Douglas Michels - President & CEO
OraSure Technologies, Inc. (OSUR) OraSure Technologies at UBS Global Life Sciences Conference September 19, 2012 9:30 AM ET
Good morning and welcome to the 2012 UBS Global Life Sciences Conference. My name is Quassi Che [ph] and I will be your host for this presentation. On board we have Mr. Douglas Michels, who is the President and Chief Executive Officer of OraSure Technologies to speak here. After this presentation we are going to have a breakout session in a floor right below this one in the Carnegie room. Thank you.
Thanks, Quassi and good morning everyone. Thanks for joining us here this morning. I want to take the opportunity to thank UBS for inviting us to today’s conference. Before I get into our discussion this morning and talk to you a little bit about OraSure Technologies, I remind you that this morning’s presentation will include some statements about the future and obviously whenever we are talking about the future there is risk. We ask you to refer to the company’s SEC filings 10-K and 10-Q for a more detailed description of those factors that might impact future results.
For those of you who are unfamiliar with OraSure Technologies, I always like to start with a slide and talk to you about the investment pieces for our company. For those of you who are familiar, you know that we are an industry leader in point-of-care infectious disease testing and biological sample collection, stabilization and preparation products, primarily in the molecular diagnostic area with our recent acquisition of DNA Genotek this past year. Our primary business before that acquisition was in the serology business, in the rapid point-of-care diagnostic space.
Our current approved products that have formed the historical basis for OraSure Technologies address very large global markets. We have historically participated in the rapid HIV testing business, in the drug testing business. Those markets together represent an excess of $600 million on a worldwide basis, we are less than 20% penetrated. So, our belief is that we continue to have a nice opportunity to continue to grow our products that have formed the historical OraSure business. Over the last several years, more like the last 4 to 6 years, we have invested very heavily in some extremely exciting new opportunities. Those investments are now -- are fully invested and we now have the opportunity to commercialize two significant new products, one is our rapid test for Hepatitis C, which I will talk about here in some greater detail. We believe that the US market alone given some new market developments is in excess of $1 billion for rapid Hepatitis C testing.
Earlier this summer we received the FDA approval to take our rapid HIV testing, the market leading rapid HIV test here in the United States, and make it available to consumers over-the-counter through retail pharmacies and mass retailers, and that’s this product here. We are in the cusp of commercializing this within the next couple of weeks and we believe that the US market for an over-the-counter rapid HIV test is in excess of $500 million. Both this, rapid Hepatitis C test and now this over-the-counter HIV test are the only products in those categories that are FDA approved, and they represent just a transformative kind of opportunity for the company, and I will talk to you about each of those opportunities in some detail.
We market our products here in the United States through a direct sales force into the US public health system as well as into the US hospital market and we sell globally through distribution. We also have a number of other products that make up OraSure Technologies, whether that’s as I mentioned, in drug testing or in a portable cryosurgical business. I am going to primarily focus this morning on our opportunities in HIV with our professional product, as well as the over-the-counter test, our new opportunity with the rapid Hepatitis C test, and then some comments about DNA Genotek, our molecular collection business up in Canada.
Let me start out and give you a perspective on our rapid HIV testing business in the professional market. For those of you who are unaware, this device right here is the only FDA approved and CLIA-waived rapid test for HIV that can be used with both the blood as well as an oral sample. We are the market leader in rapid HIV testing here in the United States. The product is used amongst a diverse set of customers. We sell primarily into the US public health market, which is comprised of state, county, city health departments, as well as into the US hospital market. But there are a number of FDA approved competitors in that space, we are clearly the market leader and I will show you some information about that. We sold over 25 million of these devices since it was first FDA approved in 2002 and that very same product that we have incorporated into our over-the-counter test and have now as I mentioned received FDA approval to begin selling.
I mentioned the competitive landscape. This gives you just a picture of the six or so other FDA approved rapid HIV tests here in the United States. And what we try to highlight here are some of the differentiating features of this product. I already mentioned that this is the only FDA approved test that can be used with both the oral sample as well as a blood sample. It’s a 20-minute test. In either case, it detects both HIV-1 and HIV-2. You can see some of the competitors are only FDA approved to detect HIV-1. And CLIA-waiver becomes very important because that enables the product to be used in the distributed environment out near patient in the public health community as well as in the hospital and doctor’s office environment and you can see that some of these competitors do not have a CLIA-waiver as well. So, it’s this collection of features and the corresponding benefits that have enabled us to develop a leading market share, which we are very pleased with and very proud of. We hold about 70% to 80% market share in the US public health market. We have about 50% to 60% share in the US hospital market and of course that is against a pretty broad list of FDA approved companies. So, I think you get a feel for just what the market plays. How the market has accepted our product and how attractive it is to the end users.
I mentioned it is the same product now that has been incorporated into and over-the-counter kit that will be available to consumers very soon. So, let me talk about that, it is an extremely exciting development for the company and extremely important development for the U.S. public health system. We received FDA approval for this product on July 3rd, this was a culmination of about 6 years of intense work and clinical studies that were conducted under the hospices of the FDA. We had four different advisory committee reviews of our work over those years culminating a unanimous recommendation for approval in May of 2012 and that ultimately led to the approval on July 3rd. So, this now is the first and the only rapid HIV test that is approved for sale direct to consumers in the U.S. retail market.
We believe the opportunity as I mentioned is in excess of $500 million. We expect the retail price will be somewhere between $39 and $40 and this is soon to go in to broad distribution here in the United States. Why is this important? I think this slide really highlights the need for a product like this. There still is estimated to be approximately 1.2 million Americans infected with HIV, 20 to 25% of those individuals are undiagnosed or unaware that they are HIV infected and it is that population of infected, but unaware are undiagnosed that are responsible for 50 to 75% of all new infections here in the United States. So, people are unknowingly transmitting HIV and despite the fact that HIV testing is broadly available whether it is in the U.S. public health market or in the professional market. There is still certain segment of the population that haven’t availed themselves of this opportunity to know their HIV status. There are lots of reasons for that, one of those reasons is the desire to maintain confidentiality and this kind of product enables the consuming public another option to learn their HIV status.
We have had an extraordinarily positive response to this product from retailers here in the United States. I mentioned this is going to soon be shipped to retail. We expect the product will be available on retail shelves and online in October, but the response has been extraordinary. We anticipate the product will be available in 30,000 to 35,000 stores at launch, that is in the next couple of weeks and those stores represent 85 to 90% of ACV or All Commodity Volume. Basically, that is a weighted measure of distribution which gives you some idea of the percentage of the market that you’re going to reach by having distribution within that number of stores.
The product will also be available on these retailers.com sites as well as on oraquick.com so that the consumer will have easy access to this product and our target market for the product is really any section of the active adult ages 18 to 49, so you can get a sense, this is a very large demographic. The product once available will not only be supported in the retail outlets, but also through a consumer support center that will be available 24x7 and it is staffed with fully dedicated 100% bilingual call center representatives which will be able to assist the consumer as they work through the test procedure if they are looking to do that, it will also refer the consumer to appropriate follow on services whether that is confirmatory testing services or additional professional services that might be required. Obviously, it will handle any complaints that a consumer might have about the product and it will also be able to take orders from the consumer through the toll free number. As I mentioned, the product will also be available online from the different retailers as well as through oraquick.com.
Now that we have very broad distribution as this graphic represents. Our next objective is to get the word out to consumers, right that the product is available, make them aware of the product and encourage trial and repeat purchases and to that end we have an extensive plan to communicate with the consumers. Generally, as I mentioned that 18 to 49 year old demographic, but we also within that demographic have certain sub-populations that have in our market research have expressed the higher intent to purchase than others and when I talk about that I am talking about sub-populations like men that have sex with them with men or the MSM population, the African –American population, Hispanics and no sexually active adults that are more sexually active than others that might have multiple sexual partners within a 12-month period or might be infrequent condom users and so as we dissect that total market/target market we have a unique opportunity to communicate with those sub-populations and reach them in a very targeted and very effective manner and that is what our advertising and promotion strategies are all directed to. So, we are going to begin as soon as the product is available with a major launch event actually here in the New York City and that would be followed by regional launch events around the country, throughout the remainder of this year.
We are going to obviously leverage the tremendous PR that we expect to receive once this product is available and as well as the leverage digital and social media as we target these different sub-populations to make them aware of this product and to encourage trial and repeat purchase. As I mentioned retail enthusiasm has been extraordinary for this product and the retailers are also planning their own commercial effort. So, the product will be featured in their product circulars that go out to tens of millions of shoppers on a weekly basis once the product is available obviously will be doing this with in-store promotion with pharmacy display promotions and things like that and we anticipate obviously the response from the consumer to be extremely positive. So, really a transformative kind of product for our company, a product that we anticipate will have enormous social benefit for the consuming public. We look forward to working with not only our retailers, but the professional community. I failed to mention, we are reaching out to 250,000 physicians to make them aware that this product is going to available. We are reaching out to 125,000 pharmacist to make sure that they understand what the product is all about when it’ll be available and what it’s benefits are and so this is something you’re going to be seeing in the weeks to come and a very exciting opportunity for the company, something we’ve been waiting for, for a long time and we’re very excited to execute upon.
I mentioned a second arguably equally exciting new product opportunity and that is the availability now of an FDA approved and clear waived rapid test for Hepatitis C. This is obviously as you can see here on the same platform as our market leading rapid HIV test and we believe that this product represents an excess of a billion dollar market opportunity here in the United States. This opportunity has really increased substantially since the CDC just a couple of weeks ago issued new screening guidelines which call for a one-time test for Hepatitis C among baby boomers that is individuals born between 1945 and 1965, some 80 million Americans who are at increased risk for Hepatitis C and this is again much like the HIV opportunity a very important development not only for public health, but certainly for OraSure Technologies.
We seem to be in Hepatitis C, I talk about it as being in this perfect storm, a situation where the U.S. government clearly has now gone public with the recognition that Hepatitis C is a serious issue in our country causing significant both economic as well as public health burden. There was an institute of medicine report that was issued in 2010 that talks about viral hepatitis here in the United States and the need for greater education awareness, more surveillance, more testing and what has come on that heals of all this is the exciting new developments in the Hepatitis C therapy which I think many of you are aware of the new drugs which were FDA approved last year by Merck and Vertex and new drugs on the horizon which promising even greater sustained viral remission rate than the new protease inhibitor. So, all of this has come together, new therapies, greater awareness about the need to test and treat Hepatitis C and now a rapid Hepatitis C diagnostic together with the call to screen 80 million Americans for Hepatitis C, the company couldn’t be really in a better position to capitalize on this significant developments.
These are some of the statistics here in the United States that serves as a foundation for this opportunity the fact that there is 4 to 5 million Americans believed to be infected with Hepatitis C up to two thirds of those individuals are unaware of their infection and obviously these new therapies and the fact that they promise a higher cure rate now is encouraging medical professional community to identify that large number of chronically infected but undiagnosed individuals, so that we can get them on treatment and we can ultimately cure them of their disease.
The product has been fully transferred to manufacturing. We also sell the same product throughout the world. In Europe, it is approved for five different specimen types here and the United States has approved for use with a finger stick as well as a venous whole blood specimen. It is (inaudible) here in the United States and our market opportunity for this product is really in two major markets. One, is in the public health market where the product is used side-by-side for testing individuals at risk for Hepatitis C. Obviously, our market position in the HIV market is a great benefit to us because the customers in the public health market are aware of our technology, they are fully trained on the technology and they are very comfortable with it and the other major market is the physician’s office market where obviously that would be one of the largest catch basins to screen these 80 million baby boomers at least one time so that we can identify their Hepatitis C infection, into the physician’s office market, we serve that through physician office distributors like PSS, like McKesson, like Henry Shein and now with this new CDC recommendation they have moved this up to the top of their list in terms of products that they are promoting in to the physician’s office market. They are extremely enthusiastic about this opportunity, this represents a new revenue opportunity for the physician office distributor where previously a physician would have checked the boxes and sent the patient off for a blood draw and a specimen sent to the lab for request. This represents a new revenue opportunity, not only to the physician office distributors, but also for the physician or physician office practiced himself. So, an exciting opportunity to make a big impact on public health and we anticipate we’re going to see growth in this business for many years to come and finally let me make few comments about DNA Genotek, I mentioned.
This is an acquisition that we executed approximately a year ago and now a company based in Ottawa, Canada and DNA Genotek is a market leader in oral collection systems – collection stabilization and preservation for molecular diagnostics and their business has been built on a proprietary technology. This is our flagship product ORAgene DNA sampled here on the left hand part of the screen and it is a proprietary two-part collection system that consist of two chambers, one that houses a proprietary reagent that once a specimen is collected the re-agent is introduced into the sample and that sample then is stabilized for 4 to 5 years at room temperature, this sample then gets sent off to a laboratory through the regular mailer or any kind of a transport system, it can be stored at room temperature and continuously analyzed for quite a long period of time. It is this innovation and proprietary technology that has positioned DNA Genotek and the collection systems in such an enviable position primarily in the academic research market which has been 70 or so percent of the revenues historically. They do business in over 100 countries, they have over 3000 customers and you can imagine how ideal this collection system is for any kind of situation where you want to collect broadly distributed specimens from geographically disbursed population, where you want people to self-collect versus having to send out for (inaudible) or have the individual go to a collection center and then have the samples simply mailed into wherever the analysis is to take place. The same technology then in the research market and the companies involved in research studies across a variety of disease states, just about every disease state you can imagine, whether it’s oncology, cardiovascular disease, infectious disease, auto-immune disease, you name it, those researchers that are exploring opportunities to look for genetic variation in an oral sample because the same quality and quantity of DNA can be collected in this 2 ml of saliva that you would get from a standard blood drop.
The academic market is clearly exciting and we believe that there is going to be discovery that comes out of that that will find its way over time into the commercial market. But the other 30% of DNA Genotek’s business is targeted to the commercial market. I highlight here a couple of those opportunities that we are serving today, one on the left hand side is the use of this product in blood bone marrow donor registries for HLA testing. This is a prime example of how this technology has enabled a donor registry, in this case the Anthony Nolan Trust in the UK, transition from blood to oral specimen collection. You can see we highlight when that transition happened and their collections actually doubled on the backs of obviously the ease of use effected that potential donors can self-collect and has really transformed their business, and obviously there is donor registries around the world, and there are key target for this technology and for this business. Then on the right hand side we highlight another very exciting application that’s ancestry.com that’s using this product to enable members to trace their lineage using genetic analysis. The products also as a foundation of genetic testing service called 23andMe, which some of you may be familiar with, as well as other products or services that are looking for any kind of genetic indications of potential healthcare risk.
So, an exciting new company for OraSure Technologies. We anticipate the company is going to continue to grow and we will uncover new opportunities for DNA Genotek. This market leadership in oral collection systems is a key theme here, that’s one of the main reasons we were interested in DNA Genotek and as well as the opportunity now to participate somewhat at least on the front-end of molecular diagnostics.
I can’t stress enough how committed the company is to market leadership, whether it’s in our HIV professional business, our market leadership to develop an over-the-counter market for HIV, not just here in the United States, but around the world. Market leadership in rapid HCV testing with the first and only FDA approved rapid Hepatitis C test and more to come.
I have been the CEO of the company for the last 8 years. I am here with Ron Spair, our Chief Operating Officer and Chief Financial Officer, whose has been with the company for 10 years. We have invested substantially in these opportunities, we are very proud that we have executed effectively against them, now we got to execute to make them extraordinary commercial successes, which we fully intend to do and we look forward to continuing to give you updates on our progress as we move forward.
So, thanks again for visiting with us this morning and we are going to be breaking out for the next 30 minutes in the Carnegie Room. Thanks everybody.
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