NEW YORK – OraSure Technologies reported after the close of the market on Tuesday that its second quarter revenues fell 11 percent year over year, driven by a 4 percent dip in net product revenues during that period.
For the three months ended June 30, the point-of-care diagnostic testing and specimen collection device manufacturer reported revenues of $38.8 million, down from $43.6 million a year earlier and missing the average Wall Street estimate of $41.5 million.
The firm's product and service revenues for the quarter fell to $37.3 million from $38.8 million in Q2 2018. Within products, molecular collections systems revenues rose 1 percent to $17.3 million from $17.2 million, which included a 63 percent increase in revenues from microbiome products to $3.0 million from $1.8 million, and a 7 percent decrease in genomics product revenues to $14.2 million from $15.4 million.
The firm's Q2 revenues from infectious disease testing fell 16 percent to $13.3 million from $15.9 million a year earlier. Its risk assessment testing revenues fell 7 percent to $3.1 million from $3.3 million, its cryosurgical systems revenues rose 47 percent to $3.5 million from $2.4 million, and its royalty income fell 47 percent to $1.1 million from $2.1 million.
Within the firm's infectious disease testing revenues, sales of its OraQuick tests for HIV and HCV fell 18 percent to $13.0 million from $15.8 million in Q2 2018. Total OraQuick HIV sales fell 21 percent to $9.9 million from $12.6 million — domestic OraQuick HIV sales fell 14 percent to $4.5 million from $5.2 million and international OraQuick HIV sales fell 27 percent to $5.4 million from $7.4 million.
Total OraQuick HCV sales fell 4 percent to $3.1 million from $3.2 million in the year-ago quarter —domestic OraQuick HCV sales rose 22 percent to $2.1 million from $1.7 million, and international OraQuick HCV revenues fell 33 percent to $983,000 from $1.5 million.
"Second quarter revenues were not what we had targeted due to a three-day delayed shipment of HIV self-tests and ongoing softness in the consumer genomics markets," OraSure President and CEO Stephen Tang said in a statement. "We are encouraged by the continued, annual double-digit growth in our microbiome line of business, as well as growth in the disease risk management sector of consumer genomics. On the infectious disease side, we continue to expect annual double-digit growth in global HIV testing revenues, driven by expanding international usage of our HIV self-test product."
On a conference call with analysts following the release of the earnings, Tang noted that continuing changes in the direct-to-consumer testing market also had an impact on the firm's business. After OraSure reported first quarter earnings in May, the firm's stock was downgraded to Hold from Buy by Canaccord Genuity analyst Mark Massaro, who cited underlying downward trends in direct-to-consumer genetic testing in the US.
"These trends impacted our second quarter performance and will likely continue to evolve in the near term," Tang said on the call. "Nevertheless, the rest of our business remains largely on track. Outside of the single large customer, our consumer genomics business is healthy. It grew by strong double digits in the second quarter, excluding that customer, and we still expect it to grow by double digits for the full year 2019 again."
Tang didn't name the large customer on the call, but it has been previously identified as 23andMe.
Tang said that historically, ancestry testing has been the largest part of the human genomics market and a key driver of the company's business, but this appears to be changing now.
"Some of the larger players in this area have reduced the promotional support and changed their business models to focus either on health offerings or therapeutic discovery and development," he added. "The high cost to compete in this consumer market has also, in our view, negatively impacted the submarket. Although our business was specifically impacted by lower revenues from a large consumer genomics customer changing its promotional strategy and ordering patterns, we are now seeing additional consumer genomics customers reevaluating their business models in an effort to be more competitive. We see these ancestry submarket trends continuing for the foreseeable future."
However, more robust subsets of the genomics market — specifically, disease risk management and companion animal testing — have higher growth prospects, Tang said. OraSure is seeing a steady increase in the number of consumers in disease risk management and expects this growth in future quarters to be "significant," he said, adding that more than half of the 45 new commercial genomics customers the company added during the second quarter were in this category.
Tang also noted that OraSure has new customers that are offering lifestyle genetic testing focused on genetic sensitivity to cannabis strains, and the firm is conducting research on providing genetic testing for individual recommendations of medical cannabis for health benefits.
"We are working with several other companies who are also exploring this area," he said. "While these submarkets are only in their early days, we are excited about their growth potential and our current market position."
Overall, he added, the underlying strength of OraSure's genomics business was "evident" in Q2, as the firm added more than 250 new genomics customers.
Tang also said that OraSure's integration of Novosanis and CoreBiome is proceeding well, and that CoreBiome, in particular, is helping to strengthen the firm's microbiome business.
In the firm's infectious disease business, OraSure's domestic HCV testing revenues grew during the quarter as a result of the initiation of new programs and the expansion of existing programs funded primarily by the Centers for Disease Control and Prevention, Tang said. This additional funding will likely continue in future periods, he added.
"While international revenues were down for the quarter, this was largely a timing issue and the entire global HCV business showed strong growth for the first six months of the year, compared to the prior year period," Tang said.
OraSure's Q2 net income rose to $4.4 million from $4.1 million in the year-ago period. Its earnings per share remained flat year over year, at $.07.
The firm's R&D expenses for the quarter rose 5 percent to $4.5 million from $4.3 million in Q2 2018 and its SG&A costs fell 6 percent to $15.0 million from $16.0 million.
OraSure ended the quarter with $72.6 million in cash and cash equivalents and $74.4 million in short-term investments.
For the third quarter, the company expects net revenues of $39.0 million to $40.5 million and is projecting net income of $.04 to $.05 per share. Analysts are expecting revenues of $45.5 million.
For full-year 2019, OraSure is projecting net revenues of $165.0 million to $170.0 million and net income of $.24 to $.26 per share. The company had previously guided for full-year revenues of $170.0 million to $175.0 million and said the decreased expectation reflected continued softness in the consumer genomics market and lower royalties associated with that market. Analysts are currently anticipating revenues of $172.8 million for the year.
OraSure's shares fell more than 4 percent to $7.49 in Wednesday morning trading on the Nasdaq.