Morning. This is Dan Brennan. I cover diagnostics tools and pharma services for UBS. This is day three of the conference. Hopefully, you're enjoying it, the virtual conference, that is. Really pleased to be joined with me here on the virtual stage with the senior executive team from OraSure Technologies. With me on phone is Steve Tang, President and CEO, and Roberto Cuca. Roberto, if I mispronounced your last name, I apologize, the Chief Financial Officer. I have a series of questions to go through. Please feel free to log into the webcast and send questions to me that way. I'll try to get to those. I think Steve and Roberto are going to go through a bit of a prepared presentation, which goes directly to the right spot. With that, let me turn it over to them. Say again, welcome, guys.
Dan, thank you. On behalf of OraSure Technologies, Roberto and I are delighted to be here. Thanks for having us at the UBS Healthcare Conference. I'm going to be referring to a five-page deck, which hopefully the audience has access and availability to right now. Just beginning with the title slide, number one, I'll give a brief overview of OraSure Technologies. Then happy to discuss more with Dan. Page two is our safe harbor statement. Please remember that our view of the future contains uncertainty and is subject to this forward-looking disclaimer. Number three, OraSure and its subsidiaries are pioneering new paths to health and wellness on a global scale. Our innovative sampling tools, services, and diagnostics unlock access to accurate, essential information that advances global health and well-being. Our products and services help people understand what's in us, what's on us, and what's around us.
Page four, they include molecular sampling kits for the genome and microbiome, cutting-edge technology to analyze the microbiome, and rapid tests for infectious disease and substance abuse. Together with our subsidiaries listed here, we offer differentiated products with competitive profiles in attractive markets. Key to our future is our robust balance sheet. We have a strong cash position with $176 million on our balance sheet at the end of the first quarter and no debt. This facilitates our active business development program and enables us to weather the type of uncertainties presented by the COVID-19 pandemic while still pursuing our innovation growth strategy. On page five, I'm proud that OraSure is bringing its expertise with infectious disease diagnostics, sample collection, and oral fluids to the battle against COVID-19.
On the testing front, we are developing a pan-SARS coronavirus antigen rapid in-home self-test that uses oral fluid samples and a coronavirus antibody, ELISA test, for the detection of human anti-SARS-CoV-2 antibodies in oral fluid specimens. Our DNA Genotek subsidiary is working with laboratories and researchers to demonstrate the effectiveness of its sample collection technologies for coronavirus testing. We've been able to respond so quickly to COVID-19 because we have proven experience developing tests, working with regulators like FDA to get them approved, and scaling up for global markets. We're fortunate to be extremely well-positioned based on all those experiences. With that, Dan, we're happy to take your questions and further discuss OraSure.
Terrific. Thank you. That was a really helpful brief introduction. Maybe I'll kick in with just a high level, if you don't mind. Since you took over as CEO, and Roberto, you as CFO, the company's certainly taken on a new look. I mean, a lot of the core assets, obviously, are still in place, but you've done some acquisitions. I think there's been an emphasis on certain areas, maybe de-emphasis on others. Maybe give us a little view, if you will, about the strategy that you've deployed thus far in terms of whether there's more M&A to come, whether there's more repositioning, how to think about the strategy going forward. I know you just gave us the snapshot, but I'm just wondering if you can kind of dial back to where we were and where we are today.
Of course. You're right. There's a lot that's changed in the past two years since I became CFO and Roberto became CFO, in particular the past few months since COVID-19. Our core commitments to improve global health and to implement our innovation growth strategy remain very strong. Outside of our work with COVID-19 that I just covered, we'll continue to expand in the global markets with our OraQuick HIV self-test. We see tremendous growth potential in new products and services focused on the microbiome and multi-omics areas. For those of you not familiar with those emerging areas, the microbiome refers to the trillions of bacteria in other microbiomes or microorganisms, excuse me, that live in or on our bodies. Unlike human DNA, which is stable, the microbiome changes frequently throughout life, and scientists are studying how the microbiome influences human health and diseases like colitis, diabetes, and cancer.
Multi-omics casts a new light on old questions of predicting, diagnosing, treating, and curing diseases and other conditions, such as diabetes and cancer, by looking at multiple -omes, such as the genome, the microbiome simultaneously. Our ability to provide customers with both genomic and microbiome products and services is an important foundation for OraSure to become a leading source of multi-omics tools and analytics. Ultimately, we envision a company that drives access to multiple layers of information and data to understand health, wellness, and disease states. To optimize the performance, we continue to invest in manufacturing capacity and improve production efficiency across our businesses. As you mentioned, one of the key drivers of our future growth potential is our solid financial position. As I mentioned, we have approximately $176 million on our balance sheets at the end of the first quarter, and no debt.
Active acquisitions for our business development program remains key to our success.
How do we think about maybe building on that and building on your slide overview, how do we think about, this is the ex-COVID, obviously, because there's some real opportunities and obviously facing some pretty significant short-term headwinds? How do we think about what the growth profile is now of OraSure? Maybe if you want to give us a flavor for the infectious disease business versus the molecular collections business, and how does that roll together to kind of into a total growth rate for the company?
Roberto, do you want to take it?
Sure. Will do. Thanks, Dan. As we've been describing even before the COVID-19 epidemic, our goal is to grow at double digits across our franchises, both through organic growth and acquisition. For 2020, excluding COVID-19, we've been expecting high teens growth for our global HIV franchise, strong growth from global HCV, stability in our risk assessment testing business ahead of seeking regulatory approval of a next-generation product next year in 2021. In the molecular collection side of the business, we've been expecting triple-digit growth from the microbiome services business in 2020. Outside of the largest customer and the royalty payer in our genomics business, we've been expecting double-digit growth from molecular collection products.
One of the pieces of our expectations that we described in our fourth quarter call was that our largest customer, we had renegotiated their minimum contract purchases with them, and we expect them to be buying at that minimum this year, which is about half of what they purchased last year. Overall, excluding COVID-19, continued expectations for strong growth in both sides of the business with infectious disease having a standout year this year with the HIV business, and molecular collections showing some solidity despite some disruptions that we experienced in 2019.
Great. More on the COVID tactical kind of a headwind issue. Maybe just speak to, in terms of what kind of color you've given about customer impact as of the 1Q call, and has that changed at all in terms of customers' ability to be actually doing business? Maybe just walking through what was kind of quantified then, and kind of how has that evolved as we sit here now on May 20th?
Dan, it's an interesting landscape with COVID-19. Let me share some thoughts on that. COVID-19 has had a mixed impact on our business. It's important to note that any negative impact from COVID-19 in the first quarter was largely offset by additional product uptake in response to the pandemic. COVID-19 impact on our first quarter infectious disease business was muted. The international infectious disease business was not impacted. Some parts of our domestic business began to see some impact in March. However, that was offset by strength in our in-home testing business. That being said, we're seeing a more fulsome impact on our domestic business starting in the second quarter, and we expect that will continue to the remaining quarters of 2020 as the professional HIV and HCV businesses experience delays or cancellation of testing programs.
We do expect those to come back after the pandemic, I should emphasize. We expect our international business to further stabilize as countries are beginning to open up to our HIV self-test business as it plays an important role during the COVID-19 crisis. Excuse me. Sales of our in-home HIV tests are rising as public health HIV testing programs in the U.S. are increasingly using our over-the-counter product as they adjust testing strategies in response to the pandemic. We're also seeing increased sales of our existing molecular saliva collection kits and oral swabs as some customers move from blood to saliva collection due to difficulties collecting blood samples under the current circumstances. On the molecular side, revenues in our molecular sales to the academic market were impacted in the first quarter as molecular research programs have been delayed or terminated because of COVID-19.
Our services business revenue were also impacted as customers could not access samples housed in academic or medical facilities that were to be sent to our microbiome services lab for processing. We see these trends continuing with likely bigger impact in future quarters. Importantly, we anticipate that these revenues will return to more normal levels once COVID-19 resolves. Assuming we're successful in our development and regulatory efforts, we anticipate that the new coronavirus testing products that we're working on and the expanded use of some existing molecular collections products could make significant contributions later this year, especially as the need for COVID-19 testing increases. As I mentioned in the outset, there's a potential for our work in COVID-19 to continue to offset some of the downturn in revenues in the other business areas. Overall, we are net positive on the effect of COVID-19.
In spite of some of the headwinds, there are many tailwinds that we think we can tap into.
Great. Thank you for that, Steve. Maybe just one quick follow-up there, and then we'll speak about your opportunities here with the two tests that you've outlined, and I'm sure there's a lot of excitement over that. Just on the academic labs, what's your base assumption there in terms of how those customers come back online?
Yeah, sure. Sales to our academic customers, as I said, were negatively impacted by the pandemic. That's because those customers experienced delays in research activities, which are not associated with COVID-19 testing. That affected sales of our genomics, microbiome, and urine collection kits in the academic market. We also saw some delays in lab services as some of the academic customers had limited access, as I mentioned, to the microbiome samples due to the pandemic restrictions. Looking ahead, we see meaningful impact to our academic revenues in the second quarter, with most research activities not associated with the response to COVID-19 testing continuing to be delayed or on hold. We remain confident that both our genomics business and the disease risk management sub-market and the microbiome market will return to double-digit annual growth rates after the pandemic.
Okay. Maybe stay on COVID for a bit. Obviously, two exciting opportunities with some arguably differentiated offerings, although certainly a lot of global companies in this space going after it. Maybe just starting with, I guess, the antigen rapid in-home self-test. Walk us through a little bit about what you think the opportunity for that test is and how you think it'll be positioned, and then we can get into a little bit on the timing for it.
Certainly. There's no question that there's a need for more overall testing capacity, whether those tests are PCR-based or, as you mentioned, antigen-based. We've currently run, on the diagnostic side, 10 million tests since the COVID crisis started in the U.S. Most public health experts say we should be in the position to process millions of tests per day to identify those who are infectious. We look at that as an opportunity for our base platform, the OraQuick rapid test platform, which in itself is fairly disruptive to the current testing environment. We believe that will help fill a gap and help open the country safely and quickly. That's the area that our rapid antigen in-home self-test can play. I want to emphasize, Dan, we have great experience in meeting the needs of those types of demands.
As we shared in our earnings call a couple of weeks ago, in the first quarter of 2020, we shipped 2 million HIV self-tests. In the fourth quarter of 2019, we shared that we shipped 2.9 million HIV self-tests. That's just an indication of the scale that we operate in. It's not an indication that we would take volume from HIV self-tests. We hope we don't have to do that. Beyond that, in our internal manufacturing capacity, we're exploring a number of options, including public-private partnerships, contract manufacturing, and out-licensing the technology to meet what we believe to be high demand for large scale.
By the way, I should mention, unrelated to the antigen in-home self-test under development, the same goes for our molecular collection sample kits, which we project could be in high demand because they're used as alternatives to the nasopharyngeal and oropharyngeal swabs that are currently used and have experienced, at some level, some supply chain issues. Overall, we're looking at what could be massive increases in capacity across the corporation, certainly in preparation for the launch of the antigen in-home self-test in September, and then on an ongoing basis, the molecular sampling kits, which feed the PCR tests.
Got it. In terms of when we think about this test, what would you expect to be the accuracy using saliva? We've heard mixed things. I've read a couple of papers saying that saliva could be more accurate. I've spoke to some other experts who think saliva is less accurate. Is there any trade-off using saliva for this particular virus?
Well, of course, we've been in the saliva game virtually for our entire corporate existence. Originally, we had to prove equivalency between the use of blood versus the use of saliva and oral fluids for HIV testing. I think we were able to rise to that challenge and prove that saliva and oral fluids provided tremendous accuracy in our OraQuick HIV platform. We have always been a company that is focused on quality and accuracy. High specificity and high sensitivity have been part of our overall brand. While we don't have the numbers yet developed for the antigen at-home self-test, we believe that we can get a highly sensitive and highly specific test on the marketplace that's not available today. The issue with, I think, accuracy with different types of analyte has a lot to do with how it's sampled initially.
There is variability in nasopharyngeal and oropharyngeal swabs. We've seen that. There are variabilities in some of the other nasal swabs that don't go quite as deep into the nasal cavity. I think those are all things that need to be accounted for. The benefits of saliva and oral fluids is that they're easy to collect. They are easily done by self-collection, reliably by self-collection, as we've proven from our work in the genomic area. We are very optimistic of our chances to again demonstrate that saliva and oral fluids are worthy analytes for COVID-19.
Got it. What would be the turnaround time for a test like this?
We believe it would be similar to our OraQuick HIV platform and our OraQuick Ebola platform, which we launched in 2015-2016, and that is the individual can get a result in under an hour. For those two tests that I mentioned, it's closer to 30 minutes. It's a self-test for which an individual can determine their results in under an hour.
I was just taking off mute. In terms of you mentioned working with, I believe, public and private partnership. Maybe can you speak to a little bit about planned capacity? You talked about the capacity you did in Q1 and kind of Q4 on the HIV side, but related to that, you said you're looking to real significant capacity. Assuming this goes as planned and you're ready to go by September, what kind of capacity would you have in place? Are you building out capacity now, given you want to accommodate your existing business, and how does this public and private partnership come into play?
Well, I think that there are aspects of the public-private partnership which have proven that we can develop scale for testing for other pandemics, like the global eradication of HIV. The players who are addressing the global pandemic due to COVID-19 have all proven together that they can work closely together for HIV. There are many of the same players there. In terms of capacity, this is a unique situation where we are doing product development and scale-up simultaneously in the hopes that we will build capacity for the product launch, which is targeted for Emergency Use Authorization from the FDA in the September timeframe. We haven't disclosed yet the specific internal capacity that we're looking at, but we hope that to be significant, and we'll disclose that, I think, at the appropriate time.
We're also looking to the outside contract manufacturers, manufacturing partnerships, and possibly even licensing our technology for massive scale-up. There are a lot of discussions and plans going on as we speak right now to address what we believe will be significant demand for that product.
Any sense on how you would think about the market to play out? There's a lot of, obviously, tremendous convenience-
With this approach as opposed to having to rely upon going to a hospital or even as the rapid tests roll out, even a minute clinic, is there any precedents, whether it be for HIV or for flu or things like that, where you could speak to how significant this potential opportunity would be in the grand scheme of the overall testing? I don't know if you have any kind of insight on that you could share.
Sure, Dan. As a reminder, our OraSure OraQuick HIV in-home test is the only infectious disease test that's FDA-approved to be sold in the U.S. without a prescription. You can buy it at retail pharmacies, you can buy it online. Our aiming point for the COVID-19 antigen in-home self-test is a test that can be widely available without prescription. Which is not to say that it won't be used by medical professionals. I believe it will be as well. The concept here is to have a test that can be as widely available as possible to reach as many people as quickly as possible. That's why our aiming point is this in-home self-test concept.
I think if you look at what will be required to reopen states and large parts of the countries to large parts of the world the requirement will be to be able to test a lot of people quickly, determine whether they are currently infectious, and that is whether or not they are symptomatic or non-symptomatic. I think a lot of the pandemic has been spread because of asymptomatic transmission. How do you do that?
Well, it'd be great if you could have a way that didn't rely on instrumentation and the waiting time for lab tests to be able to test people even before they enter your facility. Whether your facility is a factory or an office place, someplace where the employer needs to ensure the safety and wellbeing of those coming in and out of the building, whether it's schools, K through 12, community colleges, universities, anywhere where there are large gatherings of people. There's a public health component as well, to be able to link this with contact tracing and for people in the public arena to be able to determine whether there are new outbreaks, a second wave that's been projected, et cetera. All of these things will be necessary even with what we hope are quick developments on the vaccine side.
I think the way we see the market opportunities is that, hopefully a vaccine will be with us sooner rather than later. Even so, the ability to scale up the vaccine for large portions of the population will still, in the interim, require lots of testing, and we believe that this antigen in-home self-test, as BARDA said when they awarded us the contract last month, could be a game changer. We fortunately have experience along all those channels. A self-test that can be purchased by the individual at retail pharmacies and online, all the way to public health, hospitals, physicians, and global public health, where we sell our HIV self-test to ministries of health in individual countries, particularly low and middle-income countries. I think few companies have the experience that OraSure has in rapidly deploying a test for widespread use in a pandemic.
Those are the skills and capabilities we bring to this COVID-19 antigen in-home self-test opportunity.
That was really helpful. Maybe just one follow-up. I was reading something online about another saliva approach. Would there be an expectation that whether with, say, like a negative test, that there needs to be a confirmatory kind of real-time PCR test done, or would you expect your test to be just kind of one and done, whether it's positive or negative?
Well, ultimately, we would hope that an antigen test would be highly specific and highly sensitive so that you didn't need a confirmation test. That does remain a possibility. It will all be determined, I think, by the specificity and sensitivity of our test. Once we announce that, I think we'll be able to better speak to what the testing regimes could be.
Got it. There's certainly a reasonable expectation or potential that it's given what you just said in terms of the history working with your other tests, that this test could be kind of absolute in terms of its measurement. You're not going to need to confirm. That's certainly a reasonable, plausible outcome.
Yeah. We have a history of setting the bar high in terms of quality, performance, and accuracy. That's the tradition we hope to bring to this antigen at home self-test.
Got it. September is there a cushion in September? Is there a probability or potentially you can come out? I'm sure you'd love to be there tomorrow, so it's not that far away, but it still is four months away. I'm just wondering if there's a potential for that to come faster.
Right now, we're on schedule for September. We have not made any announcement that changes that. If that happens, we certainly will let everyone know. Right now, it is looking like September.
Got it. Maybe one more back to the capacity issue. While you share that when you have information, is there any way at least to give us any flavor on capacity? Could we look at what you're doing with your HIV self-test and say that's like a reasonable starting point? You can even take yourself, and I think it's well understood that the market, so far, only a small amount of testing has been done. It's ramping, but there could just be a significant amount more of testing that needs to get done. Have you given any color at all or guideposts about kind of a range of outcomes?
We haven't yet, Dan, at the appropriate time, we certainly can, provided we have the data. We're a company that operates in terms of tens of millions of tests per year based on our OraQuick platform, so that's our starting point. I think, few companies have that as a starting point to begin to look at planning. We're looking at the conceivably numbers that are several order of magnitude above that as well, which is why the focus not only on our internal capacity, but contract manufacturing and manufacturing partnerships as well.
Got it. Just on the ELISA test then, you expect EUA expected this summer, initial product sales. How do you characterize the opportunity? Well, actually, maybe one more back on the antigen test. What would we expect for pricing there?
Yeah, we haven't yet announced what pricing will be, but that process, I think, is something we have experience with, of course, the number of channels I mentioned before, everything from the over-the-counter tests to global public health. I think our experience with HIV across the world in the U.S. and abroad will be very instructive. We have a unique set of experiences in pricing because, as I said, we have both professional and over-the-counter products sold in the U.S., as well as products designed for global public health as a self-test. We're going to put all that together into our pricing model, but we're not ready to announce that as yet.
Got it. Okay. Fine. In terms of the ELISA test.
Yeah.
Your greater volume of testing.
Yes.
From your-
The oral fluid-based ELISA test, which we have targeted for debut with an EUA in early summer, is based on our platform for oral fluid collection and microtiter plate rapid throughput lab tests. That's the same platform we use for our substance abuse testing business. In fact, the demand for this COVID-19 antibody test has really come from those customers. This would be, I believe, the first oral fluid-based antibody test that would debut in the marketplace. The collection devices we use for that are called our OraSure Collection Device. We believe it has some unique characteristics to be able to stabilize antibodies in the oral fluid for analysis. That in itself would be a breakthrough. The microtiter plate ELISA test that we're working on would be designed to show the spectrum of immunity.
We're looking at Excuse me. Not only IgM and IgG as the fractions for the antibodies, but also IgA. There's been some recent scientific information about the use of mucosal IgA in determining early immunity towards COVID-19. That's an area that links well with our oral fluid collection device capabilities. This could also be a breakthrough type of assay in the antibody area.
Got it. That, in terms of there's a lot more discrepancy or uncertainty, I think, on just the level of performance maybe of serology tests and you just alluded to it with the different antibodies that are being targeted, and then kind of where, what antigen's being targeted, I guess. Can you speak to you're saying expected initial product sales and EUA expected this summer. I'm sorry, you're filing or you expect the approval by this summer? Sorry about that, A, and then B, any color about when you're competing with the Roches and the Beckmans and these extremely large companies running big trials, how would you expect the performance of your test to compare to some of these bigger lab-based players?
We are targeting early summer for both approval and initial sales. That's one answer to your questions. We do not yet know what the performance profile will be for our product, but we are targeting high sensitivity and high specificity. I think a lot of the issues with serology and antibody testing revolves more around rapid tests than do about the lab-based tests. The microtiter plate tests tend to be highly accurate. How they will compare to other tests in the marketplace remains to be seen. I would again emphasize that the analyte for our antibody test is oral fluids, which I think is an area that's not being actively pursued by a lot of the big players right now.
If those players are interested in oral fluids rather than blood as the analyte, our OraSure Collection Device, I think, could be an easy drop-in solution for them. In fact, we're investigating capacity increases for that product line as well in response to what might be high demand for that antibody test and other antibody tests as well.
This test as well would be shipped directly? I mean, how would consumers get the serology test?
Right. This would be a lab-based test, and so they would have to have the lab-based test ordered right now by a physician.
Got it. Do you have a big presence in labs today? What's your kind of install base on this microtiter? I'm just not familiar with, I always view OraSure to be direct to consumer largely. What's your current position with this type of approach?
Yeah, we don't talk about it as much as we probably should, but we are one of the leaders in substance abuse testing using oral fluids. That's the install base that we would look at for these tests. These labs primarily do business for either employers or insurance companies who are testing individuals to make sure that they don't have traces of drugs of abuse in their system, either when they start their job or whether they're looking to be insured for any particular purpose. I think we announced in previous quarters that we're pursuing for that segment of our business additional revenue opportunities because SAMHSA, which is the governing body for drug testing, last year approved the use of oral fluids as well as urine for drugs of abuse.
This area of oral fluid testing for drugs of abuse is our pivot point into oral fluid testing for antibodies. We have a fairly large presence in that area, even though we're primarily known, as you said, as a rapid test on the infectious disease side.
Thank you. Here I know the competitors have announced hundreds and millions of capacity of tests, just absolutely massive what they've discussed, some of these big players up to that much, obviously. How significant level of capacity will you be able to achieve, you think, with this test?
Well, we are very well aware that antibody testing will be a high-profit business. While we haven't quantified it, we are looking at significantly high numbers to produce the OraSure Collection Device, which could be coupled to any of those tests in addition to ours. That with other capacity we haven't detailed, but we certainly can and will at the appropriate time.
Right. Okay. It's not hard for a customer, you're saying it's not hard to take an existing ELISA instrument from one of these big players and switch the matrix from blood to saliva? That is not a difficult adaptation?
Well, that's something that each test manufacturer will have to assess.
Right
It's something that I think that they would want to explore quickly. Again, we are seeing interest in that area.
Got it. Okay. I know we spent a majority of the time, we opened up with your positioning, obviously, we spent almost the entire time on COVID. We didn't dig into other aspects. Maybe if I can ask you a question on molecular collection. You talked about your largest customer, which was a real boon for you back in the day, and now it's hopefully normalizing here. What can you say about the genealogy market now? It sounds like the volume in 2020 is expected to be half of what it was in 2019, at least from that one customer. Just maybe speak about that customer and then more broadly, that business being ex-COVID, if you will.
Certainly. I think because our molecular collection kits for saliva and oral fluids preserve RNA and DNA so well, and remember that these kits were used to preserve DNA at room temperature for several years. It's that type of stability which has made it attractive for COVID-19. Beyond COVID-19, the use of these collection kits in the genomics area, we still believe will be double-digit potential as we focus on what we call the disease risk management part of the market. That's in contrast to what we call the ancestry, little A ancestry segment of the market, which is simply looking at your genealogy.
In the more serious medical application areas, which typically has a need for a medical professional to intervene, either a doctor or a genetic counselor, these are the more serious parts of medical applications which look at genetic disposition to diseases like cancer. Our kits have been used by customers in that area, either in specific individual cases or in population studies. That area we project to grow beyond the current size of the ancestry market in about three to five years, factoring the delay from the pandemic. Our prospects, I think, on the molecular collection side, plus our microbiome and microbiome services area, makes the molecular part of our business extremely healthy and resilient after COVID-19.
Great. Well, I think with that, Steve, we're out of time. Roberto, thanks for with the questions and thanks for participating in the conference. Really appreciate it. Good luck with obviously everything you're doing, in particular on the COVID testing. Sounds like it could be really exciting and really impactful. Thanks again for being here.
Thank you, Dan. We appreciate it.
Thanks, Dan.
Thanks for having us at the conference.
Okay. Take care.
Take care.