OraSure Technologies, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. The financial statements are unaudited. OraSure develops and sells diagnostic tests, specimen-collection products, cryosurgical devices and, following its August 2011 acquisition of DNA Genotek (DNAG), molecular collection systems.
Financial performance and liquidity
| Metric | Q1 2012 | Q1 2011 / prior date |
|---|---|---|
| Revenue | $20.94 million | $17.41 million |
| Gross profit / reported gross margin | $13.73 million / 66% | $11.27 million / 65% |
| Operating loss | $3.65 million | $2.55 million |
| Net loss / loss per share | $3.25 million / $0.07 | $2.60 million / $0.06 |
| Cash from operating activities | $(1.36) million | $(2.05) million |
| Cash and working capital | $22.81 million / $30.81 million at March 31 | $23.88 million / $30.86 million at December 31, 2011 |
Revenue rose 20%, including $3.30 million from DNAG, which was not in the prior-year results. Product revenue increased 16%; licensing and product-development revenue rose to $1.21 million, including a $1.0 million Merck milestone. Gross margin improved slightly, but operating loss widened as sales and marketing and general and administrative costs increased. R&D expense declined, mainly due to lower clinical-trial costs for the planned OTC HIV test.
At March 31, current debt was $7.17 million; the $10 million Comerica facility had no remaining borrowing availability and its unpaid principal was due May 27, 2012. The loan bore fixed interest of 4.15%, was secured by company assets and facilities, and OraSure was in covenant compliance. Management said it was negotiating refinancing and expected available cash to cover operating and capital needs for at least 12 months. Cash used in investing was $0.31 million; financing provided $0.58 million, principally from stock-option exercises, partly offset by debt repayment and shares withheld for taxes.
Business developments and material comparisons
- OraSure segment revenue was $17.65 million, up about 1%; segment operating loss was $2.75 million. DNAG contributed $3.30 million of revenue and a $0.90 million operating loss.
- Cryosurgical revenue increased 28% to $3.48 million, led by OTC sales. Infectious-disease revenue declined 2%; OraQuick HIV revenue was broadly flat, while HCV sales rose to $0.82 million following the product’s 2011 CLIA waiver.
- Substance-abuse testing revenue fell 32% to $2.09 million, including declining Intercept sales. A major laboratory distributor was expected to stop purchasing Intercept during 2012 amid competition.
- DNAG’s quarter included a large initial order from a new commercial customer. Results are not directly comparable with Q1 2011 because DNAG was acquired in August 2011.
- Cash declined $1.06 million from year-end. Operating cash use improved year over year, helped by collection of receivables; inventory increased $1.19 million, partly to stock OraQuick HIV tests.
Outlook, risks and unusual items
- The FDA’s Blood Products Advisory Committee was scheduled to consider the OraQuick OTC HIV application on May 15, 2012, after quarter-end. The filing describes a pending review, not an approval.
- Growth in HCV testing depends in part on government funding and Merck’s physician-office sales efforts. Management also cited competitive pricing, distributor dependence, customer funding constraints, and sole-source suppliers as risks.
- Reckitt Benckiser’s cryosurgical-product distribution contract had been extended through May 2012, with further-extension negotiations ongoing. Certain cryosurgical royalties are expected to end after patents expire in August 2013.
- Management reported a full valuation allowance against OraSure’s U.S. net deferred tax assets; the quarter’s $0.52 million tax benefit related to DNAG’s Canadian operations and credits.
- A UK cryosurgical patent dispute was settled after quarter-end: parties agreed to mutual covenants not to sue and to bear their own litigation costs. Management said ordinary-course legal matters were not expected to materially affect financial position or results.
- Foreign-currency translation generated $1.11 million of other comprehensive income, largely from translating DNAG’s Canadian operations. The company had no currency hedges and noted that exposure could rise as DNAG grows.
Investor verification priorities
- Confirm the outcome and timing of the FDA review of the OTC HIV test, and the costs and commercial readiness associated with a potential launch.
- Verify refinancing or repayment of the Comerica facility due May 27, 2012, and any resulting impact on liquidity and covenants.
- Assess whether DNAG’s large initial customer order recurs and whether DNAG approaches operating profitability.
- Track HCV funding, Merck’s physician-office efforts, Intercept distributor transitions, and renewal of the Reckitt Benckiser agreement.
- Review continuing cash burn, inventory levels, and sole-source supply dependencies against management’s stated 12-month liquidity outlook.