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OraSure Technologies Q1 Revenues Down 28 Percent

NEW YORK (360Dx) – OraSure Technologies reported after the close of the market on Wednesday that its first quarter revenues fell 28 percent year over year, largely due to a 26 percent dip in net product revenues during that period.

The Bethlehem, Pennsylvania-based company said the declines in total and product revenues for Q1 were primarily the result of a previously disclosed change in marketing strategy by a large consumer genetics customer.

For the three months ended March 31, the point-of-care diagnostic testing and specimen collection device manufacturer reported revenues of $30.1 million, down from $42.0 million a year earlier but beating the average Wall Street estimate of $29.9 million.

The firm's product revenues for the quarter fell to $28.3 million from $38.3 million in Q1 2018. Within products, molecular collections systems revenues fell 42 percent to $10.6 million from $18.4 million, which included an 83 percent increase in revenues from microbiome products to $2.3 million from $1.3 million, and a 53 percent decrease in genomics product revenues to $8.0 million from $17.1 million. Including royalty and other income, molecular collection systems revenues fell 40 percent in Q1 to $11.9 million.

The firm's Q1 revenues from infectious disease testing fell 13 percent to $12.3 million from $14.2 million a year earlier. Risk assessment testing revenues fell 6 percent to $2.8 million from $3.0 million, and cryosurgical systems revenues fell 8 percent to $2.6 million from $2.8 million.

Within the firm's infectious disease testing revenues, sales of its OraQuick tests for HIV and HCV fell 11 percent to $11.6 million from $13.0 million in Q1 2018. Total HIV sales fell 22 percent to $8.3 million from $10.7 million — domestic HIV testing sales fell 14 percent to $4.3 million from $5.0 million and international HIV testing sales fell 30 percent to $4.0 million from $5.7 million.

Total HCV testing sales rose 43 percent to $3.3 million from $2.3 million in the year-ago quarter —domestic HCV testing sales rose 12 percent to $1.8 million from $1.6 million, and international HCV testing revenues rose 119 percent to $1.5 million from $665,000.

"Our first quarter 2019 performance was in line with our expectations for both the top and bottom lines," OraSure President and CEO Stephen Tang said in a statement. "We are optimistic about the second quarter and full-year performance of our underlying businesses, despite the impact of a previously announced change in market approach by a large consumer genetics customer. The foundations of our business are strong, and we believe we are on the right path with our innovation-driven growth strategy."

He noted that the firm is continuing its push to diversify its molecular collections business, and that it has continued to see year-over-year growth in its microbiome business in every quarter since 2016.

"Our HCV business grew both domestically and internationally, and we expect our OraQuick HIV sales to show solid growth for the full year. Our recent acquisitions are just the first examples of implementation of our growth strategy and we remain committed to making additional strategic growth investments," Tang added.

In January, the company acquired Novosanis and CoreBiome for a total of approximately $13.3 million. Novosanis develops and markets urine sample collection devices primarily for the liquid biopsy, sexually transmitted infection screening, and urological cancer markets. CoreBiome is an early-stage microbiome services provider that aids customers in the pharmaceutical, agricultural, and research communities in their discovery efforts.

On a conference call with analysts following the release of the earnings, Tang said that when looking at accounts other than the aforementioned large genetics customer, OraSure expects its genomics business to grow by double digits in 2019. "Genetic testing is at a much earlier stage in the Asia-Pacific market and we're well-positioned to serve the needs of this market. We see it as a significant growth opportunity which is already contributing to our financial results," he noted.

He also said that OraSure sees a lot of potential in the microbiome market, and that its microbiome sales are growing robustly each quarter and should also contribute double-digit growth for the year.

"The addition of CoreBiome has enabled us to expand and strengthen our microbiome offerings with a cutting-edge laboratory in bioinformatics analysis and services. Multiomics is an emerging approach to evaluating health that's also a significant growth potential," he added. "This relatively new field provides a multifactorial examination of our health. Our ability to provide customers both genomic and microbiome products and services is an important foundation for OraSure to become a leading source for multiomics tools and analytics."

In OraSure's infectious disease testing business, Tang said the company expects strong growth in 2019, though the growth may not be evenly distributed throughout the four quarters due to timing of orders. OraSure is projecting double-digit revenue growth for its global HIV franchise this year.

Tang also discussed the company's molecular business, which he said will continue to be a key driver of OraSure's overall business. He said the genetic testing market has been the largest component of the firm's overall molecular business.

He noted that although the overall genetic testing market is slowing and likely leveling off in the next couple of years in the US, it's still seeing significant growth in international markets.

"As previously noted, the Asia-Pacific market is at a much earlier stage than the US market. Our market analysis suggests that it may be as much as five years behind the domestic market, so there is much room for us to grow," Tang said. "In Q1, although the dollar amount is relatively low, we saw our sales increase 231 percent in Asia when compared to the first quarter of 2018. This type of growth reflects increased product offerings, new market entrants and expansion of existing customers like WeGene into new geographies in Asia."

Given those dynamics, OraSure is expecting continued robust growth in Asia for the foreseeable future.

OraSure's Q1 net loss widened to $3.3 million, or $.05 per share, from $2.1 million, or $.03 per share, in the year-ago period, beating the Wall Street estimate of a loss per share of $.06.

The firm's R&D expenses for the quarter rose 7 percent to $4.4 million from $4.1 million in Q1 2018, and its SG&A costs fell 22 percent to $16.2 million from $20.9 million.

OraSure ended the quarter with $69.5 million in cash and cash equivalents, and $77.5 million in short-term investments.

For the second quarter, the company expects net revenues of $40.0 million to $42.0 million and is projecting net income of $.02 per share. Analysts are expecting revenues of $40.4 million and earnings per share of $0.03.

For full-year 2019, OraSure is projecting net revenues of $170.0 million to $175.0 million and is expecting net income of $.22 to $.24 per share. Analysts are currently anticipating revenues of $172.8 million and earnings of $.22 per share for the year.

"It should be clear from our second quarter and full-year guidance that we anticipate a very strong second half of the year, reflecting full-year growth in all of our core strategic product lines, when the effect of the large consumer genetics customer's change in market strategy is excluded," Tang said in the statement.

In a note to investors on Thursday, Canaccord Genuity analyst Mark Massaro downgraded OraSure's stock to Hold and lowered his price target on the stock to $10 from $16.

"It is to our own disappointment that underlying trends in direct-to-consumer genetic testing in the large US market seem to be finding a 'new normal' of growth and interest, and unfortunately, we lack conviction as to when trends will revert back to meaningful growth," he wrote. "Our Buy-Rated thesis was underpinned that US-based DTC testing would grow at double-digit growth each of the next several years or longer. We no longer have this conviction, and thus, we downgrade OraSure from Buy to Hold, remove OraSure as one of our top picks, and lower our PT from $16 to $10."

Massaro noted that the company's stock could be attractive to value investors at its present levels and that it might even be a good option for a larger company looking to do a tuck-in acquisition.

OraSure's shares fell more than 6 percent to $9.12 in Thursday morning trading on the Nasdaq.