other nations complete their validation work around saliva as a sample type.
Moving on to antibody testing. We have submitted an EUA application to the FDA for our oral fluid SARS CoV-two antibody, ELISA, and are in the review process. To date, there are no oral fluid antibody tests for COVID-nineteen authorized for sale in the U. S. Pending receipt of NUUA from the FDA, we have the potential to be the first.
This lab based oral fluid test is intended for the qualitative detection of total antibodies to SARS CoV-two. We have a number of interested customers and are prepared to commercialize our antibody test in the Q4 of this year, subject to receipt of the EUA. Oral sample collection is quick, painless, non invasive and requires less human contact in comparison to a blood draw, both minimizing the need for personal protective equipment, or PPE, and reducing exposure to potentially infected patients. With OraSure's test, individuals have used a collection pad to self collect an oral fluid sample under the direction of a healthcare professional. The sample would then be placed in the OraSure oral antibody collection device buffer for storage and transport.
The sample would later be dispensed onto our proprietary ELISA microplate for analysis in a commercial laboratory to determine the presence of antibodies in the oral fluid sample. Potential locations for sample collection include offices, labs, testing facilities, and drive through testing sites. We are evaluating whether the EUA subsequently could be amended to permit an unsupervised in home sample collection option for samples sent to a central laboratory for testing. At an epidemiological level, it is extremely important for public health officials to have an accurate understanding of who's been infected. Antibody tests are well suited for community surveillance and seroprevalent studies as they can help identify people in a population or community that have mounted antibodies against COVID-nineteen.
According to the Centers For Disease Control and Prevention, CDC, this information could be used to estimate the number of people who have been previously infected with SARS CoV-two and were not included in official case counts. This is critical to maintaining an accurate count of infection rates in informing decisions that can advance public health. Antibody tests could also potentially complement vaccine development and implementation. Turning to our antigen test. OraSure continues to make tangible progress in the development of our OraQuick coronavirus rapid antigen cell test.
Subject to receipt of an EUA, this product would test for active COVID-nineteen infection using nasal samples self collected from the lower nostril. Results would be available at the point of collection with no instrumentation needed to interpret results. To date, there are no self tests authorized in the US that enable individuals to test themselves and read the results at the point of collection with no instrumentation needed. We are highly confident that we can bring to market an accurate test that meets FDA standards for a rapid self test. As we disclosed previously, we intend to sequentially introduce our antigen test for 3 different uses, subject to regulatory authorization.
First,
a professional test for use at drive through sites, physician offices, public health testing sites, and employer and university health centers. In this instance, a physician would prescribe the test and the patient would conduct a self swab in the presence of a healthcare provider who would then interpret the results. 2nd, a prescription self test for use by individual consumers, which could be offered by employers or universities on or off-site or by physicians or public health authorities via remote testing or telemedicine. In this instance, a physician prescribed a test and the consumer would conduct the self swab at home or any location where they would then interpret their own results. Thirdly, an over the counter or OTC self test for use by consumers who would purchase online or at retail without prescription would conduct the test and receive the results themselves anytime, anywhere.
We expect to file for the professional test EUA in Q1 2021 in the prescription self test and OTC self test EUAs to follow as soon as possible thereafter. This is a complex process that cannot be rushed. Between now and the filing of the EUA application, we will finalize the device design and complete the EUA studies necessary to determine achievement of the high performance standards as the FDA demands of a self test. We are committed to delivering a rapid antigen self test that meets FDA requirements for self test and the needs of the pandemic, as well as our own rigorous standards quality and performance. We have made a great amount of progress and have completed important benchmarks.
Limits of detection studies were conducted with live coronavirus at a certified third party laboratory to evaluate the analytical sensitivity in comparison to an EUA authorized instrument free rapid antigen test. The results from the comparison provided further confidence that the proprietary chemistries incorporated in Foreshore's lateral flow test strip will deliver the sensitivity needed. In addition, the company currently has prototypes on the OraQuick platform under evaluation at clinical testing locations, continually providing data on the performance of design against FDA requirements. Based on what we know at this time, we believe there will be significant demand for antigen test self test in 2021 as it puts control of the process in the hands of the user. In the U.
S. Alone, the Rockefeller Foundation estimates demand at approximately 2,300,000,000 tests annually. Rockefeller Foundation and others have identified fast and frequent testing as a key to getting COVID-nineteen under control. This is exactly what our antigen tests will deliver. The timing of an EUA is subject to FDA review.
Once EUA is obtained, we are prepared to launch the test without delay. Moving on to manufacturing. Early on in this pandemic, we understood that increasing our manufacturing capacity would be key. To that end, we are confirming that our plans to increase manufacturing capacity to meet demand for COVID-nineteen sample collection kits and tests continues on track as outlined last quarter. With that, I'll hand it over to Roberto to report on the quarter's financials.
Roberto?
Thanks, Steve. As Steve mentioned earlier, our 3rd quarter net revenues increased 33 percent to $48,000,000 from the $36,000,000 reported in the Q3 of 2019, primarily as a result of strong sales of molecular sample collection kits for COVID-nineteen testing, increased international sales of the company's HIV Self Test and higher laboratory services revenues, partially offset by lower sales across all of our other product lines, primarily due to the impact of the COVID-nineteen pandemic. Net product and service revenues were $46,700,000 a 32% increase from the Q3 of 2019. Total product and services revenues for the company's Molecular business unit were $31,200,000 during the Q3 of 2020, an increase of 79% from the Q3 of 2019. This increase included $18,400,000 in sales of oral fluid sample collection devices for COVID-nineteen molecular testing, which was partially offset by a decrease in genomic sales.
International sales of the company's OraQuick HIV Self Test increased 17% compared to the Q3 of 2019, largely due to higher sales into Africa. Gross profit percentages were 63% 60% for the 3 months ended September 30, 2020 2019, respectively. Gross profit percentage in the Q3 of 2020 benefited from an improved product mix associated with higher gross profit percentage product sales. Net income for the Q3 of 2020 was $1,000,000 or $0.01 per share on a fully diluted basis compared to net income of $13,100,000 or $0.21 per share on a fully diluted basis for the Q3 of 2019. 3rd quarter 2019 results included 2 gains associated with the sale of a business and a change in the estimated fair value of our acquisition related contingent consideration together totaling $12,500,000 which accounted for approximately $0.16 per share in 2019.
Cash and investments totaled $263,700,000 at September 30, 2020. As we disclosed in our press release, we expect revenues of $55,000,000 to $60,000,000 in the Q4 of 2020. As we discussed on our Q2 earnings call, we expect that, as we've just seen with the Q3, non COVID revenues will be flat or improved for each business unit in the Q4 compared to the Q2 and that COVID-nineteen product sales will add to this performance. For the full year, we continue to expect that excluding cryosurgical revenues from 2019, non COVID-nineteen revenues in both the infectious disease and molecular collection filings of business will be down in 2020 compared to the year ago period, with molecular collections bearing the greater impact. However, as our revenue guidance for the Q4 indicates, we anticipate that the revenue opportunities for our COVID-nineteen sample collection products and tests will more than offset the year on year decrease in our non COVID-nineteen lines of business, such that our total revenues will be higher in 2020 than in 2019.
With that, I'll turn the call back over to Steve.
Thank you, Roberto. Turning to our legacy businesses, HIV testing remains an important area of global focus for OraSure. Access to testing during the pandemic has been challenging as in person testing facilities for HIV in the United States have been, in many cases, shut down. Self testing, which enables social distancing and helps protect healthcare workers and test users alike, is a key strategy in the efforts to help people know their HIV status, especially under the current global pandemic conditions. Overall, our net HIV test revenues increased 6% over Q3 2019.
This was driven by strong international sales of our OraQuick HIV Self Test that increased 17% compared to the Q3 of 2019. To put this in perspective, a UNAIDS report noted significant decreases in HIV testing services between January July in nearly all countries with available data. CDC and other government agencies have encouraged health departments at all levels to consider HIV self testing as an additional testing strategy to reach persons most affected, which speaks to the usability and convenience of our at home tests, which allows individuals to test themselves and receive the results at home. Today, OraSure offers the only over the counter self test for HIV in the United States and the only World Health Organization or WHO prequalified rapid oral fluid HIV self test globally. I'd also like to briefly touch on our collection business outside of COVID-nineteen.
Although not yet back to pre COVID levels, we saw increases in our genomics and microbiome kit sales quarter over quarter. 3rd quarter kit sales for genomics and microbiome were up 32% and 114% versus the prior quarter, respectively, driven by strength in the commercial market. Academic sales also increased quarter over quarter, but to a lesser degree. Our laboratory services revenue showed a slight increase over the previous quarter. We continue to innovate in the microbiome arena, adding new products and services.
Our DNA Genotec subsidiary has launched a skin microbiome collection kit. OmniGene Skin offers a standard method for collecting skin microbiome samples from sebaceous, dry and wet skin sites, which will aid researchers in obtaining reproducible high quality samples. And a great example of how our microbiome services and products team complement each other, a startup company, Pure Culture Beauty, has partnered with DNA Genotec and Diversigen to use data and science to deliver a comprehensive customized skincare regimen to its customers. DNA Geniatek will supply the Omnigene skin microbiome collection kits and Diversigen will provide full microbiome service analytical services, offering a complete understanding of the user's skin microbiome. We continue to believe that the promise of our microbiome products and services look forward to continued growth.
In closing, our business momentum is strong. We expect that trend to continue as evidenced by our guidance. We see COVID-nineteen testing as a robust part of our business for now and the foreseeable future, with molecular collection devices already driving significant revenue and our antibody and antigen tests on the road to commercialization. OraSure is poised for continued and sustained growth. Our work with COVID-nineteen will help accelerate our growth significantly.
We understand the opportunity for our tests and sample collection kits is substantial, and their role in the fight against COVID-nineteen is vital. We want to reiterate our confidence in OraSure's ability to bring our antibody and antigen tests to market. We believe they will be worthy of joining the list of our other highly regarded OraSure products. With that, I will open it up the call for your questions.
Our first question comes from the line of Vijay Kumar with Evercore ISI. Your line is now open.
Hey, guys. Thanks for taking my question. Maybe for the first one, Steve, I want to touch on the collection opportunity here, dollars 18,000,000 of revenues in the queue. The Q4 guidance implies a modest step up. And I think when you look at the capacity expansion, the goals that you guys had ramping up expansion from $35,000,000 to $80,000,000 So I'm just curious where are we on the expansion?
What is the current capacity? Are you selling every single kit that you're making? What should the normalized revenues be for this part of the business once our capacity ramps up?
Thank you, Vijay. I'll start by first saying we are very pleased with the performance of our Molecular Solutions business unit and in particular, the COVID-nineteen products that they're selling 3 into molecular PCR tests, 2 products receiving EUAs as we noted in the prepared remarks. While we're not breaking out revenue specifically, you're right that there is a step up that's for molecular collection kits for COVID-nineteen that's embedded in our guidance of $55,000,000 to $60,000,000 for the Q4. By the way, that $55,000,000 to $60,000,000 would be a record Q4 for us as a company. We are moving ahead with our expansion plans.
We are almost to the point of selling everything we can make, which I
think makes So
I think that as we look into 2021, the expansion that we announced in August will serve us well in terms of providing additional capacity to meet enormous demand in the marketplace. So this area of our business, which I think has come to fruition nicely in the second and third quarter, will continue to grow.
Understood. And then I guess one for the follow-up maybe on the antigen testing side. I understand the push out here from Q4 to Q1. Maybe can you give us some color on what drove the push out? I guess the question on investors' mind is what is causing the delay?
Are there any technical challenges here? And as you think about that, I guess, the language in the press release said that version 2, the at home or self swabbing version would follow soon after. Is that sort of a first half event or I'm curious on how we should be thinking on the cell swab at home version of the test?
Right. So we've only forecasted, as you noted, an EUA for our professional version of the test in the first quarter. But you may recall, BJ, from our Q2 call back in August that we indicated that even though we were going to seek sequential EUAs, so as you noted, professional then prescription self test and over the counter self test, we would actually be conducting the clinical trials in parallel to shorten the time between each approval. So part of our plan remains to do so. And while we're not providing specific information about when the prescription self test and the over the counter self test would be on the market, we believe it will be soon after the professional product is approved.
And so we'll leave it at that for now. But I think it's important to step back and see what's been accomplished. What's impressive to us is the technical work that's gone to essentially validate that our the core of our OraQuick technology, which is a test strip effectively, is performing exceptionally well in limited detection studies, compared to rapid antigen tests that are already on the marketplace. And so that is significant progress for us right now. And the clinical trials that we'll go through between now and the EUA submission process in the Q1, I think, we are very confident we'll validate the success of the product.
What we are trying to do is something that no other company has done before, and that is essentially have a one step rapid engine test, that is essentially the same design we'll use for the professional, the Rx Self Test and the OTC Self Test, ready in design in the professional product. So no other product that's on the market today was designed specifically for that purpose, even though all of them are professionally used products in their own right. So we're taking the extra care based on our experience in putting the Orquic HIV and home tests on the market and also, by the way, developing the Ebola rapid antigen test back in 2017 in 9 months' time to get this on the market as quickly as possible. So there are always things that are unanticipated that come along in product development, but I think we're very confident in that Q1 EUA with the Rx self tests and the OTC self tests coming soon thereafter.
So what is the LOD on your antigen test, Steve? And how does it compare to competition?
Well, so we haven't disclosed the numbers, Vijay, but they are competitive with the products that are already on the market and those are that's public information.
Thanks, guys.
Thank you.
Thank you. Our next question comes from the line of Frank Tannen with Lake Street Capital. Your line is now open.
Hey, guys. Thanks for taking my questions. Just a couple for you here today. I heard you guys talk in your prepared remarks a little bit about the October EUAs for the 2 DNA Genotec products. I was hoping you could just go a little bit deeper on that and how that could potentially debottleneck the process to continue to drive the momentum behind this business into the Q4 as well as into 2021?
Yes. So Frank, thanks for the question. So I think these are important breakthroughs for the 2 products that receive EUAs. And so that's our oral collect RNA and our omni gene oral products. And it's important because essentially there's a pathway now for self collection that wasn't available on the market before these products were approved, provided that they are used in a product that is also received in EUA for an individual to collect their own saliva specimen.
So the use of the product, if you will, very clearly mimics what we've done for in genomic testing, used by companies like 23 andMe and others. And so from a technical perspective, it was very much in line with our expertise. And so it really does allow a pathway for self collection for saliva. And I think it's important to recognize how far we've come in molecular testing from nasopharyngeal and oropharyngeal swabs to really the breakthrough, which is using saliva, which allows people to take their own sample and not subject themselves to the discomfort or pain associated with those deep swabs. So that's the breakthrough.
And I think that evidence of that we provided through the work of our customers, 30,000 students at the University of Kansas tested 64 campuses of the State University of New York using the product. So you see widespread distribution of our product and even into the retail channels that we mentioned in our prepared remarks. So that is clearly the breakthrough and that's why we're so excited about the progress and growth in our Molecular Collections, Molecular Solutions business unit, and that will continue into 2021 and beyond.
Great. And then maybe one for Roberto. I saw gross margins came in at 63%. It's definitely a nice contributor to flipping the model back to profitable for the quarter. I was curious if you could comment on that level of margin given the increasing mix of molecular collection and the expected continued momentum behind this business?
Sure. So, you correctly deduced that the driver of that is the COVID-nineteen products, and we continue to expect those to be growing contributors to our revenues. So versus the Q3 and the Q4 in the Q4, we would expect gross margin to be at least as good as the Q3 and likely a bit better given the historical seasonality in our commercial genomics business. There will be some moderation to the gross margin, as we see continued growth in our HIV International business, which is a lower gross margin business. But we do overall see this as a sustainable gross margin level that we'll see some seasonality from quarter to quarter in the coming year.
Great. Thanks for taking my questions and congrats on the progress this quarter.
Thanks, Frank. Thanks, Frank.
Thank you. Our next question comes from the line of Tycho Peterson with JPMorgan. Your line is now open.
Hi, guys. This is Casey on for Tycho. I guess first question I have is, are you guys baking in any COVID antibody revenue into your 4Q guide? And then how do you see the market evolving for this test? I guess how much of an advantage is the test using oral fluid?
How much of a competitive advantage is that?
So Casey, we have not broken out individual products into our guide for $55,000,000 to 60,000,000 dollars But I think as we announced back in August, once we locked prototype on the antibody test, we would begin building inventory that is manufacturing at risk. That has come to fruition. We have customers that are now evaluating our product on a research use only basis before we get our EUA. So that's moving along nicely. I think the market for this oral fluid antibody test is going to be expensive.
It's coming at a great time when the discussion in the pandemic has moved towards seroprevalence and surveillance. There was an article out just today that said that there's probably 20% of New York City residents that have been exposed to the disease, but they haven't been counted or measured yet. So we really do not know the seroprop possibilities for our product in 2021 and 2022 and the rollout of the vaccine, this will be a powerful tool to accompany the vaccine to see how much of the population are mounting antibodies to this virus overall. So and we know from our own experience with genomic testing that oral fluid sampling is a lot better than blood based sampling. And this is the only product if and when it's approved for EUA by the FDA to use an oral fluid.
I think there are over 300 antibody tests that use blood. So it's in the tradition of OraSure, these are unique products with unique applications.
Got it. Thanks for that. And then maybe just one on the antigen push out. Just sort of a little more color on the reasoning behind it. I saw last week the FDA updated its antigen test developed template that called for more studies to be admitted in the asymptomatic population.
Just wondering, is it a matter of more studies that need to be done? Or was it about getting the sensitivity up to where it needs to be? Just any more color on the reasoning behind the push out?
Well, of course, when you're doing product development, there's always an iterative process involved with it. And then you add to that the need to get clinical data from the field. So that interplay between, let's say, changing the chemistry and changing aspects of the design of the product to get to the point where we are comfortable with it, I think contribute to the new forecast for the Q1 of next year. And I think that ultimately, the push out won't matter to us commercially, because I think we're very confident that once the product is on the market, we'll sell as many as we can make. So it has nothing to do with the external factors of what FDA is doing and everything to do with our own standards of performance.
And as I said before, we are the only company that's designing a product specifically to ultimately be a self test, whether it's an Rx self test or an OTC self test and designing those principles into the professional use product, which for which we'll seek the initial EUA. So to do all those things and create a one step rapid antigen test is a challenge that's not been accomplished by anybody yet. So that's why we're investing the time and effort to do it right.
Okay. Thank you.
Thank you, Casey.
Thank you. Our next question comes from the line of Andrew Cooper with Raymond James. Your line is now open.
Hey, thanks for the question guys. I guess maybe first on the antibody test and thinking about sort of the demand there. I know we've touched on it. But if I think back to when you guys initially talked about it, I think the statement was this was somewhat pulled from your substance abuse or risk assessment customers saying, hey, we've got empty labs and we can do this. Has that expanded potentially as you're approaching that getting to market hopefully to additional customers potentially kind of bringing your platform in your place and going beyond sort of those labs or how do we think about the commercial opportunity there?
Yes. Andrew, you've recounted our previous statements correctly. And I think you're also right that we've moved even further beyond that with commercial opportunities. And I think the reason for that is that the use and need for antibody tests has changed since the pandemic first started back in March. And as I said earlier, we are now at a stage where antibody tests are going to be more important than they were in the beginning of the pandemic, particularly with the prospects of a vaccine coming into play here.
So with that in mind, there's a lot more commercial interest than we started from, And we are pursuing that, as I said, with research only customers right now in the queue in anticipation of the UA for the oral fluid antibody ELISA test. So yes, things are moving along, and we're seeing a lot of tailwinds for this part of the business.
Okay, great. And then maybe just quickly on antigen side, just want to confirm, like you said for antibody, like you said before, kind of that manufacturing at risk comfort, is that still the plan once you do have the final design locked in and sort of know what you're submitting to the FDA that you would still start manufacturing as soon as that's done?
Yes. That is still the plan. And based on significant inbound interest, there is very good reason for doing so. We want to be able to satisfy pent up demand in the marketplace. And as I said, the design of the product, which aims for ultimately a self test, even though the first EUA is a professional test is something that will be unique in the marketplace.
Okay. And then maybe just one last one, if I could sneak it in. On that, understand that there is some of the kind of timeline dynamics have adjusted, but when we think about running some of the trials in parallel, does delaying the professional test maybe push the over the counter or the prescription self test closer to that initial timeline? Is there any chance where you can kind of compress the gap between the 2 as you've had more time to develop some of the data and fine tune things? Or is it still kind of the same sort of lag period we might expect as you go from 1 to 2 to 3?
Well, the lag period is somewhat in our control, as you can imagine, with the design and resourcing of clinical trials, but it's somewhat out of our control because, of course, FDA makes the final call on the EUA approval process, right? So we're doing everything we can to ensure that there's minimal time between the EUA submissions and hopefully the approvals. We have evolved our thought thinking a lot about what it will take to accomplish these clinical trials and we'll make the investments we need to ensure that we shorten the time as much as possible. So I think that's been an evolving set of priorities for us since we spoke at our Q2 earnings call back in August. And so I think we're in very good position there to minimize the amount of time overall and control what we can control.
Okay, great. I'll stop there. Thanks, Ian.
Thanks, Andrew.
Thank you. Our next question comes from the line of Patrick Donnelly with Citigroup. Your line is now open.
Thanks guys. Steve, maybe just following up on the capacity side. I mean, with the 1Q launch, obviously, kind of ramping at risk a little bit ahead of time, what type of capacity should we be expecting upon launch of the self antigen test? I know you talked about expectations of selling pretty much everything you guys can make. So how are you thinking about capacity?
And then at the same time, are you thinking about kind of carving that up and directing a certain amount of capacity towards professional prescription OTC? What's the right way to think about that as you said?
Yes. So we are on plan for what we announced previously, and that is we're going to move from 35,000,000 tests per year to 55,000,000 tests per year by the Q1 of 2021 and 70,000,000 tests per quarter by the Q3 2021. And remember, embedded in that capacity is about 17,000,000 to 18,000,000 units per year of capacity for our existing HIV, HCV and Ebola test. So when we come on stream ready to serve the professional market, we will have the capacity that you can calculate from our previous information.
I think we're going to
sell as many as we can make for the professional product. And then as we have more certainty about the timing for the Rx Self Test and for the OTC Self Test, we'll begin making allocation decisions about which product to get what capacity. I think we really do see a sweet spot in the self test, whether it's Rx or OTC, and we'll make the combination that we need to be from there. And I think as I've said before, the design considerations here are to try to make the same form factor and product design for all three use cases, professional, Rx Self Test and OTC Self Test. That's an approach that I think I don't think any other company has taken in the marketplaces yet.
And so that design for manufacturing is really built into our plan here. And that's what allows us to have a more fungible discussion between
Okay.
Yes. You dropped off the 3rd DM. I think I got most of it.
And then Sorry about that.
Yes, no problem. One more on the antigen self test. I apologize for circling back on this. But just on the time line, I just wanted to clarify. Last quarter, you guys kind of shifted from saliva to the lower nasal, obviously.
I just want to make sure the design approach, they're fully locked in right now, and it's just kind of refining things your end. The data looks compelling. There's no big changes here outside of again kind of the normal course shifting in a few months. Is that correct?
That is basically correct, although we haven't announced prototype lock or anything like that, and we may not announce that. I think our goal is, at least right now, to announce when we actually submit the EUA for the professional application. But I think we're comfortable with our progress without revealing too much about what the final design will look like. And because we've had experience with HIV, HCV and Ebola, I think we know a lot about how to scale the manufacturing from there. All right.
Thanks. Thank you, Patrick.
Thank you. Our next question comes from the line of Jacob Johnson from the line of Stephens with Stephens. Your line is now open.
Hey, thanks. On COVID-nineteen collection kits, can you just talk about what you're hearing from customers in terms of near and long term demand for their tests? I think given your Q4 guidance, it would suggest that demand is pretty strong, at least in the near term, but I would just be interested in any other color there.
Jacob, I would say that we are approaching a point where we will sell everything we can make and the capacity increases that we forecasted back in August will serve us well. And so we are seeing a rather insatiable demand for our products for molecular testing that we believe will continue certainly through 2021 and probably well into 2022. It began certainly in North America and in the U. S, but we're looking outside the U. S.
As well right now. So these are great discussions to have because I think people have really gravitated to the fact that you need saliva and self collection saliva as a key part of testing.
Got it. That's helpful. And then just maybe one question on the non COVID front. You had a nice rebound in the HIV franchise in the quarter, both internationally and in the U. S.
I guess on the domestic side, are you beginning to see signs of clinics reopening and domestic test volumes increasing? And then the quick little aside there would be with the, I guess, the 3rd wave, you described it in COVID here in the U. S, Should we think of I think Roberto said 4th quarter is expected to be better than the 2nd quarter, but could we see maybe some of that rebound be muted here in the Q4 with COVID cases ticking back up?
Yes. Jacob, I would say directionally, we are seeing we've been seeing a pickup as I think Roberto alluded to in our U. S. Based HIV business. Some of that is because with the clinic closing, CDC has actually issued guidelines urging those clinics to direct their would be patients to our self test.
And so having that as an alternative in the marketplace has served us incredibly well. And so the hedge against the 3rd wave of COVID creating a shutdown again will benefit our OraQuick HIV in home test domestically for that reason. But we'd rather bet on the economy and clinics staying open, which would benefit their professional products. So while we haven't given specific guidance by product line, that's the way we view the situation. So I think there's upside for us in both scenarios.
Got it. That's helpful. Thanks for taking the questions.
You're welcome. Thank
you. Our next question comes from the line of Brandon Couillard with Jefferies. Your line is now open.
Thanks guys. This is Matt on for Brandon today. Quick one on the Phase 1 rollout of your antigen test into the professional market. Any updated color on how you're thinking about ASP there? And then as well on the gross margin side given the initial customer will largely be in the setting of doctor offices or university health centers that are likely to go through distribution channel.
Any color there on the margin side as well?
Roberto, would you like to take that one?
Sure. So, we haven't disclosed the pricing for the antibody test yet excuse me, the antigen test yet, other than to say that we expect it to be in line with the other products on the same technological platform and with products generally in that market. We have said though that we expect the gross margin percentage to be at least as good as for our other products. And as a reminder, because there are 3 potential product types and distribution channels, a lot of the actual achieved ASP and gross margin will depend on the mix amongst those 3. And that will be an evolving mix as we, 1st of all, get the EUAs for the products and then optimize the mix for our customers.
Makes sense. And then, Stephen, if we look at the balance sheet, you guys have $260,000,000 of cash. You've done number of smaller deals here, 1 divestiture. Clearly, spending right now to build out manufacturing. But curious how, if at all, your M and A appetite has evolved over the last few months?
And if anything, in the funnel is perhaps more actionable today than it was coming into this year? Thanks.
Yes. We continue to look for attractive opportunities to leverage our balance sheet. I think that our business circumstances have certainly changed with the COVID-nineteen opportunities. And it remains our objective to look at acquiring companies, products, technologies that are accretive to our overall growth strategy. But if we look ahead to 2021 2022, the growth is going to be, I think, fairly enormous at current course and speed.
And so we'll be adjusting our expectations of business development and the size and types of deals accordingly. But the pipeline has been robust, I think, as you suggested, both with our own outreach and inbound interest from potential prospects. And we'll continue to look at that. Our balance sheet, I think, is stellar, no doubt at all on the balance sheet. And I think that will lead us to some interesting opportunities in the very near future.
We do have a follow-up question from the line of Vijay Kumar Evercore ISI. Your line is now open.
Steve, just one quick follow-up on the antigen testing. Maybe can you what should investors expect over the next few months, right? 1, will we have any update? Will the Street have any update? And I'm asking because we had to push out to Q4 and now it's Q1.
I think the sheet would like some updates in the interim. And the second was, when are the trials starting, right? Are these in field clinical trials, as in your testing in the field on live cases given these have to be self swab. Is that what's causing the delay perhaps? And has the prototype for the device been locked yet?
Thank you.
Yes, Vijay. We have not announced prototype locks, so we haven't said anything about that. I do understand the interest in our product and the product development. I mentioned earlier in response to a separate question that we do plan to announce the submission of our EOA application for the professional test. That's our plan right now.
Beyond that, we will have to see what we'll communicate and when. There are obviously some competitive issues that would we have to account for in any particular announcement. But the delays are not due to any particular factor other than we had very high expectations for the performance of the product and the clinical trials are running to validate the particular design and performance of the product. So that interplay is continued and ramped up since our August Q2 earnings call. So that will
What I said before is that
we will use what we understand are the standards for the FDA, targeting a self test and our own internal quality and performance standard as a measuring stick. And that's a very high bar, which is why it takes time to get this product on the market. But we are very confident that we're on the road to getting this product to the E Rate process in the Q1 and following with the Rx self test and the OTC self test shortly thereafter.
Thanks, Steve.
Thank you, Vijay.
Thank you. This concludes today's question and answer session. I would now like to turn the call back to Stephen Tang for closing remarks.
We'd like to thank everybody for participating in the call and your interest in OraSure Technologies. We hope that you keep well and safe wherever you are and continue to join your afternoon or your evening. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.