Good morning, everyone, and welcome to the OraSure Technologies 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. Only a single question 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. ProAssure Technologies issued a press release at approximately 7 am Eastern Time today announcing the acquisition of CoreBiome and Novosanis and reaffirming guidance for the Q4 of 2018. Press releases available on our website at www.orasure.com or by calling 610-882-1820. If you go to our website, the press release can be found by opening the Investor Relations page and clicking on the link for press releases. With us today are Doctor.
Stephen Tang, President and Chief Executive Officer and Mr. Roberto Cuca, Chief Financial Officer. Doctor. Tang and Mr. Cuka will begin with opening statements that should be followed by 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 may be significantly different. Factors that could affect results is 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, 2017, 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 would like to turn the call over to Doctor. Stephen Tang. Thank you, Gene.
Good morning, everyone. Welcome to our call. I'm delighted to share the news that OraSure has entered into agreements to acquire Novosanis and CoreBiome. The transactions are expected to close within the next week. These acquisitions are the first example of our innovation driven growth strategy taking flight.
As shared in past calls, our business development efforts are focused on identifying opportunities that license technology or acquire products or companies that complement or leverage our existing business for enhanced our end to end service offerings. The acquisitions of Novoscanis and CoreBiome, both innovators in the respective markets, advance our communication driven focus by adding differentiated products and services that we expect will enhance our molecular business, our long term corporate growth profile and returns to our stockholders. Both transactions will leverage the sales and marketing resources of our wholly owned subsidiary DNA Genotec to cultivate commercial customers, key opinion leaders and academic collaborators. Let me share some key highlights on the 2 companies. Novotenis is a privately held Belgium based company, which was founded in 2013 by Vanessa Van Perkhoven and Coon Beyers.
It's a spin off company out of the University of Antwerp. Novosandis is an early commercial stage producer and distributor of urine sample collection devices, targeted primarily at the liquid biopsy, sexually transmitted infection screening in neurological cancer markets. Novosanis' primary technology is called COLI P, an easy to use device suited for the standardized collection of first loid urine in the privacy of the user's home or at the clinic. ColiClean is the only product specifically designed to collect first void sample. The utility of the first void urine has been gaining acceptance of a biomarker rich sample type for oncology and sexually translated infection human papillomavirus applications.
What's more, COLLETE has made it simple for a patient to collect a volumetric first floor urine sample. A standard P cup is what's being used today, but it's not volumetric and can be difficult to easily collect the first for example. PaliC offers significant advantages to urinary testing companies addressing an unmet need in the market for superior test performance, improved use, ease of use for urine collection, features that support high throughput automation in the lab and flexible customization options based on specific need. The COLONITY P Urine Collection Device has utility in high growth markets, including liquid biopsy, insectually transmitted infection diagnostics, OraSure can leverage its existing intellectual property, brand and market expertise to deliver even more value to existing and new molecular customers. DNA Genotec built its business on establishing DNA from saliva as a proven and trusted sample type for molecular analysis.
We believe a key enabler for similar development of the urine market will be an improved collection experience with polyp combined with ambient temperature stabilization of the sample. We believe there is a significant opportunity for an easy to use differentiated product that combines our existing stabilization technology for Novosanis' first for example and volumetric capabilities. Cali P product is the perfect answer for this unmet market need. The Novocenis acquisition represents a clear fit with our stated core growth strategy for our Molecular business, that is to grow our portfolio of collection products beyond oral samples, by leveraging expertise in collection and stabilization tools and technology, all of which can be used at home or in the clinic. Since urine testing is a more mature market opportunity, its overall growth rate is more stable.
However, some markets like cancer biomarker screening and others served as innovative products like COLI P have the opportunity to grow at significant double digit rates. Moving on to CoreBiome. They are a privately held Minnesota based microbiome service provider that spun out of the University of Minnesota. CoreBiome was cofounded by Doctor. Dan Knight, a globally recognized expert in microbiome informatics, who has developed leading methods for analyzing microbiome data along with Doctor.
Daryl Goll and Doctor. Kenny Beckman, domain experts in genomic methods and clinical lab operations. Their proprietary technology provides fast and information rich characterization for microbial diversity and function, paired with machine learning and expert analytics. The global microbiome market is expected to grow by double digits from approximately $325,000,000 in 2017 to $725,000,000 or more in 2022. Expanding our services through the core Biome acquisition will allow OraSure to optimally address future microbiome research needs, capture new segments and expand our leadership position in this dynamic market.
Today, Coorsure offers limited wet lab and sequencing services. CoreBiome's offerings fill a key portfolio gap to Coorsure with DNA extraction, library prep and metagenomic sequencing services. We expect that one of our primary focus areas for business development is the enhancement of our end to end service offerings, primarily in the microbiome area through customization, fulfillment, laboratory and analytics services. The acquisition of CoreBiome could not be a better fit for this objective. We believe Corbion represents a meaningful downstream opportunity to build OraSure's microbiome capabilities towards an end to end solution with immediate differentiation and to maintain a leadership position as our product and service offerings evolve.
Handling core brand sample processing, shotgun sequencing, metabolomics analysis and bioinformatics positions Orasure to becoming a leading end to end solution provider for researchers, therapeutic and diagnostic development customers and to direct to consumer companies. Microbiome researchers are increasingly looking to understand the functional role of the microorganisms in the microbiome. CoreBiome's metagenomic services addresses this need. We look forward to accelerating the adoption of CoreBiome's cutting edge microbial genomics technology and analytic expertise in this customer network of DNA Genotec. We're excited about the synergies that will come from combining DNA Genotec's proprietary sampling and stabilization technology with CoreBiome's platform across many industries that will be impacted by MicroBiome.
Importantly, we believe Microbiome's technology and services offering is the ideal extension of the Unangenetech's established leadership in proprietary sampling and stabilization technology. The combination of DNA Genotec's expertise in sample collection and stabilization and CoreBiome's unique approach to sample preparation, analytics and bioinformatics positions us well to becoming a true market leader across multiple segments of microbiome space. Together, we believe these acquisitions will support our move into a tool, services and diagnostic model. By marrying deep, deeper tool offerings with end to end services, we can support a multi omics view of system biology to inform health and wellness. I'll now turn the call over to Riccardo to review the financial components of this transaction.
Thanks, Steve. Both of these transactions were completed with modest initial cash outlays. There is the potential for additional payments based on future performance. We expect that the acquisitions will together contribute from $4,000,000 to $7,000,000 in net revenues in 2019, with $0.03 to $0.05 per share of dilution non GAAP earnings, excluding transaction costs and required acquisition accounting adjustments. We are also reiterating our Q4 2018 financial guidance at this time.
Specifically, we continue to expect net revenue to range from $46,500,000 to $48,000,000 representing full year revenue growth of 7% over 2017 and net income of $0.09 to $0.11 per share for the 3 months ending December 31, 2018.
With that, I'll turn the
call back to Steve for concluding remarks.
Thanks, Roberto. These acquisitions are the beginning of the execution of our long term innovation focused growth strategy, which was approved by our Board this past summer. We think about strategy in 2 parts. First, we talked about growing our core business through investment in our infectious disease, genomics and microbiome businesses and a prioritization of our overall portfolio. We expect these strategies will deliver solid double digit growth over the 2022 planning horizon.
2nd, we see the need and opportunity to use our capabilities and resources to expand into new markets, we're calling dynamic opportunities. These dynamic opportunities are areas where we see the ability to enhance our growth profile by moving into new forms of diagnostics, such as veterinary or environmental, to just name a few examples. They may also involve new markets and technologies, such as those exemplified by Novosanis and CoreBiome. We believe we have a compelling opportunity to leverage the powerful combination of our strong balance sheet, our business development approach to enhance our long term growth and profitability profile. And we expect these business development opportunities to advance our role of being an innovation driven company, adding differentiated products and services in high end growth markets around the world, again, as exemplified by these acquisitions.
In closing, we are very excited about our recent progress in the area of business development. These acquisitions represent clear fits in our strategy to use business development to build upon our solid organic growth trends and enhance our long term growth profile. Most importantly, these acquisitions represent our initial steps in our long term innovation driven growth strategy. Given our commitment to R and D, innovation and an active business development program, you should expect more additions to the profile and the portfolio. We look forward to updating you on these developments as they occur in 2019 and beyond.
We are now happy to take some of your questions.
Thank you. Your first question comes from John Hsu with Raymond James. Your line is open.
Good morning. Congratulations
on the deals. Thanks, John. Great. Just a couple for me. It sounds like CoreBiome really helps
to expand your end to end solutions and really adding the analytics and the sample track bioinformatics piece of the puzzle.
But if I had
to think about the from here with the combined solution with the technologies that
you already have, are there any other add on technologies
that you need? Or I guess really the question is, are there any other gaps that you need to fill to have a fairly a fully comprehensive solution
on the microbiome side? John, this is an emerging market. I think as I cited, the size of the microbiome market today is around $325,000,000 and it's going to move to 7 $25,000,000 or more by 2022. So in an emerging market, the needs are not well known initially and they evolve over time. So, we believe that our OmniGene best product combined with the core Biome capabilities gives us a great first step into this industry.
But there's much more to come. And I think that there's much more that can be characterized in terms of products and services along the way, and we have our eye on many opportunities right now.
Great. That's
helpful. And then just these are obviously earlier stage companies, but
can you just help us
think about whether it's cost or operational or revenue synergies, however you're defining opportunities to kind of extract value outside of just dropping these products into the bag of your sales force would be an aging incentive?
Well, I'd focus on our innovation driven growth strategy and say that both these acquisitions are accretive to that strategy. In other words, they're going to help bolster our ability to see double digit growth across our portfolio. And so that's why we made the acquisitions. So I think you look at the prospects for top line growth, I would cite a great example in our history, of DNA Genesact in 2011, where we spent $51,000,000 to acquire a company that was then doing $12,000,000 in revenue and, in 2017, dollars 75,000,000 in revenue. So, we're looking at that type of potential and using all the learnings that we've acquired since acquiring G and A GenaTek to fulfill that promise.
Okay, great. And then maybe last one
for me. You recently announced the transition of Mr. Smith and being replaced by Ms. Weber on the G and
A Gene Texada thing. So can
you just talk about that transition process, what went into it and your level of confidence that Mist Harbor can hit the ground running and integrate these great acquisitions going forward?
Absolutely. This was a planned transition, and it is really triggered by Brian Smith's desire to retire in 2020. So we are pleased that Brian has accepted a new role into the company. He is the Executive Vice President of Innovation for the Corporation and the Vice Chairman of DNA Genotec. So Brian will be with us and focus on innovation both inside and outside the company.
Kathy Webb has been with us since 2012 and she has held several roles, including most recently Senior Vice President and General Manager of Consumer Products and also our Chief Steward of our Corporate Strategy. Kathy's work in developing our long term strategy gives a great understanding of a market business. She has strong financial service and life sciences in her background, including the consumer healthcare market and her strong leadership experience in a variety of environments, we think makes her the ideal choice to lead this business. So, we think we have 2 strong individuals that are poised towards interests that are vital to the company, and we're very pleased to have them in those roles.
Great. Excellent. That's all for me. Thank you very much, and again, congratulations.
Thanks, John.
Thanks, John. Thank
you. Your next question comes from Mark Massaro with Canaccord. Your line is open.
Hey guys, congratulations on these acquisitions. And I apologize I missed some of the prepared remarks. Can you just reiterate your expectations on growth rates on these on both of these products and whether or not they do you think the top line will be accretive to your overall molecular cultures with us or overall aggregate growth?
Thanks for the question, Mark. Yes, our expectation is that both companies will be accretive to our top line revenue growth rates, and that's for several years to come. And that's consistent with our overall strategy, in which we have said we expect to be and plan to invest in to become even more of a growth company with, again, a focus on double digit revenue growth rates.
Got it. Can you speak to the gross margin mix of these companies? I know historically, I think your Molecular Collections gross margins have oftentimes covered below your company excuse me, above your company average. Is that similar here? Or should we think of in line gross margins to your overall mix?
So first
of all, you're right that the molecular gross margin percentage has been higher than the average of the company generally. Both of these acquired companies are younger, newer companies still in their growth phases. So, what that means is that they definitely have room for improvement of their gross margins. 1 of the 2 businesses has a services component, which again typically has slightly lower gross margins than product companies. So the likelihood is that their gross margin rates will be percentages will be more in line with the overall average than with the existing molecular percentages.
Got it. And That's because they're still in their growth phases, there's room for improvement for both of them.
Okay. Yes, understood. And can you just speak to the importance of biopsies? I know that Novosanis is a urine sample collection company, it looks like. But to what extent do you think liquid biopsies can be more meaningful to your overall business relative to the landscape?
Clearly, it's probably one of the more interesting areas of our entire sector at this time. So I'd be curious if you could just
speak to how you think Novotaxis fits in
and maybe future M and A in that area.
Yes. Mark, I think we're very excited about Novotaxis overall. And if you go to YouTube and see the demonstration of that device, it's very clever. It's very proprietary and it reminds a lot of our own products. The lipid biopsy market, I think, as you know, is still very nascent.
However, I think the use of first void urine is viewed to be extremely promising as a biomarker rich environment to sample. And so, we are highly encouraged by the growth of this market and the uniqueness of this product. And so, we intend to capitalize on that very high growth part of the urine collection market, which is the liver biopsy area.
Great. And then my last question, and again, I missed this in the prepared remarks, you joined late. But can you just speak to how we should expect what the purchase price is on these? I understand that it will consist of upfront payments and potential additional payments on future performance. But is there any way for
us to
handicap what you're paying for these upfront or maybe over a couple of years?
So for proprietary reasons, we're not disclosing that. We do have a pretty full pipeline for transactions, there are discussions at different stages of maturity. So we don't want to tip our hands on that. So it will be some time before we get very explicit about what these transaction costs are.
Congratulations on this and look forward to seeing you next week.
Thanks, Mark.
Thank you. Your next question comes from David Westenberg with Guggenheim Partners. Your line is open.
Hey, guys. Thanks for taking the question and congrats.
Can you just give a little
bit more color on the sales synergy, maybe talk about customer profiles, the customer types of where you're at and where you think that you could put these acquisitions or vice versa?
Certainly, David. So, in the area of microbiome, of course, our call points for sales of our product and the limited sales of our services are very powerful and meaningful for CorBiome's business. And, likewise, their call points are helpful for us. And so as I shared in the remarks, these involve drug and diagnostic developers, researchers, but also the interesting growing areas in agriculture, which is an area that we've just started to participate in with customers like Embark, who have a software application for saliva based genomic technology. So, those call points are very synergistic.
And so, look at it as an end to end integration of the product into the services between DNA Genotec and Ohio. On the Novosandis side, the call points are very similar for researchers and commercial developers who are looking to sample the human genome and also get information on biomarkers. And so, my earlier comments about lipid biopsy and the biomarker rich fluid, which is extracted from first floor urine, are all applicable here. So, that's why we're so excited about these two opportunities is that we saw both companies and their products poised for significant growth and scaling. And, of course, we know a lot about that because we work through that with DNA Genotec.
So, in every dimension, strategically, operationally, organizationally and culturally, we found that these two companies were great fits for us.
Great. Thank you very much for that. And excuse me if you already answered this question, but from $4,000,000 to $7,000,000 is a pretty wide range for that low of a base.
Can you just maybe give us a little
bit of color between the ranges and guidance? And specifically, how much of that is specifically revenue synergies where you think think versus last year's revenue?
So we haven't broken out how much of it is driven by synergies. What I'll say though is that some of the business for both companies can be larger purchases. So, we do enter the businesses to enter into contracts to supply for longer periods of time. And when those contracts get landed and if they get landed can affect the total revenue. So that's why you see a bit wider range there.
We do expect though to be putting our existing DNA Genotec sales force to work helping to cross sell these businesses. And the one thing that those numbers don't capture is synergies back into the existing GenoTek business, which we expect to be smaller in the earlier years, but it's something that we expect to pick up and get value from in later years.
Okay. That's very helpful. And then just maybe just the last question.
Do these acquisitions change your view on divestitures? Or is this kind of one of the things where some of your legacy products that aren't necessarily core maybe provide a cash flow to buffer the some of the dilution you might
take in terms of these acquisitions? David, as I mentioned in my remarks, our overall strategy is to be an innovation driven growth company. And so that means expanding our portfolio at all times. And I think indicative of these two acquisitions is that we are looking for a portfolio that's overall accretive to growth. And so, we'll continue to look at all segments of our business without limitation that contribute to growth and look for ways to maximizing that growth or finding some other disposition for them.
So, that's a routine part of our business process. And I think that these 2 sets of acquisitions just kind of confirm how we view those situations.
Thank you. And that brings to the end of Q and A session of today's call. I will now turn the call over to Mr. Tang for closing remarks.
Well, we certainly appreciate your interest in these acquisitions in our call, and we thank you for your great questions. And we look forward to sharing the news with you as we have it. Good afternoon, good evening and good morning. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the call, and you all may disconnect. Everyone, have a great day.