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 speaker's remarks, there will be a question and answer period. If you'd like to ask a question during this time, simply press star and then the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. To allow time for as many questions as possible, questioners are asked to limit themselves to only a single question, with no more than one follow-up question related to the same topic. Once the follow-up is completed, the questioner can rejoin the queue for further questions.
OraSure Technologies issued a press release at approximately 7:00 A.M. Eastern Time today, announcing the acquisition of CoreBiome and Novosanis and reaffirming guidance for the Q4 of 2018. The press release is 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 Dr. Stephen Tang, President and Chief Executive Officer, and Mr. Roberto Cuca, Chief Financial Officer. Dr. Tang and Mr. Cuca will begin with opening statements, which will be followed by a question and answer session.
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 may be significantly different. Factors that could affect results are discussed more fully in the company's SEC filings, including its registration statement, its annual report on Form 10-K for the year ended December 31st, 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 only 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 Dr. Stephen Tang.
Thank you, Jean. Good morning, everyone. Welcome to our call. I'm delighted to share the news that OraSure has entered into definitive 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 I've shared in past calls, our business development efforts are focused on identifying opportunities to license technology or acquire products or companies that complement or leverage our existing business or enhance our end-to-end service offerings. The acquisitions of Novosanis and CoreBiome, both innovators in their respective markets, advance our innovation-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 Genotek, to cultivate commercial customers, key opinion leaders, and academic collaborators. Let me share some key highlights on the two companies. Novosanis is a privately held Belgian-based company, which was founded in 2013 by Vanessa Vankerckhoven and Koen Beyers as a spinoff company out of the University of Antwerp. Novosanis is an early commercial stage producer and distributor of urine sample collection devices, targeted primarily at the liquid biopsy, sexually transmitted infection screening, and urological cancer markets. Novosanis's primary technology is called Colli-Pee, an easy-to-use device suited for the standardized collection of first-void urine in the privacy of the user's home or at the clinic. Colli-Pee is the only product specifically designed to collect first void sample.
The utility of the first-void urine has been gaining acceptance as a biomarker-rich sample type for oncology and sexually transmitted infection, human papillomavirus applications. Colli-Pee has made it simple for a patient to collect a volumetric first-void urine sample. A standard pee cup is what's being used today, it's not volumetric and can be difficult to easily collect a first void sample. Colli-Pee offers significant advantages to urinary testing companies, addressing an unmet need in the market for superior test performance, improved ease of use for urine collection, features that support high-throughput automation in the lab, and flexible customization options based on specific need. The Colli-Pee urine collection device has utility in high-growth markets, including liquid biopsy and sexually transmitted infection diagnostics, where OraSure can leverage its existing intellectual property, brand, and market expertise to deliver even more value to existing and new molecular customers.
DNA Genotek 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 Colli-Pee, 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 with Novosanis' first-void sample and volumetric capabilities. Colli-Pee product is the perfect answer for this unmet market need. The Novosanis 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, certain markets like cancer biomarker screening and others served by innovative products like Colli-Pee, 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 co-founded by Dr. Dan Knights, a globally recognized expert in microbiome informatics, who has developed leading methods for analyzing microbiome data, along with Dr. Daryl Gohl and Dr. Kenny Beauchamp, domain experts in genomic methods and clinical lab operations. Their proprietary technology provides fast and information-rich characterization of 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 million in 2017 to $725 million or more in 2022.
Expanding our services through the CoreBiome acquisition will allow OraSure to optimally address future microbiome research needs, capture new segments, and expand our leadership position in this dynamic market. Today, OraSure offers limited wet lab and sequencing services. CoreBiome's offerings fill a key portfolio gap for OraSure with DNA extraction, library prep, and metagenomic sequencing services. We have said 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 analytic services. The acquisition of CoreBiome could not be a better fit for this objective. We believe CoreBiome 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.
Adding CoreBiome's 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 into the customer network of DNA Genotek. We're excited about the synergies that will come from combining DNA Genotek's proprietary sampling and stabilization technology with CoreBiome's platform across many industries that will be impacted by the microbiome. Importantly, we believe CoreBiome's technology and services offering is the ideal extension of DNA Genotek's established leadership in proprietary sampling and stabilization technology.
The combination of DNA Genotek'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 the microbiome space. Together, we believe these acquisitions will support our move into a tools, services, and diagnostic model. By marrying deeper tool offerings with end-to-end services, we can support a multi-omics view of human biology to inform health and wellness. I'll now turn the call over to Roberto to review the financial components of this transaction.
Thanks, Stephen. Both of these transactions were completed with modest initial cash outlays. There's potential for additional payments based on future performance. We expect that the acquisitions will together contribute from $4 million to $7 million in net revenues in 2019, with $0.03 to $0.05 per share of dilution to 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 $46.5 million to $48 million, representing full-year revenue growth of 7% over 2017, and net income of $0.09 to $0.11 per share for the three months ending December 31st, 2018. With that, I'll turn the call back to Stephen 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 two parts. First, we talked about growing our core business through investment in our infectious disease, genomics, and microbiome businesses in a prioritization of our overall portfolio. We expect these strategies will deliver solid double-digit growth over the 2022 planning horizon. Second, we see the need and opportunity to use our capabilities and resources to expand into new markets, what 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. We expect new business development opportunities to advance our goal of being an innovation-driven company by adding differentiated products and services in high-end growth markets around the world, again, as exemplified by today's 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&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. Ladies and gentlemen, if you would like to ask a question at this time, please press the star and the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Your first question comes from John Hsu with Raymond James. Your line is open.
Good morning. Congratulations on the deal.
Thanks. Thanks, John.
Great. Just a couple from me. It sounds like CoreBiome really helps to expand your end-to-end solutions, and really adding the analytics and the sample prep bioinformatics piece of the puzzle. If I had to think about from here with a combined solution with the technologies that you already have, are there any other add-on technologies that you need? I guess really the question is, are there any other gaps that you think you need to fill to get 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 million, and it's going to move to $725 million or more by 2022. In an emerging market, the needs are not well-known initially, and they evolve over time. We believe that our OMNIgene•GUT product, combined with the CoreBiome 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. We have our eye on many opportunities right now.
Great. That's helpful. 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 extract value outside of just dropping these products into the bag of your sales force with the DNA Genotek?
Well, I would 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 seek double-digit growth across our portfolio. That's why we made the acquisitions. I think you look at the prospects for top-line growth, I would cite a great example in our history, the acquisition of DNA Genotek in 2011, where we spent $51 million to acquire a company that was then doing $12 million in revenue, and in 2017, did $75 million in revenue. We're looking at that type of potential and using all the learnings that we've acquired since acquiring DNA Genotek to fulfill that promise.
Okay, great. Maybe last one from me. You recently announced the transition of Brian Smith and being replaced by Kathleen Weber on the DNA Genotek side of things. Can you just talk about that transition process, what went into it, and your level of confidence that Kathleen Weber can hit the ground running and integrate these great acquisitions going forward? Thank you.
Absolutely. This was a planned transition. It is really triggered by Brian Smith's desire to retire in 2020. 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 Genotek. Brian will be with us and focus on innovation both inside and outside the company. Kathleen Weber has been with us since 2012, and she's held several roles, including, most recently, Senior Vice President and General Manager of Consumer Products, and also our Chief Steward of our Corporate Strategy.
Kathleen's work developing our long-term strategy gives her great understanding of our market and business. She has strong financial service and life science 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. We think we have two strong individuals that are deployed towards interests that are vital to the company, and we're very pleased to have them in these roles.
Great. Excellent. That's all for me. Thank you very much. Again, congratulations.
Bye, John.
Thanks, John.
Thank you. Your next question comes from Mark Massaro with Canaccord. Your line is open.
Hey, guys. Congratulations on these acquisitions. I apologize I missed some of the prepared remarks, can you just reiterate your expectations on growth rates on both of these products and whether or not that you think the top line will be accretive to your overall Molecular Solutions business or overall aggregate growth?
Thanks for the question, Mark. Yeah, our expectation is that both companies will be accretive to our top-line revenue growth rates, that's for several years to come. 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 hovered above your company average. Is that similar here, or should we think of in-line gross margins to your overall mix?
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. What that means is that they definitely have room for improvement of their gross margins. One of the two businesses has a services component, which, again, typically has slightly lower gross margins than product companies. The likelihood is that their gross margin rates percentages will be more in line with the overall average than with the existing Molecular percentages.
Got it.
That said, because they're still in their growth phases, there's room for improvement for both of them.
Okay. Yep, understood. Can you just speak to the importance of liquid biopsies? I know that Novosanis is a urine sample collection company, it looks like. 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. I'd be curious if you could just speak to how you think Novosanis fits in and maybe future M&A in that area.
Mark, I think we're very excited about Novosanis overall. If you go to YouTube and see the demonstration of the device, it's very clever, it's very proprietary, and it reminds us a lot of our own products. The liquid biopsy market, I think as you know, is still very nascent. I think the use of first-void urine is viewed to be extremely promising as a biomarker-rich environment to sample. We are highly encouraged by the growth of this market and the uniqueness of this product. We intend to capitalize on that very high-growth part of the urine collection market, which is the liquid biopsy area.
Great. My last question, again, I missed this in the prepared remarks. I joined late. 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. Is there any way for us to handicap what you're paying for these upfront or maybe over a couple of years?
For proprietary reasons, we're not disclosing that. We do have a pretty full pipeline for transactions, and there are discussions at different stages of maturity. We don't want to tip our hand on that. It will be some time before we get very explicit about what these transaction costs are.
Great. Congratulations on this, look forward to seeing you next week.
Thanks, Mark.
Thanks, Mark.
Thank you. As a reminder, to ask a question at this time, please press star then one. Your next question comes from David Westenberg with Guggenheim Partners. Your line is open.
Hey, guys. Thanks for taking the question. Congrats. Can you just give a little bit more color on the scale synergy, maybe talk about customer profiles or customer types of where you are at and where you think that you can put these acquisitions or vice versa?
Certainly, David. In the area of microbiome, of course, our call points for sales of our product and the limit sales of our services are very powerful and meaningful for our biomes business. Likewise, their call points are helpful for us. As I shared in the remarks, these involve drug and diagnostic developers, researchers, but also the interesting growing area in agriculture, which is an area that we've just started to participate in with customers like Embark, who have a primary application for saliva-based genomic technology. We think those call points are very synergistic, and so look at it as an end-to-end integration of the products into the services between DNA Genotek and OraSure. On the Novosanis 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.
My earlier comments about liquid biopsy and the biomarker-rich fluid, which is extracted from first-void urine, are all applicable here. 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. Of course, we know a lot about that because we worked through that with DNA Genotek. From every dimension, strategically, operationally, organizationally, and culturally, we found that these two companies were a great fit for us.
Great. No, thank you very much for that. Excuse me if you already answered this question, but from $4 million to $7 million 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 versus last year's revenue?
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. Those businesses do 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 overall revenue. That's why you see a bit wider of a range there. We do expect, though, to be putting our existing DNA Genotek sales force to work helping to cross-sell these businesses. The one thing that those numbers don't capture is synergies back into the existing DNA Genotek business, which we expect to be smaller in the earlier years, but is something that we expect to pick up and value from in later years.
Great. No, that's very helpful. Then just maybe just the last question. Do these acquisitions change your view on divestitures, or is this one of those things where some of your legacy products that aren't necessarily core, maybe provide a cash flow to buffer 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. That means examining our portfolio at all times. I think indicative of these two acquisitions is that we are looking for a portfolio that's overall accretive to growth. 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. That's a routine part of our business process, and I think that these two sets of acquisitions just confirm how we view those situations.
Thank you, and congratulations again.
Thank you, David.
Thanks, David.
Thank you. That brings to an end the Q&A session of today's call. I will now turn the call over to Dr. Tang for closing remarks.
Well, we certainly appreciate your interest in these acquisitions and our call, and we thank you for your great questions, and we'll look forward to sharing further 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.