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Executives

Judy Clark - Investor Relations

Douglas A. Michels - President and Chief Executive Officer

Ronald H. Spair - Chief Financial Officer and Chief Operating Officer

Analysts

Sean Bevick - SIG

Aaron Lindberg - William Smith & Company

Ed Shenkan - Needham & Company

Orasure Technologies, Inc. (OSUR) F4Q08 and Full Year Earnings Call February 11, 2009 5:00 PM ET

Operator

Good day ladies and gentlemen and welcome to Orasure Technologies 2008 Fourth Quarter and Full Year Financial Results Conference Call and simultaneous webcast. (Operator Instructions) For opening remarks and introductions I will now turn this all over to Judy Clarke at Orasure Technologies. Please go ahead.

Judy Clarke

Thank you. Good afternoon everyone and thank you for joining us today. I would like to begin by telling you that Orasure Technologies issued a press release at approximately 4:00 pm Eastern time today regarding our 2008 fourth quarter and full year financial results and certain other matters. The press release is available to you on our website at www.orasure.com or by calling 610-882-1820. If you go to our website the press release can be accessed by opening the Investor Relations page and clicking on the link for news releases.

This call is also available real time on our web site and will be archived there for seven days. Alternatively, you can listen to an archive of this call until midnight February 16, 2009 by calling 800-642-1687 for domestic or 706-645-9291 for international. The access code is 83800004.

With us today are Doug Michels, President and Chief Executive Officer and Ron Spair Chief Financial Officer and Chief Operating Officer. Doug and Ron will begin with opening statements which will be followed with question-and-answer sessions.

Before I turn the call over to Doug I must also remind you that this call may contain certain forward-looking statements including statements with respect to revenues, expenses, profitability, earnings per share and other financial performance, product development, performance, shipments and markets, and regulatory filings and approvals. Actual results could be significantly different. Factors that could affect results are discussed more fully in the SEC filings of Orasure Technologies including its registration statements, its annual report on Form 10-K for the year ended December 31, 2007, its quarterly reports on Form 10-Q and its other SEC filings.

Although forward-looking statements help to provide complete information about future prospects, listeners should keep in mind that forward-looking statements may not be reliable. The company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after this call. Also, please note that today’s results will include a discussion of certain non-GAAP financial measures. Non-GAAP reporting is provided to help you better understand our business and certain items which impacted our results; however non-GAAP financial results are not meant to be considered as a stand-alone measurement of performance or as a substitute for, or as superior to GAAP results.

You should be aware that non-GAAP measures have inherent limitations and should be used only in conjunction with Orasure’s consolidated financial statements prepared in accordance with GAAP. Our press release includes a table detailing the non-GAAP measures together with the corresponding GAAP results and a reconciliation to GAAP. We encourage listeners to view these items.

With that I would like to turn the call over to Doug Michels.

Douglas Michels

Thank you Judy and good afternoon everyone. Welcome to our fourth quarter and full year 2008 earnings conference call. For today’s call Ron Spair will begin with a review of the fourth quarter and full year 2008 financial performance. You will note our adjusted full year financial results exceeded the guidance provided on the third quarter earnings conference call. Ron will also provide our financial guidance for the first quarter of 2009. After that we will discuss some additional updates including progress we are making on the company’s major clinical development projects. We will conclude by opening the floor for your questions.

Now let’s turn to Ron’s financial overview. Ron?

Ronald Spair

Thanks Doug and good afternoon everyone. I will start with a brief review of our full year 2008 financial results.

2008 revenues were $71.1 million representing a 14% decrease from the $82.7 million reported in 2007. Increased sales in infectious disease and insurance risk assessment testing together with an increase in licensing revenues were offset by an expected decline in sales of our cryo surgical, wart removal, and substance abuse testing products.

The overall 6% growth in our infectious disease revenues in 2008 was a result of strong sales of our OraQuick rapid HIV-1/2 antibody test. Sales to public health increased 28% over 2007 and benefited from the growth in our base business and from the incremental sales driven by the Centers for Disease Control and Preventions efforts to increase HIV testing.

Our sales to Abbott decreased 18%. This was driven by our decision to go to a direct sales model in 2009 for US hospitals which resulted in a reduction of Abbott’s purchases late in 2008.

Our overall cryosurgical revenues decreased 55% compared to 2007. The absence of US and Mexican over the counter sales coupled with reduced OTC sales in Europe were large contributors to this decrease.

As we explained in prior calls our Latin America OTC distributor Genomma, reduced its purchasing levels in 2008 in response to an increase in return product from retailers due to over stocking during the winter months.

The absence of US OTC sales resulted from the termination of our domestic distribution relationship with Prestige brands at the end of 2007 and European OTC sales declined due to lower revenues experienced by our distributor SSL in key markets outside of the United Kingdom.

Our combined cryosurgical sales in the professional market decreased by 15% as the business was affected by the diversion of some lower priced Histofreezer product from International sources into the US professional market. We have addressed this diversion by increasing our International pricing, changing product labeling and packaging, and enforcing contractual rights against certain International distributors. We believe we stopped most of the diversion in 2008 and expect no material impact from it in 2009.

Our substance abuse business decreased 11% in 2008 as sales of our Intercept drug testing system were directly impacted by the continuing adverse economic conditions resulting in a decline in pre-employment testing in some of the markets that buy our Intercept product.

Pre-employment drug screening represents approximately 50% of our work place drug testing business and the decrease in hiring has had a direct impact in this segment of our business.

Our insurance risk assessment sales increased 11% from $5.5 million in 2007 to $6.1 million in 2008 and licensing revenues increased 7% compared to 2007.

Our gross margin for the full year 2008 was 58% a decrease from 61% in 2007. The decrease was largely due to a less favorable product mix driven by significant declines in our cryosurgical product revenue and increases in manufacturing, scrap and spoilage expense. Although scrap and spoilage expense exceeded 2007 levels, OraQuick scrap and spoilage was down sequentially in each quarter of 2008 as we identified the root cause and made the appropriate adjustments. We expect overall OraQuick 2009 scrap and spoilage to be significantly lower when compared to 2008 primarily due to the product process enhancements recently approved by the FDA.

For the full year 2008 we delivered an adjusted loss per share of $0.11 compared to 2007 where we ended up with earnings per share of $0.05. Our financial performance was impacted principally by lower revenues and increased R&D expenditures.

R&D expenses for 2008 increased $6.1 million and in turn decreased our earnings per share by approximately $0.08 as we continued our efforts to obtain FDA approval to sell our OraQuick HIV test over the counter, develop our rapid Hepatitis C test and develop homogenous fully automated drugs of abuse assays for use with our Intercept oral fluid collection device in collaboration with Roche Diagnostics. The status of these projects will be discussed by Doug in greater detail later in the call.

It should be noted that our unadjusted or GAAP basis, and is explained further in our press release issued earlier today, we recorded a $26 million non-cash charge related to the establishment of a valuation allowance on our net deferred tax asset. This is reflected in our results reported under GAAP for both the fourth quarter and full year.

Now I will turn to our quarterly results.

Our fourth quarter performance on an as adjusted basis exceeded our prior guidance on both the top and bottom lines. Total revenues for Q4 were 417.2 million a 13% decrease from the same period in 2007. Sales of our Intercept drug testing system increased 10% and our insurance risk assessment sales increased 5% in the fourth quarter. These increases were offset by lower sales of our infectious disease and cryosurgical products.

In the infectious disease testing market we booked sales of $8.8 million a 6% decrease from the fourth quarter of 2007.

Public health sales for the quarter increased 13%. This was offset by a 44% decline in sales to Abbott as a decrease for purchases to reduce inventory levels in preparation for the conclusion of our distribution agreement at year-end. Also contributing to the overall decrease was a 21% reduction in international OraQuick revenues largely due to lower sales in Africa.

Is substance abuse testing sales were flat compared to 2007 at $3.4 million for the fourth quarters of ’08 and ’07. Included in these sales were $2.9 million from our Intercept drug testing system which represents a 10% increase from 2007. This increase was principally driven by the Criminal Justice and International sectors.

Cryosurgical system sales were $2.9 million for the fourth quarter, a 45% decrease compared to the same period in 2007. This decrease was expected and is consistent with the explanations provided earlier in the call for the year-to-date results.

Finally, insurance risk assessment sales in the fourth quarter increased 5% to $1.7 million.

Turning to gross margin, our margin for Q4 of 2008 was 56% a decrease from 58% for Q4 of ’07. The decrease was largely due to a less favorable product mix primarily driven by significant declines in cryosurgical product revenues and increases in manufacturing, scrap and spoilage expense. The majority of scrap and spoilage charges in Q4 were related to events affecting products other than OraQuick and are not expected to recur. We expect OraQuick scrap and spoilage to continue to drop in 2009.

Research and development expenses for Q4 were up 27% or approximately $1.2 million over 2007, primarily due to a $1 million charge associated with a patent license milestone payment required as a result of the filing of our OraQuick HCD pre-market approval application with the FDA.

Sales and marketing expenses increased 7% or approximately $348,000.00, mostly due to increased staffing and related charges as a result of the recruitment of our direct sales force for the US hospital market and recent organizational changes. We don’t expect overall spend in sales and marketing to be materially higher in 2009 even though we have switched to a direct sales model in the hospital market. The majority of the increase in the fourth quarter of ’08 was caused by recruiting expenses.

General and administrative expenses increased approximately $1.3 million primarily due to costs associated with the ending of our OraQuick distribution agreement with Abbott Laboratories. These costs, which were accrued in Q4 of ’08 and will be paid in the first quarter of 2009, represent the last of our obligations to Abbott under our agreement. During the quarter we also incurred legal fees associated with the patent infringement lawsuit filed against us by Inverness Medical and Church & Dwight. In comparison fourth quarter 2007 legal expenses reflect the reimbursement of certain legal fees awarded in connection with our arbitration with a former distribution former.

From a net loss perspective, and excluding the deferred tax asset charge, we reported a loss of $3.3 million on an as adjusted basis or $0.07 per share which exceeded our guidance. This compares to net income of $27,000 or break-even earnings per share for the same period of 2007.

Turning briefly to our balance sheet and cash flow, our cash balance remains strong with cash and short-term investments of $82.5 million and working capital of $91 million at December 31, 2008. During 2008 we used $2.7 million in cash flow from operations. The decrease in cash provided by operating activities as compared to the prior year is largely the result of our net loss coupled with increases in inventory and decreases in accounts payable and accrued expenses.

Day sales outstanding increased to 60 days from 50 days in 2007 as one of our international customers held a large outstanding balance at year-end which was secured by a letter of credit and collected in early 2009. This represented the equivalent of 9 days sales outstanding. In addition, under the terms of our $25 million share repurchase program we purchased $5.1 million of our common stock during 2008, $2.1 million of which was purchased in the fourth quarter.

Turning to guidance for 2009, for the first quarter we are projecting revenues of approximately $16.5 to $17 million and a loss per share of approximately $0.07. As a result of fully reserving our deferred tax asset we will not record federal income tax expense or benefit in 2009.

With that I will turn things back over to Doug.

Douglas Michels

Okay thanks, Ron. I will now provide an update on several important initiatives and programs. As you know and as Ron indicated we terminated our distribution agreement with Abbott Laboratories at the end of 2008 and on January 1, 2009 we began selling our OraQuick ADVANCE HIV-1/2 test directly to US hospitals and reference laboratories. These customers were previously served on an exclusive basis by Abbott.

I am pleased to report that the transition to a direct sales and service model has been very well executed. We have secured contracts either through assignment or a new agreement with all major hospital group purchasing organizations previously buying OraQuick from Abbott. These GPOs represented approximately 80% of Abbott’s OraQuick business in 2008 with the balance being conducted with hospitals without GPO affiliation. We now have agreements in place to serve over 1,500 hospitals and we have already received, in January alone, orders from customers that represent nearly 35% of Abbott’s 2008-customer base.

In short, our direct sales effort is off to a great start and we have the necessary resources in place to capitalize fully on opportunities in the hospital market in 2009 and beyond.

Turning to some of our strategic priorities, as you know, during the fourth quarter we filed a pre-market approval application or PMA with the FDA for our OraQuick HCV test. Since the filing we’ve been in frequent communications with the FDA and we’ve responded to questions and provided additional information to the agency as they have progressed through the review process. We expect this process will continue over the next several months.

As part of its review, the FDA came to our Bethlehem facilities to conduct the first audit related to our filing called a Bioresearch Monitoring or BMO audit. This is a normal part of the PMA review process. This audit was fairly narrow in its scope, focusing solely on the conduct of the company’s clinical studies, our management of the CRO and clinical sites, data integrity, and generally, whether we followed good clinical practices. The FDA has also audited one of the clinical sites that we used. I am happy to report that the FDA reported no observations or findings as a result of either of these audits.

As the FDA completes its review of our submission we look forward to addressing any further requests that they may have. We also expect that the FDA will conduct a full facility audit, which would typically occur product to product, prior to product approval. We intend to submit for a CLEO waver as soon as our PMA submission is approved by the FDA and the studies required for a CLEO are timed for completion so that a submission can be filed as soon as approval is received.

Finally, as we’ve previously discussed, CE Mark approval will be required in order to sell our OraQuick HCV test in Europe. The additional clinical work required to file a submission for a CE Mark is continuing and we expect the studies to conclude in the next couple of months and hope to make our submission shortly there after.

As previously announced, we recently received FDA approval for a 12-month shelf life for our OraQuick ADVANCE HIV-1/2 antibody test. This has been a long-term project involving excellent work by our R&D operations and regulatory groups. This effort actually started over three years ago when we began to look for product enhancements that would improve the stability of our OraQuick product and allow us to extend its usable shelf life. After several enhancements to both the product and our manufacturing processes were identified, and production lots incorporating these changes manufactured, we conducted real-time stability studies to demonstrate the improved product stability.

The data for these studies along with the descriptions of the modifications to our production processes and validation of these changes were submitted to the FDA for review. We finally received approval for 12-month shelf life at the end of 2008 and announced the approval of extended shelf life products several weeks ago. Our inventory of six month dated product has been depleted and we are now shipping only the enhanced product with 12-month dating.

The approval of these product enhancements is an important development. Particularly because it makes what we believe is the best rapid HIV test on the market even more competitive and more attractive to our customers.

Turning now to our efforts to obtain FDA approval for an OraQuick rapid HIV over the counter test, we have continued to make good progress. As discussed in our prior call we stopped our observed user study after testing was completed on the first 1,000 subjects because we met the 95% confidence intervals for specificity and sensitivity established by the FDA. We then submitted our results to the agency. This study was designed to assess an individual’s ability to interact with our packaging and comprehend the instructions for use, take the test, and interpret the results while a trained professional observed those activities.

In December we met with the FDA to review the data from the study and to discuss our draft protocol for testing the device with consumers in an unobserved setting. The FDA continues to review our data and they have indicated that they will get back to us with any comments or questions on our observed user study and with guidance for the unobserved study soon. After we receive this input, our plan is to submit a protocol for the unobserved study and request an investigational device exemption or IDE for this study. We intend to begin the trial as soon as the FDA approves our IDE submission.

We remain extremely excited about this opportunity because of its enormous potential. As this project moves forward we will certainly provide you with appropriate updates.

Our work with Roche Diagnostics to develop fully automated homogenous drugs of abuse assays for use with our Intercept oral fluid collection device also continues to go well As discussed in prior calls our development have initially focused on a night of five panel of assays for marijuana, cocaine, opiates, PCP, amphetamines and methamphetamines. Assay development is now complete and individual assays are being transferred from R&D to manufacturing at Roche. It is our expectation that all night of five assays will be submitted to the FDA for 5-10K clearance by the end of the year with a possible exception of the THC assay, which should occur early next year.

As discussed in prior calls we launched our own nationally branded cryosurgical wart removal product in the US OTC market beginning in this quarter. We have shipped product to one major retailer and we will look to expand distribution to other major retailers in the future. We expect to issue a more specific announcement on this launch in the next few weeks.

Turning to litigation, the lawsuit filed against Orasure by Inverness and Church & Dwight for patent infringement continues to move forward. As you may know, last year Inverness filed a motion for summary judgment on the issue of infringement. Briefing on this motion is now complete and we are waiting for the court to issue a ruling. In the meantime the discovery process is continuing and will continue through much of this year.

Finally, I would like to provide some perspective on our business as we begin a new year. The current economic crisis has certainly created challenges for many businesses and their customers. Companies have cut back on hiring and many are reducing their workforce. Virtually every business is looking to reduce costs and this in turn puts pressure on pricing. Budgets are being cut and funding in both the private and public sectors is being reduced.

While we certainly understand the environment in which we operate, we still believe that Orasure is well positioned to succeed and that the future holds a lot of promise for our company. We hold this belief for several reasons: First, HIV testing and treatment continues to be a high priority for the new administration and congress. You only need to look at the recently proposed stimulus bills to see that this is the case. For example the bill originally passed by the House of Representatives in January included $335 million for the CDC’s HIV, HCV and TB programs. Similar funding was included in the original Senate version of the bill. Regardless of whether this funding is ultimately retained as part of an economic stimulus, we believe it is likely to appear in legislation ultimately enacted this year and we believe this will remain a priority of the current administration.

Despite some well-publicized funding challenges at the state and local levels, we have seen evidence that HIV testing and treatment programs will also continue to be a priority for these government agencies. Thus, although there will undoubtedly be budget cuts, we are optimistic that public health testing programs funded by state and local governments will continue to maintain or possibly increase their levels of testing. Additionally, the CDC is continuing its support for routine testing and recently expanded funding of its heightened response initiative from 23 to 25 jurisdictions in 2009. We expect the CDC to continue funding this important program in the future.

Although the CDC’s guidelines recommending expanded routine HIV screening in healthcare settings have been in place since 2006, there is still substantial room for adoption of these guidelines, which will drive more testing.

In the recent 2009 issue of the Journal of the American Medical Association or JAMA, it highlighted the recommendations of prominent HIV AIDS experts attending a recent national summit which encouraged healthcare providers to follow the CDC guidelines and expand routine screening. Significantly this report highlighted the availability of oral fluid testing as way to implement the CDC’s guidelines and noted that routine screening could increase awareness and help thousands of people access anti-retroviral treatment while preventing new HIV infections from occurring.

Expanded routine HIV testing is also being advocated by other groups. These include the American College of Physicians, the American College of Obstetrics and Gynecology, and the American College of Emergency Physician. And, the CDC is now also expanding its recommendation for routine HIV screening beyond traditional healthcare settings.

n January the CDC issued new guidance for the implementation of routine screening in correctional settings. We’ve always believed that prisons, jails and other correctional facilities represent a significant potential for our OraQuick ADVANCE test and the issuance of this guidance document is significant in that it will provide a road map for the expansion of routine testing in these facilities.

As discussed in prior calls, the economic slow down and reduction in hiring has impacted sales of our Intercept product line, primarily in the work place testing segment. However, we believe the biggest impact on this business occurred in 2008, since hiring is usually a leading indicator for our economy. We believe this part of our business will stabilize somewhat in 2009.

In response to the negative economic outlook, we have taken many steps to reduce our own costs. The most visible of these actions was a reduction in our own work force at the end of 2008. At the same time we’ve refocused our resources on those parts of our business having the greatest strategic importance. A prime example is the expansion of our hospital sales force and related support activities in order to sell our OraQuick ADVANCE HIV test directly into the US hospital market. This investment also lays the groundwork for marketing new products to hospitals such as our OraQuick HCV test once FDA approval is obtained.

Finally, in addition to the many positive factors affecting the near term operation of our business, it is important to keep in mind where we stand in advancing our major strategic objectives. We have made substantial progress during this past year and we are in the late stages with respect to our main projects. We spent significant time and resources developing an OraQuick HCV test which culminated in the filing of our PMA application last year and we are now working hard to give the FDA everything it needs to issue its approval. We believe that we’re in the final stretch of this project and approval is now within our sites. In addition, we expect o submit for our CE Mark this year so that we can focus on commercializing this important product in the near future.

Similarly, our efforts to obtain FDA approval of an OraQuick HIV test for the over the counter market continues to advance. Our observed user study is complete and the data is now before the FDA which was no small feat. We believe that we’re now getting closer to the final required stud for approval of this important product and we are eager to begin the unobserved study as soon as we get the nod from the FDA.

Finally, the collaboration with Roche Diagnostics to develop fully automated oral fluid assays for use with our Intercept device has gone extremely well and we expect to begin submitting these assays for 5-10K clearance by the FDA later this year. Once approval is obtained we will be ready to begin commercializing these assays both here in the US and around the world. Based on our assessment of the drug testing market, we believe that will be the first to market with fully automated oral fluid assays which will give us a significant competitive advantage in the drug testing marketplace.

In summary, despite past challenges in the current economic climate, we remain convinced that new opportunities will continue to emerge for our business, especially as we deliver against our strategic objectives. We believe that we are positioned for success and you can be sure that we are committed to delivering a very successful 2009.

With that we will be happy to open the floor for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Sean Bevick of SIG.

Sean Bevick – SIG

I have a couple of questions about the false positives that were reported a few months ago at the NYC clinics. Have those false positives been leaking to any other regions? Also, you guys mentioned before that you guys monitor the false positives in your own database. Has there been any change in those false positives over the last few months?

Douglas Michels

No. You know we have a very robust sentinel site-monitoring program and the OraQuick product continues to perform exceptionally well. I think testament to that is the recent approval of our request to actually extend the dating of the OraQuick product based on enhancements that we’ve made to the product raw materials as well as the manufacturing process. So, no the product in the field continues to perform to its FDA approved specifications and we believe that the enhanced product is going to make that performance even more robust.

Sean Bevick – SIG

Okay and then has the FDA had any concern with oral fluid testing with regards to what happened with this NYC stuff and the HCV approval?

Douglas Michels

You know, our position with the FDA has always been one of complete transparency and the FDA has access to all of our records, they have access to all of our complaint files. I think testament to the strong performance of the OraQuick product is the fact that they’ve approved an extension of the products dating recently announced by us.

The hepatitis C application has been submitted. It’s a complete submission and as I mentioned in my prepared remarks, the FDA has already conducted a BMO audit here, has audited one of our clinical sites and that process continues to progress. The FDA continues to be extremely supportive of our efforts and things are actually going very well.

Operator

Your next question comes from Aaron Lindberg with William Smith & Company.

Aaron Lindberg - William Smith & Company

I have a quick question on the cryo product. Do you anticipate launching additional cryosurgical products in 2009 or just the one that you mentioned earlier, the wart product, the branded wart product?

Ronald Spair

Right now our plans are to launch the wart product. As we mentioned we are launching that in Rite Aid. We expect that product to be in excess of more than 4,500 stores. We are having ongoing dialogue with other retailers. Obviously we are going to monitor how the brand performs and we will make future decisions on expansion as the year progresses.

Aaron Lindberg - William Smith & Company

Okay unrelated to the wart though, one of the things you’d talked about previously was other indications. Is that something where you continue to progress or is that something that’s kind of a secondary objective here for this year?

Douglas Michels

No, we are still highly interested in looking at other professional indications that we can take over the counter. We have ongoing efforts to bring another product to market right now. We haven’t disclosed what that indication might be, for competitive reasons, but it’s an active program.

Aaron Lindberg - William Smith & Company

Okay and so that’s still possible in 2009?

Douglas Michels

We haven’t really put any time parameters on that, but we’re trying to move it through an approval process as quickly as possible.

Aaron Lindberg - William Smith & Company

Okay and I have one other quick question for you, as it relates to HIV, have you made progress on a new city wide initiative and can you update us on results with New York City, DC or others where you have had an effort like that?

Douglas Michels

The OraQuick business just generally, as Ron indicated in his financial summary, continues to perform extremely well, within the public health sector in particular. Our efforts in Washington DC, in Philadelphia, in New York City, those jurisdictions continue to expand testing as testing rolls our more outside of the public health venues and begins to be adopted for routine testing in other clinical settings like hospitals and corrections institutions environment, etc…

The CDC, as I mentioned, recently expanded the number of jurisdictions that are eligible for the grant monies related to the heightened response to focus monies on prevention efforts among the African American communities and the two new jurisdictions added in 2009 were Mississippi and Texas. We’re actively involved with both of those jurisdictions, particularly Texas and Texas very broadly is going to represent some nice growth for us in 209.

Obviously we’re working with all of the jurisdictions and I think we’ve talked about this previously, that well more than 80%, 90% of the jurisdictions use OraQuick and use OraQuick virtually exclusively and so we’re benefiting from that increased focus and we believe that the public health sector is going to continue to drive nice growth for us in 2009.

Operator

Your next question comes from Ed Shenkan with Needham & Company.

Ed Shenkan - Needham & Company

Thanks. Doug, we noticed that Abbott ordered over $1 million in the quarter. We were surprised there. Are you expecting any future orders from Abbott?

Douglas Michels

No. As I thought we tried to make clear, the Abbott relationship is terminated as of December 31, 2008. On the first of January we began serving the hospital customers directly. This was a huge effort that took most of the fourth quarter to affect. We had to build the operational capability. We had to hire the sales force. We had to make sure we had the contracting capability. All of the order to cash functions had to be either built or the infrastructure shirred up such that we could take orders, fulfill those, invoice, and collect on those orders.

Since that time we’ve been out with our field force securing the base. Making sure that customers could transact business with us and they have been very successfully. Knock on wood; we have had not glitches in any transaction related situation. I mentioned the success we’ve had in either assigning or contracting with customers and with the group purchasing organization and now our focus is on growing the business.

We made this decision because we believed that we could accelerate growth in the hospital market by taking this business and serving these customers directly and not only that, it set the stage for the introduction of new products, additional products, like the hepatitis C test once it’s approved.

As Ron mentioned, there was a transition payment that we made to Abbott. That really signaled the last of our obligations to Abbott under that agreement.

Ed Shenkan - Needham & Company

And I think you mentioned 80% of the GPOs that Abbott had you’ve now got under contract. What percent of those have sales force from Orasure presence currently?

Douglas Michels

No, what I described is that the GPOs that were under contract with Abbott represented approximately 80% of their sales volume. I indicated that we have contracted or signed contracts with all of them to Orasure. I also referenced that more than 1/3 of Abbott’s customers from 2008 ordered from us in January alone. We’re monitoring this very carefully. We want to make sure that all of that business converts over and we’re tracking what customers order. What customers ordered in the fourth quarter get ordered now in the first six weeks or so of 2009 and we’re very pleased with the metrics that we’re seeing so far.

Ed Shenkan - Needham & Company

What impact did foreign currency have on your business in the fourth quarter and what is the expected impact in ’09?

Ronald Spair

The business wasn’t really impacted by foreign currency in the fourth quarter of 2008 to any material level. Our expectation is that it won’t have a major impact on us in 2009. If anything potentially favorable visa vie ’08 as a result of the decline of the euro versus the dollar and we do purchase product in euro and we also have sales folks overseas where we have compensation arrangements denominated in euros and pounds. So with both of those currencies declining we’ll see a little bit of an advantage there versus ’08 in the comps. Most of our revenues are denominated in dollars. We’ve tried to work that so we think that foreign currency will not be a significant impact and if anything a potential benefit for us as the dollar strengthens.

Ed Shenkan - Needham & Company

Thank you, that was very helpful. On the R&D budget for 2009 can you give us any idea on what the total spend might be and then what might be some variances? Obviously depending on what the FDA comes back to you on as far as how to set up your protocol.

Ronald Spair

With respect to the spending in 2009, we do have an expectation that R&D will be down by several million versus the level attained in 2008. As a result of our completion of the HCV clinical trials and the submission of the PMA, that large expenditure has gone away. So although we expect to conduct and complete the OraQuick OTC HIV trials in ’09 together with CLEO waiver studies, CE Mark submission, the high through put assay collaboration with Roche, overall we do expect the clinical and R&D spend to be down by several million versus ’08.

Ed Shenkan - Needham & Company

That’s very helpful, thank you.

Operator

Your next question is a follow up question from Aaron Lindberg with William Smith & Company.

Aaron Lindberg - William Smith & Company

Thanks. Have you guys signed additional distributors internationally for ADVANCE particularly in developed countries, Europe or the Far East?

Ronald Spair

We have. We’ve signed several new distribution agreements, particularly in Eastern Europe, several in the Middle East and we’ve also signed others in the Far East. That effort to expand our business on a global basis continues and we still believe that it represents a significant opportunity for the company.

Aaron Lindberg - William Smith & Company

That is excellent. Did that impact Q4 or when do you expect that to start to have a material impact?

Douglas Michels

Well we think that the International business will continue to expand in 2009.

Aaron Lindberg - William Smith & Company

It will expand sequentially through the year likely?

Douglas Michels

Yes.

Aaron Lindberg - William Smith & Company

Then in regard to your HCV submission, is there any information requested by the FDA that has not yet been provided by Orasure?

Douglas Michels

No.

Aaron Lindberg - William Smith & Company

With the 2009 gross margins do you anticipate that they’ll remain consistent from current levels?

Ronald Spair

You know, looking out at 2009 I think we will see an improvement as a result of the improvements in scrap and spoilage across our product lines, together with the positive impact of the decision to go direct in the hospital channel and improving our gross margins on the OraQuick sales there.

Aaron Lindberg - William Smith & Company

Okay. Then you said with the HCV you plan to submit for CE Mark in a few months, is that May or can you help tighten that down for us at all?

Douglas Michels

It will be somewhere around mid-year.

Aaron Lindberg - William Smith & Company

Mid-year, okay thanks.

Operator

You have no other questions at this time. Do you have any closing remarks?

Douglas Michels

I just want to thank everybody for coming on the call this afternoon. As we tried to communicate we are extremely excited about the many programs that we have ongoing that are certainly in the final stages of development. We are looking forward to a very successful 2009 and certainly appreciate all of your support. Have a great evening.

Operator

This concludes today’s conference call.

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