OraSure Technologies, Inc. — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. This is an annual filing, not a standalone fourth-quarter report. OraSure develops and sells oral-fluid diagnostic tests and collection devices, cryosurgical products, and, through DNA Genotek (DNAG), molecular sample-collection kits.
Financial performance and position
| Metric | 2012 | 2011 |
|---|---|---|
| Net revenue | $87.8 million | $81.9 million |
| Gross profit / gross margin | $55.6 million / 63% | $51.7 million / 63% |
| Operating loss | $16.3 million | $9.4 million |
| Net loss | $15.1 million | $8.8 million |
| Loss per diluted share | $0.29 | $0.19 |
| Cash used in operating activities | $5.4 million | $3.0 million |
| Cash and cash equivalents at year-end | $87.9 million | $23.9 million |
| Working capital at year-end | $103.5 million | $30.9 million |
| Long-term debt at year-end | None | None; $7.3 million current debt |
- Revenue grew 7%, primarily reflecting a full year of DNAG results and higher cryosurgical and licensing revenue. DNAG contributed $14.3 million, versus $6.2 million for its post-acquisition period in 2011.
- OraSure’s OSUR segment revenue fell 3% to $73.6 million; DNAG revenue was $14.3 million. OSUR operating loss was $13.4 million and DNAG operating loss was $2.9 million.
- Cash increased chiefly from a July 2012 equity offering: 6.1 million shares sold at $12.30 per share, generating $70.2 million net proceeds. The company repaid its $7.0 million credit-facility balance in July and terminated the facility.
Material changes versus the prior comparable period
- Domestic OraQuick HIV professional sales declined 12% to $34.3 million amid public-health purchasing changes, reduced funding, price competition, and customer movement to laboratory-based tests. Total OraQuick revenue decreased 4% to $41.7 million.
- OraQuick HCV revenue rose substantially: domestic sales reached $2.8 million, supported by the CLIA waiver; international sales were $1.1 million. OraQuick In-Home HIV sales began in September, with $546,000 in net domestic OTC revenue recognized in 2012.
- Substance-abuse testing revenue fell 25% to $9.4 million. Intercept sales were pressured by major distributors transitioning to competing products, including one large U.S. distributor that stopped purchasing by year-end.
- Cryosurgical revenue increased 23% to $14.9 million, driven by OTC sales up 62% to $6.3 million. Insurance risk assessment revenue declined 14% to $4.5 million.
- Operating expenses increased, notably sales and marketing, reflecting approximately $9.9 million spent commercializing the In-Home HIV test. The net loss widened despite revenue growth.
Outlook, management commentary, risks and unusual items
- Management said year-end cash was expected to cover current operating and capital needs for at least 12 months. Approximately $4.0 million of 2013 capital expenditures was anticipated.
- Management expected 2013 OSUR research and development expense to remain around 2012 levels and sales and marketing expense to rise as In-Home HIV advertising and promotion continued. DNAG research and development and sales and marketing expenses were expected to increase slightly.
- The 2.3% U.S. medical-device excise tax took effect in January 2013 and was expected to pressure gross margin. OraQuick professional-market patent royalties also increased beginning in 2013 under a prior settlement.
- Key risks include uncertain consumer adoption and returns for the new OTC HIV test; dependence on public funding and long institutional sales cycles; price and product competition; reliance on sole-source components and third-party manufacturers; regulatory and clinical approval requirements; and foreign-exchange exposure as DNAG grows.
- OraQuick In-Home revenue was initially recognized only when consumers purchased from retailers or online, because the company lacked a reliable return history. Retailer-held product with return rights contributed $3.7 million to deferred revenue at year-end; gross shipments and sell-through should not be conflated.
- Merck collaboration agreements for HCV promotion were not renewed or were terminated; management did not expect a material sales impact. A $1.0 million HCV milestone payment contributed to 2012 licensing revenue. The Roche oral-fluid drug-assay collaboration faced delays, particularly over clearance of a THC assay.
- A DNAG former employee sought more than C$400,000 in an employment-related claim; the company denied the allegations and said it would defend the matter. Management stated ordinary-course legal matters were not expected to materially affect results.
- The company reported effective disclosure controls and internal control over financial reporting; KPMG issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Consumer sell-through, repeat demand, returns, retailer inventory, and marketing economics for OraQuick In-Home HIV; compare recognized revenue with shipments and deferred revenue.
- Whether OraQuick HIV professional sales stabilize, and whether HCV growth continues despite limited public-health funding and the end of Merck promotion.
- Continuation of Intercept distribution losses and the status of the Roche collaboration and THC assay clearance.
- Effects on margins and cash flow of higher patent royalties, the medical-device excise tax, commercialization spending, and working-capital needs.
- DNAG growth and profitability, goodwill carrying value, and sensitivity to Canadian-dollar exchange movements.
- Share dilution from the 2012 offering and stock-option exercises; no cash dividends were anticipated.