Diagnosing Significant Market Opportunity for OraSure Technologies

| About: OraSure Technologies, (OSUR)

OraSure Technologies (NASDAQ:OSUR) is leveraging its growing and profitable business model with expected 2007 revenues of $83 million and an EPS of $0.05/share into a significant market opportunity for infectious disease testing in the United States and beyond. The Company recently reported third quarter results with higher research and development expenses (causing margins to slip to 60% from 64% previously) as they continue to make progress on an over-the-counter version of an already-approved OraQuick Advance Rapid HIV-1/2 test and are developing a similar test in conjunction with Schering-Plough (SGP) to detect hepatitis C infection (for administration exclusively by healthcare professionals). The OraQuick HIV test is currently the Company's top seller with third quarter sales up 14% to $7.5 million, and they are also investing to expand global sales (currently 21% of total sales). OraSure recently received final CE Mark approval for the OraQuick Advance test and are now in the process of both obtaining country-specific registrations and negotiating with distribution partners in that region to launch the test in Europe. The Company also expects to receive FDA approval by year-end for its fully and semi-automated manufacturing facilities.

During a March 2006 hearing, the FDA Blood Products Advisory Committee informed OraSure that it needed to devise a clinical study to test the accuracy and safety of OraQuick before moving forward with the approval process. Specifically, the committee recommended a multi-phase experiment of at-home HIV tests to show the FDA the Company has an adequate follow-up strategy of counseling and referrals for people who test positive for the disease. Obtaining FDA approval for the over-the-counter sale of a rapid (20-minute), oral fluid-based HIV diagnostic test represents a significant market opportunity. The CDC issued revised HIV screening recommendations in September 2006 that recommended routine screening for all patients 13 – 64 years old, which includes a population of over 200 million people in the United States alone. The CDC estimates that 16 – 22 million people are currently tested for HIV annually in the United States, with a goal of increased screening rates. In September 2007, the CDC awarded a total of $35 million in funds for targeted outreach programs to increase HIV screening rates, and the Company expects to benefit directly from this initiative in the form of increased OraQuick sales over the next year.

The Company expects to complete clinical trials and file for FDA approval of its hepatitis C rapid screening test in early 2008, resulting in likely approval by mid-2008. I expect over-the-counter approval for the Company's already-marketed OraQuick Advance Rapid HIV-1/2 test to follow some time in the second half of 2008 after clinical trials conclude and the Company meets with the FDA on its follow-up strategy for counseling and referrals of those who test positive for HIV. My year 2010 price range objective of $50 - $60 per share (.pdf warning) values OraSure at the diagnostics industry average of 5X – 5.5X projected sales of $500M during 2010. My year 2010 sales projections consist of $240M from HIV tests + $210M from HCV tests + $50M from all other business segments. My year 2010 unit sales projections (at $15/test) include the sale of 16 million HIV tests + 14 million HCV tests, which represent less than 10% penetration in a targeted testing population of over 200 million people in the United States alone.

Disclosure: Author has a long position in OSUR