OraSure Technologies, Inc. — FY 2015 Form 10-K
Reporting period: Year ended December 31, 2015. This is an annual filing; fourth-quarter results are noted separately below. OraSure develops and sells diagnostic tests, specimen-collection products, and cryosurgical devices through its OSUR and DNA Genotek (DNAG) segments.
Financial performance and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Net revenue | $119.7 million | $106.5 million |
| Product revenue | $104.5 million | $98.9 million |
| Gross profit / gross margin | $80.3 million / 67% | $66.6 million / 63% |
| Operating income (loss) | $8.1 million | $(4.8) million |
| Net income (loss) | $8.2 million | $(4.6) million |
| Diluted earnings (loss) per share | $0.14 | $(0.08) |
| Cash from operating activities | $15.8 million | $7.5 million |
| Cash and short-term investments at year-end | $101.3 million | $97.9 million |
| Working capital at year-end | $111.5 million | $104.8 million |
- Revenue rose 12%; product revenue rose 6%. Other revenue was $15.3 million, including $13.5 million recognized under the AbbVie HCV co-promotion agreement and $1.8 million of BARDA Ebola-development funding.
- Net income returned to positive territory after losses in 2014 and 2013. The filing attributes the improvement to higher revenue, reduced In-Home HIV advertising, and favorable Canadian-dollar exchange effects; the comparison also reflects the absence in 2015 of a $5.5 million Roche termination payment recognized in 2014.
- Cash used in investing activities was $6.7 million, including $3.7 million of capital expenditures; cash used in financing activities was $5.7 million, primarily share repurchases. Management expected approximately $5.3 million of capital expenditures in 2016 and said existing cash was expected to fund operating and capital needs for at least 12 months.
- Current assets were $136.7 million and current liabilities $25.2 million at year-end. No borrowings are presented as a balance-sheet line item. Total liabilities were approximately $29.9 million.
Segments and material changes
- OSUR: Revenue, including other revenue, was $89.8 million, up 9%; operating income was $3.6 million versus an $8.3 million loss. Product revenue was nearly flat at $74.5 million. Infectious-disease revenue increased 3%, substance-abuse testing increased 22%, cryosurgical systems declined 23%, and insurance risk assessment declined 12%.
- DNAG: Revenue was $29.9 million, up 26%; operating income increased to $4.5 million from $3.5 million. Commercial Oragene sales drove growth; academic-market sales were flat at $9.8 million. DNAG represented 25% of consolidated revenue.
- OraQuick HCV revenue increased 57% to $11.4 million, while total OraQuick HIV revenue declined 12% to $34.4 million. Domestic professional HIV revenue fell 17%, partly due to migration to laboratory-based fourth-generation tests under CDC testing guidance. In-Home HIV revenue increased 8%.
- Consolidated revenue from international customers was $23.2 million, or 19% of the total, versus $24.2 million, or 23%, in 2014. One customer represented approximately 12% of 2015 consolidated revenue.
- Fourth quarter 2015: Revenue was $32.4 million, operating income $4.1 million, net income $4.6 million, and diluted EPS $0.08. Fourth-quarter 2014 revenue was $28.7 million, with an operating loss of $2.6 million and net loss of $2.7 million.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific consolidated revenue or earnings guidance. Management described HCV testing, molecular collection, Ebola testing, and microbiome and tuberculosis products as opportunities, while noting that some markets may take time to produce meaningful results.
- The AbbVie agreement runs through December 31, 2019 and provides for up to $75 million of aggregate payments; recognition is ratable. OraSure did not meet the 2015 performance milestone, so no related incentive fee was earned. Under certain circumstances the agreement could be terminated as early as December 31, 2016.
- The Ebola rapid test received FDA Emergency Use Authorization in 2015; 2015 sales of $2.3 million were to the CDC for field testing. BARDA funding is subject to contract terms and options. The company was pursuing further regulatory clearances and sustainable purchase commitments; the EUA may be affected if the emergency authorization ends.
- DNAG’s FDA warning letter, issued in 2013 and still pending, concerned design/development documentation and acceptance testing, including ORAcollect. The company said it was working with the FDA and expected no material near-term financial impact.
- DNAG filed patent-infringement and related actions against Ancestry and Spectrum in 2015. Ancestry petitioned for inter partes review of some patent claims; the filing expected a decision on whether review would be initiated in April 2016. Outcomes and potential financial effects are uncertain.
- Other notable exposures include dependence on sole-source suppliers and third-party manufacturers, competitive and pricing pressure, public-sector funding and reimbursement variability, product and regulatory risks, and Canadian-dollar exposure. A 10% unfavorable Canadian-dollar movement was estimated to reduce comprehensive income by $4.2 million.
- OraSure had an accumulated deficit of $170.2 million despite 2015 profitability and maintained a full valuation allowance against U.S. deferred tax assets. Management cautioned that sustained profitability is not assured.
Important facts for investors to verify
- How much of operating performance is repeatable product growth versus AbbVie exclusivity revenue, BARDA funding, foreign-exchange benefits, and lower advertising expense.
- Whether OraQuick HCV growth and the AbbVie relationship continue, including milestone attainment and termination provisions.
- Progress in resolving the DNAG FDA warning letter and in the Ancestry/Spectrum patent cases.
- Whether HIV professional-sales declines, cryosurgical weakness, customer concentration, and reliance on public funding affect future results.
- Actual cash generation, planned capital spending, and the effects of Canadian-dollar movements and supplier concentration.