NEW YORK – OraSure Technologies was unable to meet approximately $400 million in COVID-19 rapid antigen test order requests recently due to manufacturing scale-up issues, the firm said on Wednesday.
On a call after reporting third quarter earnings, OraSure CEO Stephen Tang focused investor and analyst attention on three recent "transformational" government contracts totaling approximately $328 million that should enable the firm to dramatically expand its operations in the future.
Presently, however, Tang also said that the company was forced to leave approximately $400 million in COVID-19 testing revenues "on the table" in the quarter due to issues with the manufacturing scale-up of its lateral flow rapid assays.
OraSure first announced it was developing a COVID-19 rapid antigen assay in April 2020. After pivoting from its flagship "oral fluid" sample type to a nasal swab sample, the firm's long-awaited SARS-CoV-2 rapid antigen test, called InteliSwab, obtained Emergency Use Authorization in June 2021.
In August, OraSure described a manufacturing snafu it was then experiencing as a "tech transfer obstacle." On Wednesday's call, however, Tang said the firm has been able to narrow the problem down to "raw material variability" and "processing steps."
Tang said that the manufacturing scale-up issues are partially related to transitioning from a manual product assembly process to an automated one, but emphasized the overall process, "bill of goods," and processing steps have not been altered since the firm began the EUA process, and that there have been no new problems since August.
"We've been working diligently," Tang said, adding, "We've narrowed our sights on a critical few [issues] involving raw materials and certain processing steps."
The financial cost of the problem is substantial for the Bethlehem, Pennsylvania-based firm, particularly considering that its total revenues in the quarter were approximately only $54 million.
"When you leave $400 million in customer orders on the table and are not able to fulfill them, that is highly disappointing," Tang said.
The $400 million in unrealized customer orders included ones from major commercial retailers such as Walgreens and Walmart as well as "multiple Fortune 500 companies, major healthcare systems, and numerous entertainment and hospitality customers," Tang said.
In the quarter, the firm was able to realize $7.7 million in InteliSwab sales, and it guided for $30 million in sales by the end of the year. "We are currently in a position where we can sell every test we can manufacture, and believe this paradigm will persist into at least fiscal year 2022," Tang asserted.
OraSure expects to use its new funding from the government contracts to build an additional factory, and to ramp to a production rate of 4 million tests in the first quarter of 2022 and 8 million per month by June, with an end goal of producing 70 million tests per year.
"It's not where it needs to be today, clearly, but I think we see the path forward from here," Tang said. Specifically, "We understand the issues. We've gotten experts from our equipment manufacturers, [and] additional expertise in engineering and lateral flow technology, so we are on it," he said.
"I think we're very close to having this fully resolved in the near future," Tang also said.
OraSure interim CFO Scott Gleason commented that in addition to issues associated with InteliSwab's scale-up, the firm had overhead in the quarter associated with employee training as it prepares for higher levels of manufacturing.
"We also saw a detrimental gross margin impact in the quarter on a year-over-year basis from product and customer mix, and the expiration of the Bill and Melinda Gates subsidy," Gleason said. Furthermore, OraSure had a $1.8 million reserve on inventory this quarter "related to our oral fluid antibody test, where we had built inventory in anticipation of an EUA and withdrawn that application to focus on research-use sales given the antibody testing market for COVID-19," Gleason said.
With the so-called Delta surge seemingly dissipated, it is unclear whether any of the $400 million in potential sales could be realized going forward. Tang emphasized that back-to-school and back-to-work COVID testing programs are still underway, and that there has been "an endemic shortage of rapid antigen tests, not only from us but from other manufacturers as well," which could indicate an ongoing market need.
Regarding the potential orders, Tang said, "we've kept in touch with these customers throughout this process and have tried to schedule when we can have capacity to meet their needs, and so we expect some of them to come back." That said, he also noted that it would be difficult to estimate how many might become customers in the future, based on current circumstances.
Tang noted that anticipated federal requirements for vaccination and testing may also drive sales, pointing to "durability of this opportunity for OraSure."