ORASURE TECHNOLOGIES INC quarterly report, Q3 FY2021

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OraSure Technologies, Inc. — Q3 2021 Form 10-Q

Reporting period: Three and nine months ended September 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted. OraSure operates Diagnostics and Molecular Solutions businesses.

Financial performance and liquidity

  • Revenue: Q3 revenue was $53.9 million, up 12% year over year; nine-month revenue was $170.1 million, up 56%. Q3 growth reflected genomics and initial InteliSwab COVID-19 test sales, partly offset by lower sales of molecular COVID-19 collection kits.
  • Profitability: Q3 gross margin fell to 40% from 63%; the company recorded an operating loss of $13.0 million and net loss of $15.0 million, versus net income of $1.0 million in Q3 2020. Nine-month gross margin was 53% versus 59%; the operating loss narrowed to $0.8 million from $13.1 million, and net loss narrowed to $12.6 million from $16.8 million. Nine-month results included a $1.5 million non-cash benefit from revaluing acquisition-related contingent consideration.
  • Segment trends: Q3 Diagnostics revenue rose 44% to $23.5 million, while the segment recorded an $18.6 million operating loss. Molecular Solutions revenue was $30.4 million, down 4%, with operating income of $5.6 million. For the nine months, Diagnostics revenue was $57.4 million and operating loss was $42.8 million; Molecular Solutions revenue was $112.7 million and operating income was $42.0 million.
  • Cash flow and investment: Operating activities used $22.6 million in the first nine months, compared with $2.2 million provided in 2020. Inventory growth used $21.7 million of cash. Capital expenditures were $27.5 million, largely for manufacturing capacity; investing activities provided $0.8 million overall, principally reflecting investment maturities and redemptions.
  • Liquidity and obligations: Cash, cash equivalents and available-for-sale securities totaled $202.3 million at September 30, down from $257.1 million at year-end 2020; working capital was $235.1 million. The filing reports no conventional borrowings; lease liabilities totaled approximately $14.7 million. About $129.2 million, or 64% of cash and investments, was held by the Canadian subsidiary, and repatriation above certain levels could have adverse tax consequences.
  • Margins and expenses: Management attributed lower margins to product mix, scrap and manufacturing costs, lower labor absorption, and reduced Gates Foundation subsidies for international HIV self-tests. Operating expenses increased, including spending to launch and develop InteliSwab.

Material changes and developments

  • Genomics revenue increased 125% in Q3 and 112% year to date, while molecular COVID-19 collection-kit revenue declined 67% in Q3 but rose 66% for the first nine months to $46.2 million.
  • InteliSwab received three FDA Emergency Use Authorizations in June 2021. Sales were $7.7 million in Q3 and approximately $7.9 million year to date; management said manufacturing constraints limited Q3 sales.
  • OraSure stopped pursuing U.S. EUAs for its COVID-19 antibody ELISA after FDA discussions and recorded a $1.75 million reserve for related inventory it does not expect to sell. The product remained available for research use.
  • The Gates Foundation subsidy for certain international HIV self-tests expired June 30, 2021, affecting pricing and sales.
  • Property, plant and equipment increased to $77.6 million from $51.9 million at year-end, alongside expanded manufacturing investment. Inventory increased to $53.6 million from $31.9 million.

Outlook, risks and contingencies

  • Management said existing cash and investments should fund current and foreseeable operating and capital needs. It also anticipated higher Q4 expenses for InteliSwab clinical studies and higher sales, marketing and administrative costs ahead of a planned 2022 commercial ramp. The filing provides no quantified company-wide revenue or earnings guidance.
  • A September 2021 Defense Logistics Agency contract covers InteliSwab OTC tests for up to 25,000 U.S. sites from October 2021 through September 2022; the agency estimated its value at $205 million. The estimate is not presented as guaranteed revenue.
  • BARDA agreed to provide up to $13.6 million toward FDA 510(k) clearance and a CLIA waiver. A separate $109 million DOD/HHS agreement funds manufacturing capacity expansion, with payments tied to milestones through March 2024 and capacity targeted to increase by 100 million tests annually.
  • Management highlighted unresolved InteliSwab manufacturing issues, including variability in incoming materials and processing, as a risk to production, sales and results. The company also cited pandemic-driven demand uncertainty, supply-chain disruption, sole-source suppliers, customer concentration, regulatory requirements and foreign exchange exposure.
  • New contracts for COVID-19 antigen and molecular collection products include unconditional material-purchase commitments totaling $126.5 million through as late as Q1 2026.
  • OraSure is pursuing patent infringement claims against Spectrum Solutions; Spectrum disputes infringement and validity and asserted counterclaims. OraSure sought dismissal of the counterclaims and is seeking injunctive relief and damages. Management said ordinary-course legal matters were not expected to have a material adverse effect.
  • Income tax expense was $12.2 million for the first nine months, primarily foreign tax, despite a consolidated pre-tax loss. The company maintained a full valuation allowance against its U.S. deferred tax asset.

Important facts for investors to verify

  • Whether InteliSwab manufacturing and quality issues are resolved, and whether production can meet demand and contract milestones.
  • How much of the DLA contract estimate and federal funding converts into recognized revenue, cash receipts and incremental costs.
  • Whether COVID-related testing demand and genomics growth persist, particularly as molecular COVID-19 collection-kit demand declines.
  • Whether gross margins recover from Q3 levels and whether Diagnostics losses and elevated operating expenses improve.
  • How cash use, inventory commitments and manufacturing expansion affect the $202.3 million liquidity position, including funds held in Canada.
  • Developments in the Spectrum litigation, the $126.5 million purchase commitments, and the effects of customer and supplier concentration.