OraSure Technologies' CEO Presents at Annual Shareholder Meeting Conference (Transcript)

| About: OraSure Technologies, (OSUR)

OraSure Technologies, Inc. (NASDAQ:OSUR)

Annual Shareholder Meeting Conference Call

May 14, 2013 10:00 am ET


Douglas G. Watson – Chairman

Douglas A. Michels – President and Chief Executive Officer


Good morning and welcome to the OraSure Technologies, Inc Annual Meeting. I would now like to turn the program over to Mr. Douglas Watson. Please go ahead.

Douglas G. Watson

Good morning and welcome to the OraSure Technologies 2013 Annual Meeting of Stockholders. My name is Douglas Watson, and I’m the Chairman of the Company Board of Director, and I will also be acting as Chairman of this meeting.

Before we begin I’d like to remind you that the former stockholders meeting and a brief management presentation will be simultaneously webcast over the internet. Following these items there will be a brief Q&A session for those present here in the meeting Bethlehem. An archive copy of the entire webcast will be available for a short-period after the meeting; inspector of election for this meeting is Ms. Jane Ludlow in back of the room of Broad Ridge Financial Services. Ms Ludlow has taken an oath which will be included on the minutes of this meeting. Broad Ridge has as also provided us with an affidavit certifying that notice of this meeting was sent on the 4th April 2013 to all stockholders of record as of the 21st of March 2013 record date.

Notice of this meeting has therefore being given in accordance with the company’s by laws and applicable law and as by, as required by law complete list of these stockholders entitled to vote at this meeting is available for inspection by any stockholder for any purpose, which are main to the meeting.

According to both company’s records and the certificate of the inspector there are $56 million 183,966 shares of the company’s common stock entitled to vote of this meeting and the inspector has determine that persons holding a majority of the outstanding shares of stock are present at this meeting in person or by proxy. Accordingly I declared that the quorum is present and the 2013 annual meeting of stockholders is now called to order.

Before proceeding further I’d like to introduce members of the company’s Board of Directors who are in attendance today from the Board we have Mike Celano, Chief Financial Officer of DrugScan, Inc. Mike is a Chairman of our Audit Committee and serves on the Nominating and Corporate Governance Committee. Ronny Lancaster, Senior Vice President for Federal Government Relations at Assurant Inc, Ronny is Chairman of our Nominating and Corporate Governance Committee and serves on the Compensation Committee. Doug Michels, you’ll hear from him later, our company’s President and Chief Executive Officer. Gerald Ostrov, former Chairman and Chief Executive Officer of Bausch & Lomb, [Jerry] serves on the Compensation Committee. Charles Patrick, Principal of Patrick Consulting, Chuck serves on our Audit Committee and the Nominating and Corporate Governance Committee. Roger Pringle, President of The Pringle Company, Roger is Chairman of the Compensation Committee and serves on the Nominating and Corporate Governance Committee. Ron Spair, our Chief Operating Officer and Chief Financial Officer. Last but not least, Dr. Stephen Tang, President and CEO of the University City Science Center in Philadelphia, Steve serves on the Audit Committee and the Compensation Committee.

This slide provides a list of the company’s senior leadership team and a number of them are also an attendance and I will ask them to stand at this point of time that, I’m not going to recognize you individually this year, speedup our process and I’ll come together on the line here. Thank you.

We also have with us, Steve Ritter partner at KPMG, KPMG is a company’s Independent Registered Public Accounting Firm and Steve will be available to answer any questions you may have during the Q&A session.

Before proceeding further with the formal agenda, please allow me to make a few brief remarks. 2012 was a year of notable accomplishments for our company we achieve perhaps the most significant milestone in our company’s history with the receipt of FDA approval of our OraQuick® In-Home HIV test, this is the first and only rapid infectious disease test ever approved for sale directly to consumers here in the U.S. the development on regulatory approval of this first of a kind product could not have happen without the hard work and dedication of a large group of employees over a multi-year period. On behalf of the board and on behalf of all the shareholders of the company, I would like to thank all the company’s employees and congratulate them for this tremendous achievement.

But FDA approval is not the end of the story, much of the work has also gone on, gone into planning and executing the commercial launch for this product, extensive advertising and public relation strategy have been developed and are being executed; broad distribution has been achieved with all major retailers throughout the country. We recruited a senior executive with extensive experience in both consumer marketing and sales to lead this important part of our business.

Our sales of this product continued to grow, and evidence the impact of our ongoing promotional activities, each and everyday we’re learning more about how to market this product, and we remain optimistic about the prospects for this important tool and the fight against HIV and AIDS. 2012 was also the first full year of performance for our new molecular collection systems subsidiary DNA Genotek. DNA Genotek contributed 16% of our total revenues last year and is off to a great start in 2013.

And we are very excited about our ability to participate in the growing molecular diagnostics market through this part of our business. So as we move through 2013, the board remains optimistic about our future. Our products are significantly impacting public health by enabling more and more individuals to learn about the critical aspects of their health status. These products also represent significant financial opportunities for our company for our business. We remain confident in our strategy and we believe we have the right management team in place to meet our objectives and deliver a long-term value to you our stockholders. And with that, I will now move to the formal part of our meeting.

Business will be conducted in accordance with the rules of conduct established for this meeting, a copy of these rules are available on the back of each agenda, the order of business will out set forth in the proxy statement and in the agenda. The business transacted today will be limited to three items, the polls are opened for voting and we will close at the end of the discussion period. Upon closing of the polls no ballots, proxies or votes or any revocations or changes will be accepted. We will now vote on the items described in the agenda.

The first item of business is the election of three Class I Directors; the board’s nominees are Gerald Ostrov, Stephen Tang and myself Douglas Watson. The Class I Directors electing today will hold up this, until the company’s annual meeting in the year 2016, each nominee is presently a Director of the company and has consented to serve as electee.

The names of the director nominees have been placed in nomination, no other nominations were made in accordance with the procedures established by the company’s Bylaws and accordingly the nominations are closed. The company’s Board of Directors is recommending the stockholders vote for the Director nominees. Is there any discussion on this proposal?

Hearing none. The second item of business is the ratification of the appointment of KPMG LLP as a company’s independent registered public accounting firm for 2013. KPMG has served in its capacity for the past several years. The appointment of KPMG has been approved by the audit committee of the company’s Board of Directors; the Board is recommending the stockholders vote for ratification of KPMG’s appointment. Is there any discussion on this proposal?

The third of business is the approval by a non-binding advisory vote of the compensation of the company’s named executive officers as disclosed in our proxy statement. However, before proceeding with the discussion of this item, I’d like to provide some additional perspective. As many of you will know two proxy advisory firm ISS Proxy Advisory Services and Glass Lewis recently issued reports recommending that our stockholders vote against our proposal on this matter.

These firms essentially have argued that the compensation of our executives is not aligned with company performance. We strongly disagree with these recommendations. ISS and Glass Lewis have largely ignored the various strategic accomplishments achieved by the company’s management over the past two years.

These accomplishments were a principle basis for much of the executive compensation during that period. I refer to some of the accomplishments earlier and they include the successful clinical development recite of FDA approval for our OraQuick and In-Home HIV test, the execution of the national awareness and consumer activation campaign for this product and placement in all major retailers throughout the country, receipt of FDA approval for a finger stick whole blood claim and CLIA Waiver for the OraQuick HCV test, this product is the first and only rapid hepatitis C test available in the U.S.

And last but not least, a successful acquisition of DNA Genotek, which was the most significant strategic transaction completed since OraSure was formed way back in 2000. These strategic accomplishments alone are significant, especially for a company the size of OraSure Technology. The board decided to reward management for these accomplishments in selling compensation levels. We firmly believe that these decisions were both reasonable and entirely consistent with the long-term interest of our stockholders.

There are also several other floors in the ISS and Glass Lewis recommendations which we’ve explained in great detail on some additional proxy materials filed with the SEC. As more fully discussed in our proxy materials, we believe that our executive compensation program follows a pay for performance philosophy and incorporates sound Corporate Governance principles.

The ISS and Glass Lewis recommendations should be rejected; accordingly the board is recommending, the stockholders votes for approval of the revolution on executive compensation as set forth in the proxy statement. Is there any discussion of that topic?

Hearing none. All stockholders who wish to vote in person should have registered at the door and receive the ballot, if anyone needs a ballot please raise your hand now and the inspector will see that you get one. If you are voting by ballot please mark your ballots at this time and raise your hands so that your ballot is going to be picked up and your vote is appropriately counted.

If you do not need to vote in person, if you already have returned your proxy unless you want to change your vote, if you have mailed in your proxy it will be voting in accordance with your instructions unless you decide to change your vote at this meeting. If there is anyone present who had not turned in his or her proxy, but wishes to do so at this time, please raise your hands so that the proxy can be collected. Has everybody voted? Okay, since all stockholders desiring to vote have done, so I declare the poll is closed and after the inspector tell you the votes and prepare a certificate of results. I’ll report the preliminary results of the voting later this morning, there being no further business to conduct, the formal portion of this meeting is now adjourned.

And with that, I will turn the podium to my good friend and our President and CEO Doug Michels and Doug will provide additional details on the status of our business, this will followed by a Q&A session for those present in the room. Doug?

Douglas A. Michels

Thank you, Doug, and good morning everyone. Thank you all for joining us this morning both in person as well as on our webcast. Before I begin my remarks this morning, I want to remind you that discussion this morning will include some discussion of the future and whenever you’re talking about the future there is uncertainty and risk associated, we’re trying to predict future events, we invite you to refer to the companies SEC filings 10-K and 10-Q for a more fulsome description of those factors that might influence future results.

As Doug mentioned 2012 was an historic year for OraSure Technologies, and really reinforced our position as an industry leader in clinical diagnostic. Back in 2000, we received FDA approval for the first and only FDA approved and CLIA Waiver rapid HIV test we received, the oral claim for that in 2004 beginning this history of industry leadership, 2012, we received as Doug said the first and only FDA approval for In-Home HIV Test and as Doug mentioned the significance of this is not just that it’s the first self-test for HIV that the FDA has ever approved, but it’s the first self test for any infectious disease that the FDA has approved. And what we’ve done is we really created a roadmap for future innovation and future opportunities, not just for OraSure Technologies, but for other companies all in the best interest of public health.

As Doug mentioned within the last 18 months or so, we received FDA approval for the first and only rapid test for Hepatitis C. And Hepatitis C. is a disease that’s five times more prevalent than HIV. And the majority of individuals infected with Hepatitis C are unaware of their infection and a rapid test provides promise of helping to identify those individuals who are infected and connect them with treatment, so, that they can be cured.

Several years ago we received the first FDA approval for an oral drug testing system. And we have just within the last 12 to 18 months, the first and only FDA approved oral fluid based DNA collection device for molecular diagnostics. So a tremendous collection of first and great examples of industry leadership and obviously we intend to continue that record as well as to capitalized on these exciting developments.

What this has done for us and what these investments have meant to the company and to you is that we now have the opportunity for multiple growth platforms, as well as we’ve significantly diversified the revenue stream of the company, you can see the molecular collection systems represent approximately 16% of our 2012 revenues included in the infectious disease.

Our revenues for 2012 were a contribution from our Hepatitis C product of approximately 5%, as well as the first contribution from the In-Home HIV Test. And so one of our strategic objectives through the investments we’ve made was to diversify the portfolio of the company as we developed multiple growth platforms for which we can continue to build our business in the future.

The highlights as I’ve mentioned as Doug mentioned as well, certainly the FDA approval of the In-Home HIV Test in July the launch of that same product in October and I’m going to talk a little bit more about the success of that launch in some subsequent slides. 2012 represented the first full year contribution from DNA Genotek our molecular collection systems business up in Ottawa Canada, more to come on that.

We certainly leverage the CLIA Waiver to drive growth with the Hepatitis C business and we expect that to be a very exciting growth driver for the company in the future, and very importantly in 2012 we reinforced our balance sheet with a $75 million capital raise, which certainly ensures our ability to execute on all of these significant growth opportunities.

Let me talk a little bit about the three key growth drivers for the business the In-Home HIV Test, the Hepatitis C test and DNA Genotek for just a minute. This is the picture; I hope you’ve all seen it on commercials and perhaps at retail of the OraQuick In-Home HIV Test. This is the same test that’s used in the professional market, the same test that we’ve sold over 25 million devices of not just here in the United States, but around the world.

So this is clearly a trusted product, thoroughly evaluated through the clinical studies that we executed as part of our FDA approval process. It’s a fast test, it provides a consumer with HIV result in 20 minutes and it’s a simple oral swab, very convenient and easy to use, and obviously, one of the key advantages of this product and one of the key reasons why we introduced it over the counter. So people could buy it was to take it home and to give consumers a confidential testing option, if they weren’t comfortable going to their clinician or going to a clinic and requesting or talking to their physician about HIV.

As Doug mentioned, we have had an extraordinary, extraordinarily positive response from our retail partners. At launch, back in October, this product was received into more than 30,000 retail outlets across the country, retailers like Walgreens, CVS, Rite Aid, Wal-Mart, put the product into broad distribution, so that consumers would have access to this product, the product has also been available online at oraquick.com our own branded website as well as at cvs.com, and in the next week or so you will begin to see this product at walgreens.com, at riteaid.com and at drugstore.com. So not only that we achieved broad distribution at launch, but distribution continues to build and our retailer partners have been extraordinarily supportive of this important product.

The launch began in October and consistent primarily of public relations effort, of traditional advertising including TV and print as well as digital and social media promotion, and this slide highlights, some of those activities, a number of you are probably aware that, that we launched the product with a major public relations effort with Earvin Magic Johnson, who himself was infected with HIV about 22 years ago and through the benefit of early diagnosis and connection to care he is leading very healthy and productive life. Our national advertising campaign is designed to destigmatize testing and to drive product awareness. And its this launch, its this messaging that we’ve launched in both TV and print advertising focused on the fact that testing for HIV is important for everyone. And knowing your HIV status is the best thing, that’s been carried through in all of our promotional and advertising materials to date.

We’ve expanded on this TV and print promotion campaign with local activities and these began in March where we began local promotion in L.A. and Miami these activities will be followed by activities in Chicago and Washington D.C. in May followed by additional local activation programs in San Francisco and New York City in June. These activities provide an opportunity for us to communicate even more intimately with our consumer targets.

These activities include under the umbrella of a national radio advertising campaign local radio programs, were local disc jockeys are promoting the importance of testing and the importance of understanding that there is new testing option with the In-Home HIV Test.

We’ve also incorporated out of home advertising which includes billboards and transit signs. And other ways to speak with the consumer and remind them about the importance of testing as well as now the availability of this new testing option. All of these activities, all of these investments have paid off in growing sales on a weekly basis that we’re seeing month-on-month and this a chart that shows how the product has performed in response to these different advertising and promotional activities. And we anticipate that this growth is going to continue through the remainder of 2013 and beyond.

So in summary, the market has been very receptive and very responsive to our launch, we’ve had extremely strong support from third-parties, from key advocates, from our retail partners, from the medical community, because everyone that we work with sees the value of a product like this and the importance of an additional tool in the fight against HIV and AIDS.

Product sales are building with promotion and very importantly as part of our product approval we have created a consumer support centre that’s available 24/7 to assist consumer should they have any questions about the performance of the test, interpreting results or more importantly, most importantly should they need any kind of a referral to a healthcare professional we have trained support centre staff they can assist them in that linkage to care and in those professional referrals.

So, the support systems are functioning extremely well and as a package this product is having a significant impact we believe on HIV prevention and public health here in the United States. We make a few comments about Hepatitis C, another very important growth driver for the company.

As you recall, our Hepatitis C rapid test was approved in February of 2011 and still today is the only FDA approved clear way of rapid test for Hepatitis C here in the United States. I mention HCV is five times more prevalent than HIV, why is that important? number one, most individuals infected with Hepatitis C chronic infection are undiagnosed and most of them were infected many year’s ago decades ago, which means most individuals who are harboring this infection are in the later stage of infection and are now beginning to present with later stage liver disease complications and we’re seeing an increase in morbidity and mortality associated with Hepatitis C.

It’s because of this that the CDC in 2012 revised their recommendations for testing for Hepatitis C and called for onetime testing of all American’s born between 1945 and 1965. Baby boomers were approximately 80 million American’s born between 1945 and 1965, based on CDC studies they estimate that the prevalence of Hepatitis C infection within that birth cohort is 3.25%.

So to the extent that these recommendations are implemented we will see a very high yield of newly identified infected, infections and we can most importantly relate those individuals to care and treatment, and ultimately cure them of their disease. Why is that? That’s because there have been tremendous advances in Hepatitis C therapy over the last 18 months and it’s anticipated that there will be the more effective therapy’s coming to the market in the next 12 to 24 months. And all of this together highlights the importance of new diagnostic tools to enable clinicians to enable public health providers to identify those people who are chronically infected with Hepatitis C connect them to care and get them treated, that’s the key reason, we’re so excited about this new product and we have great expectations for future growth.

The final growth driver I want to talk about this morning is our molecular collection systems business DNA Genotek. As you know DNA Genotek is the market leader in oral collection system for molecular diagnostics and the reason for that is they have developed a proprietary collection system that makes specimen collection simple and enables the extensive stabilization and enables the specimen to be transported without any requirements for cold chain storage and once received in a laboratory is able to be preserved for up to four to five years, this is compared to a blood specimen which has to be obviously drawn carefully, has to be shipped in a temperature controlled environment and once received in a laboratory it has to be either analyzed right away or stored at freezing temperatures.

These are some of the applications for the company’s technology, we have academic research relationships with over 3,000 customers around the country; we do business in over 100 countries, we have an important and growing commercial business with commercial entities like 23andMe and Ancestry.com. We have a point of care collection business focused on novel applications of oral collection for molecular diagnostics with companies like [Council], Genomind and alike and we expect great growth from DNA Genotek in 2013.

So, we’re off to a real good start, in 2013 we released our earnings last week and hopefully you all had the opportunity to listen to our results. We certainly expect higher sales of our infectious disease products with the OraQuick in-home HIV test and Hepatitis C, we anticipate very strong growth of our molecular collection systems business and we expect significant contribution from our professional both HIV business as well as Hepatitis C.

So again, I want to thank you for being with us this morning and with that I’ll turn it back over, I think to Doug for the reporting of the voting results and then I think we’ll open it back to Q&A. Okay, thank you.

Douglas G. Watson

Thanks Doug. Before I move to the Q&A session, I would like to complete an item from earlier in the meeting, the inspector has given me a preliminary reporting on the voting and taken into account the number of shares represented at this meeting, a tabulation of proxies and ballots indicate that on a preliminary basis the nominees for the board have been reelected. Congratulations gentlemen, the appointment of KPMG has been ratified, congratulations Steve, the compensation of the company’s named executive officers as described in the proxy statements had not been approved by our stockholders.

Regarding this last item well we are disappointed by this result, you should know that we take this nonbinding advisory vote very seriously and we intend to investigate the concerns of our stockholders underlying this vote and we will then consider how best to address those concerns and we’ll provide an update in an appropriate time in the future.

A written certificate of the final vote totals for reach of these items will be disclosed by the company in our upcoming SEC Filing and will be included in the minutes of this meeting. I would like to thank all of you, all of our stockholders for your continued support and for your participation in this meeting and with that we will now end the webcast. Thank you.

Question-and-Answer Session

[No Q&A session for this event]

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