Q3 2019 Earnings Call
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Orchard technologies issued a press releases approximately four PM eastern time today regarding its 2019 third quarter financial results and certain other matters. The press releases are available on our website at www Dot work your dotcom, whereby calling six 1088 to one eight to zero if you go.
So to our website. The press release can be found by opening the Investor relations stage clicking on the link for press releases.
With us today are Dr., Stephen Tang, President and Chief Executive Officer, Mr., Bertaux, Kuga, Chief Financial Officer, Dr. Tang and Mr. Kuka will begin with opening statements, which will be followed with a question and answer fashion.
Before I turn the call over Dr. Terry you should know that this call may contain certain forward looking statements, including statements with respect to revenues expenses profitability earnings or loss per share and other financial performance product development performance shipments in market business plan regulatory filing for approval.
Expectations and strategy.
Actual results could be significantly different factors that could affect results are discussed more fully in the company's FCC filings included in including its registration statements. Its annual report on Form 10-K for the year ended December 31st 2018, its quarterly reports on Form 10-Q , and other FTC filings.
Although forward looking statements helped to provide complete information about future process listeners should keep in mind that forward looking statements are based solely on information available can management as of today.
Company undertakes no obligation to update any forward looking statements to reflect events or circumstances. After this call with that I would like to turn the call over to Dr. Stephen pen.
Thank you James Good evening, everyone and welcome to our call.
During today's call we'd like to address two subjects that are most likely top of mind.
First as an update on the implementation of our innovation growth strategy, where I will outline our goal is going up or position orasure to capitalize on some of the fastest growing segments within the molecular diagnostic markets.
Secondly, we don't break down our financial performance for the third quarter and provided updated guidance.
The information we're sure today will provide context and demonstrate that our business is largely on track with the exception that consumer genomics.
The announcement earlier today that we've signed an agreement to acquire diversity. Jim is yet. Another example, the progress we're making the next executing our growth strategy.
Diversification is an exceptional company and a proven leader in the microbiome laboratory and analytic services industry.
This acquisition will further strengthen our microbiome business and improve our ability to provide customers with industry, leading and and microbiome product and service offerings.
Over 200 million dollar from cash on the balance sheet as of the ended the third quarter, we are well positioned to make further additions to the company.
We believe or short is at the forefront of several nascent but large growth opportunities.
Another recent strategic step was the sale of our quiet surgeries systems business, which we announced in August .
The divested surely has allowed us to shed non strategic business line prioritize our product portfolio and refocus our resources on growing our core molecular solutions and infectious disease businesses.
Turning to the quarter as I said the trends we've outlined on prior calls, particularly those affecting the consumer genomics market continue to impact our business.
Overall, however, our business continues to perform largely as expected.
Revenues came in a bit below our guidance. However, this was primarily caused by a timing issue specifically three HIV self test orders valued at $1.9 million could not be delivered until the first week of October because of unexpected logistical delays otherwise the business performed as reflected in our guidance.
As reported in prior calls, but you know the testing business remains healthy apart from the previously discussed single large customer that changed its promotional strategy. This business grew by strong double digits in third quarter.
Microbiome market continues to shine with a very robust performance in the third quarter.
We continue would expect revenue growth in a double digit range for the remainder of this year.
Our integration of notice, saying, it's a core by on which we acquired in January is nearing completion, and we are seeing increasing contributions from both companies. We're also far along in planning the integration of diversifying into our Microbiomes services business.
On the infectious disease from our HIV self test business performed very well during the third quarter.
We generated revenue growth of 36% over the prior year quarter. Despite the slippage of the orders I just mentioned we.
We continue to project double digit revenue growth for international HIV franchise through the remainder of this year, primarily due to sales of our self test.
And finally, although not usually a focus of our earnings call our risk assessment testing business for drugs of abuse grew 17% and the third quarter compared to the prior year period.
We're optimistic about the future prospects for this business.
As you may have seen new federal drug testing guidelines were recently issued which authorized for use of oral fluid in drug testing for federally regulated markets for the first time.
We believe these guidelines will open up a large potential market for us that we are currently not serving.
And with that I'll now turn the call over to Roberto for his financial review I will then provide some additional commentary on our business and then we'll take your questions.
Thanks, Steve and good evening everyone.
Our third quarter net revenues decreased 22% to $36 million from $45.9 million reported in the third quarter 2018.
Our net product and services revenues decreased 19% to $35.3 million compared to the prior year period.
Our molecular net revenues, including other revenues decreased 31% to $18.3 million in the third quarter compared to $26.6 million in 2018.
Royalty income declined to 33% to $758000 in the third quarter 29 team for $1.1 million in the same period of 28.
Also represents a sequential decline from the second quarter, 2019, or 32% versus a 46% sequential blind decline from the second quarter two the third quarter of 2018.
Molecular product revenues decreased 32% to $17.4 million in the third quarter 2019, compared to $25.5 million in the third quarter 2020 Eaton.
Sales support genomic products declined 41% $14.1 million largely due to lower customer demand customer demand primarily from a large customer consumer jinong customer the change promotional strategy, which impacted the purchasing patterns, notably excluding this single customer genomic product revenues grew 30% compare.
<unk> third quarter of 2018.
Microbiomes sales increased 81% to $3.1 million from $1.7 million in the third quarter of last year, primarily due to the inclusion of lab services revenues generated by our newly acquired subsidiary core volume, but also from healthy double digit organic growth.
Domestic HIV sales decreased 4% to $4.3 million in the third quarter of 2019 compared to $4.5 million in the third quarter 2018, largely due to lower sales of our over the counter product.
International HIV sales increased 36% to $5.9 million from $4.3 million from the third quarter of 2018 due to higher sales of our HIV self testing to Africa, notwithstanding the shipping challenges with three international orders that Steve described.
All three of these shipments were completed in the first week of October .
Domestic HCV sales decreased 4% in the third quarter of 29 team $2 million from $2.1 million in the prior year period, largely due to the timing of customer orders.
International HCV sales in the third quarter, 2019 decreased 3% to $1.1 million from $1.2 million in the same period of 2018, primarily due to lower sales into the middle east, partially offset by sales growth in Asia.
Other revenues were 4 million $4.0 million in the current quarter compared to $10.9 million in the prior year. The decreases largely due to lower royalty income I mentioned earlier and decreases in BARDA funding and cost reimbursement under our charitable support agreement with the Gates Foundation.
Reduced BARDA funding reflects the conclusion of our projects under this program and our rotation of R&D resources to projects that are aligned with our long term growth strategy.
Gross profit percentage for the third quarter of 2019 was 60% compared to 62% reported for the third quarter of 2018.
The decline in gross profit percentage is directly related to the decline in other revenues, which contributed 100% the gross profit percentage and lower margins generated by core volume annuity business, partially offset by lower whooping freight costs during the quarter.
Our operating at sprint or our operating expenses for the third quarter of 2000 $19.6 million compared to $17.7 million in the comparable period of 28.
Operating expenses in the third quarter 2019 included a pre tax gain on the sale of the Cryosurgical systems business of $10.2 million and $2.4 million of noncash acquisition related contingent consideration benefits offset by the incremental operating expenses generated by core Byron maneuver sammis and 443000.
Acquisition related transaction costs.
As a reminder, we provide EPS guidance that does not include the impact of changes in the fair value of competence of acquisition related contingent consideration and acquisition related transaction costs.
Transaction costs since these items cannot be estimated there were no similar acquisition related costs in the third quarter of 2018.
In the third quarter of 2019, we recorded income tax expense of $1.2 million compared to $3.3 million in the same period last year. The decline in tax expense reflect reflects the lower pre tax earnings generated by our Canadian subsidiary and the results generated I know incentives.
We reported net income of $13.1 million were 21 cents per share for the third quarter 2019, compared to net income of $8.1 million or 13 cents per share for the third quarter of 2018.
We continue to maintain a salad solid cash and liquidity position, our cash and investments balance at September Thirtyth, 2019 was $201.2 million compared to $201.3 million at December 30, Onest 2018.
During the first quarter of 2019, we used to $13.2 million of cash to acquire core byrom, another santas and in the third quarter 2019, we received $12 million and proceeds from the sale of our Cryosurgical systems business.
Cash generated by operating activities to diverse nine months of 2019 was $10.8 million compared to $20.8 million in the same period of 2018.
Turning to guidance for the full year 2019, we are projecting revenues of $150 million to $153 million and net income of 28 cents to 31 cents per share.
These projections do not account for the impact of changes in the fair value of acquisition related contingent consideration or potential business development transaction costs since the full extent of those items cannot be determined at this time.
The decrease in projected revenues and EPS from our prior guidance is driven primarily by revised expectations for our genomics collection device sales with smaller contribution from international sales of HIV testing devices.
As many of you know during the third quarter. The U.S. Justice Department indicted 35 individuals in Q accused of offering fraudulent genetic testing primarily to seniors in order to collect insurance.
Just had no effect on it on any of our customers in the third quarter, but has created enough and uncertainty in the market. The customers have signaled the likelihood of lower orders in the fourth quarter. Additionally, the media attention. This is strong concrete miss cost and cynicism towards genetic testing and maybe contributing to the more general slowdown that we and others are seeing into broader consumer genomic space.
Based on discussions with our customers in the trends, we saw persisting into third quarter, we have lowered our forecast for genomics revenues in the fourth quarter.
The revision to our expectations for international HIV testing sales is the result of forecasted slippage of an order from the fourth quarter of this year into next year.
Note that this is unconnected to the $1.9 million in orders that moved from the third to fourth quarter of this year.
The fourth quarter slippage is related to the increasing expansion of our sales outside of the original star country markets.
Understood, our the ordering and shipping processes were consistent from country to country with long predictable lead times as we've expanded our sales outside of the outside of the original star countries. We've expanded the addressable markets for products considerably, but we've also increased exposure to significant variability in ordering and shifting processes and timelines between markets.
Once each new market is established the process will stabilize and be more predictable, but we are experiencing some delays in planned orders in the meantime.
We're of course disappointed that we have had to make this change nonetheless to the extent of all of our infectious disease and some of our genomics reduction was due to timing of sales. We continue to be confident in the underlying health of our business. Moreover, in light of our ongoing success with regards to business development opportunities. The continued expansion of our self test markets in Africa the.
Growth, we continue to see into disease risk management Submarket of the genomics business and the strength of the micro Brian microbiome product and services markets.
We remain very optimistic about our future prospects with that I'll turn the call back Steve.
Thanks for Bristow, our first focus on our molecular solutions business.
As mentioned in my opening remarks, and in reverse report, both a positive and negative trends to impact our genomics business are continuing.
On the one hand, we see many signs of growth in our genomics business. Despite the impact of a single large consumer genomics customer.
Product revenues, excluding this one customer were up 30% in the third quarter compared to 2018.
We're also seeing consistent growth in a number of new commercial genomics customers being added to our business.
Importantly, we can did continue to see growth in a number of disease risk management companies.
Shifting our FDA cleared collection devices preclinical applications.
Overall, there seems to be an uptick in the use of ft, a clear devices and platforms in the genomics testing market.
We believe this is being driven at least in part by the FDA his efforts to enforce the need for using clear devices in clinical genomic testing applications.
As we've shared in the past, we havent active regulatory program to bolster our global growth.
We are also actively working with several customers to obtain FDA clearance for their test.
This type of collaboration is important.
And that it strengthens our regulatory position and deepens, our relationships with emerging clinical test providers.
Despite the underlying strength in much of genomics the ancestry or genealogy testing segment within the consumer genomics market continues to decline and is impacting our product revenues and royalty income.
As we've noted in previous calls overtime, we expect that other submarkets within genetic testing, most notably disease risk management augmented by animal health and lifestyle genomics, we will eventually offset these declines.
So in summary.
Despite the challenges in this consumer genomics market, we continue to believe that our overall genomics business is healthy and offers great opportunity.
Excluding the large customer that has negatively impacted this business. We continue to believe that genomics will deliver double digit growth for the remainder of this year.
Another bright spot is the microbiome business, which delivered a strong third quarter.
New customer acquisitions grew by double digits compared to the third quarter 2018.
Overall, the microbiome business, including both products and services was up 81% over the same quarter of 2018, but the highest growth rates coming from Asia Pacific and European markets.
This growth was driven by a 53% increase in product revenue and 152% increase in service revenue during the third quarter compared to 2018 as a result of our acquisition of Corbeil.
I would note that the third quarter 2019 service revenue was also sequentially up 29% compared to the prior quarter.
We are clearly starting to see the impact of our core volume acquisition. Both in terms of revenue generation and expansion of our microbiome offerings. In fact core volume was recently chosen as the sequencing and custom bio informatics partner for the development of a new microbiome diagnostic test.
In addition members of the core by on the scientific team recently published a peer reviewed longitudinal multiomics study of the avian microbiome that integrates host hosts gene expression with the microbiome to measure the effects of alternate treatments to antibiotics.
We believe the acquisition of diverse agenda will provide significant benefits and further strengthen our position in presence in the microbiome arena.
Persistent is truly a pioneer and providing solutions for sequencing analysis and consulting focused on the microbiome of living organisms and environments.
We have developed state of the art techniques to extract high quality nucleic acids from a variety of sample types from Metagenomics analysis using technology license from the Baylor College of Medicine.
Our strength expertise regulatory status and focus on superior customer service has been key factors and establishing a leadership position in the industry with an impressive customer lists that includes many of the top 10 pharma companies in the world along with a leading microbiome therapeutics provider.
Diversity was the first company to establish microbiome protocols in accordance with the college of American pathologist cap accreditation and clinical laboratory improvements amendments.
1988, CLIA guidelines approximately 90% of diverse this business is from big pharma and the leading microbiome therapeutic company is also a top customer.
The powerful combination of diversity and strength expertise and focus on customer service, along with micro core biomes technical innovation and microbiome analysis, and DNA Genoteks proven Microbiomes sample collection and stabilization devices will give us industry, leading product and service offerings.
From sampling to rich analytics that can provide actionable insights.
Collectively diversity and in core by on represent over 100 person years, a microbiome experience and 300 scientific publications on the microbiome, we're very excited about expanding our presence within the microbiome service market and look forward to aligning and growing these businesses in 2020 and beyond.
In addition to our new products and services focused on the microbiome, we continue to see significant growth potential in the broader field of Multiomyx as I've described in previous calls this emerging area of life Science and data analytics provides a multifactorial examination of individuals health by examining the different.
Owns including the microbiome and the Juneau.
Our initial entry into Multiomics materialize, but a number of our existing human genomics customers added microbiome component to their studies and offerings.
Year to date, we have seen a 35% increase in that in the number of customers who are using both genomics and microbiome kits and we expect this trend to continue.
Finally.
There have been continued positive developments in Nova Sadnesses urine collection business.
As I noted in our last call Nova Santas entered into an excess not exclusive agreement with Fuji radio for the distribution of the Colopy collection device for use with Fuji reviews, you know LIFO HPV Genotyping extra two assay.
The actually has now been CE.
Mark for use with Colopy collected first board urine samples.
During the third quarter. Another sand is completed development in launched two new versions of its copy collection device that allow the collection of either a smaller or larger volume or first for year end as compared to the original 20 millimeter device.
These new versions will now will enable novus sadness to expand the use of the call up you device with additional applications in the area of infectious disease and oncology.
The smaller version and captures up to 10 milliliters of yarn and is compatible with many high throughput instruments, therefore, offering improved improved lab workflow and collection for a biomarker, which urine sample.
The larger version captures the first 45 milliliters of first four year and supports Multiomics testing it can be used to solve issues related to low analyte concentrations. This larger volume version has applications in the detecting and monitoring of some cancers, where a large volume year on may be required.
And our last call we mentioned the Colicky device being used with a lab developed test offered by bio technique called X Dx prostate entellus score or E. P. API, which allows a physician to Britain, Nick if they patients presenting for internal biopsies does not have a high grade prostate cancer.
Biotech they recently announced the issuance of a local insurance coverage decision for the EPA test for men, who are who are considered to be.
Esquer became being considered for initial prostate biopsy. This decision enables Medicare reimbursement for the test in this effective for test administered on or before December 1st.
Excuse me on or after December Onest.
Techni also note that SPP test has received FDA breakthrough designation is included in the National comprehensive cancer network guidelines for early detection in men for both initial didn't repeat biopsy.
This is obviously good news and its evidence of how call UPPI device can be used with this and other ltd applications in the future.
Turning now to infectious disease, the third quarter was a good one for our HIV franchise global revenues were up 16% when compared to 2018, driven primarily by a 36% increase in international HIV self test sales.
We sold approximately 1.5 million HIV self test in the third quarter.
Importantly, these strong results were achieved despite the fact that $1.9 million in self test orders had to be moved too early in the fourth quarter as a result of unexpected logistical issues.
As you know we previously participated in the star or self Test Africa program, which has been largely.
Been completed.
We continue to see new country registrations for our self test in countries outside the Star program.
Today, we have received 19 registrations to since our last earnings call and there are 13 additional submissions pending.
One recent important registration for our self test is in Nigeria.
We expect to receive their initial scale up or in the fourth quarter and we believe the Nigerian program will eventually be one of the largest programs to deploying our tests.
We're also participating in the formal launch of HIV self testing and gonda.
With the full support of the Ministry of Health permanent Secretaries and Us aid.
Plans for deployment of our self tests are underway and we expect our initial shipments to go out this quarter.
We recently received.
Changed notification from the World Health organization WH show to add a pediatric test claim to both our Prequalify professional HIV test and our HIV self test.
These new claims will allow us to participate with PEPFAR in the Rome action plan for pediatric HIV, a program intended to enhance and expand pediatric diagnosed diagnostic testing for HIV around the world.
They should also give us a competitive advantage for these products and increasing competitive marketplace. While good news. These new claims alone do not drive further adoption our products.
We still need evidence of the utility of pediatric testing for HIV in order to drive investment by international funding sources.
Those impacts titles are now underway with monies provided by the center for disease control and protection the CDC.
We expect these changes to eventually allowed doctors with our professional test and parents and Guardians with our self test to test children as young as age too.
On the domestic from the U.S. Department of Health and Human services has proposed a new initiative called ending the HIV epidemic a plan for America.
But the goal of ending HIV in the us within 10 years. The plan for America will leverage highly successful pro programs resources and infrastructure for HIV prevention diagnosis treatment and operate responsive and to coordinate action across several federal agencies.
The initial focus of this initiative will be in communities that are now hardest hit by the HIV epidemic.
Since much of the initial work will occur outside a clinics and hospitals, we believe our oraquick in home HIV test, which is the only FDA approved test of its kind for home use.
Can play an important role and outreach programs to achieve the goals of this initiative.
Funding in the amount of 100 of $291 million is currently in the administration 2020 budget is working its way through congressional approval process. The CDC, it's beginning to put plans in place to begin execution in 2020.
So in short we remain optimistic about the overall long term potential for our HIV franchise, and we are projecting double digit growth in international HIV revenues for the full year.
Turning briefly the H CV.
Revenues from this part of the business were down for both international and domestic markets due to mix of reasons. However, we expect to see ongoing funding and demand for our eight CV product in future quarters, and we continue to expect our HCV franchise to contribute growth to our infectious disease business going forward.
Another I want to touch on his risk assessment testing, which includes our oral fluid drug testing product line.
Under long awaited oral fluid drug testing guidelines recently announced by the substance abuse, the mental health service administration SAMHSA.
Oral fluid drug testing is now permitted in federally regulated markets.
Oral drug test drug testing allows for better differentiating between recent drug use and historic use to effectively determined potential impairment on the job.
The guidelines stipulate test parameters in oral fluid collection device requirements. The manufacturers have to meet to be able to sell their products into the regulated markets.
We have finalized the design of an oral fluid collection device that we believe we'll meet these requirements and are working with thermo Fisher to develop automated drug test assays that meet these new requirements. In addition laboratories interested in being in a credited oral fluid testing facility under the guidelines can be commit can begin making their applications.
Beginning on January Onest 2020.
It is estimated that the implementation of the new guidelines will take approximately 18 months.
Thats expects that approximately 25% to 30% federally funded regulated drug testing will eventually be oral fluid.
Which translates into roughly 12 million tests per year at the low end of the range. This obviously is a positive development and we believe to could have a significant impact on our risk assessment testing business.
The last point I want to mention is the F. days recent decision to grant five 10-K clearance for our Oraquick rapid Ebola test.
This test can be used with blood samples from living individuals and oral fluid samples taken from recently deceased individuals.
The Clarence came through the FDA breakthrough device programs. The allows for expedited clearance for the treatment or diagnosis of life, threatening or irreversibly debilitating diseases.
The claims for our tests are limited to individuals who meet certain criteria, indicating they may be infected the test will not be available for the general screening of individuals who do not meet these criteria.
This is the first and only rapid bullet test to be clear for sale in the U.S. It should be commercially available in the first quarter 2020.
We continue to believe that the largest opportunity for this product will be outside the us.
And that the CDC and Whr, though will be the primary purchaser of this product.
We're currently in discussions with these organizations to understand their potential short and long term needs for the test.
In closing despite the slowdown in our consumer genomics market overshadowing many positive developments of the company. We continue to make demonstrable progress in executing against our innovation driven growth strategy.
We have improved our competitive profile and expanded our addressable markets by adding new capabilities.
And those efforts will continue so.
So far we completed three acquisitions this year and divested a non strategic business line.
We are confident that our strategy will allow us to capitalize on multiple large opportunities which are still in their early days.
Our strong balance sheet affords us the ability to continue acquiring additional products and services to augment our current capabilities.
Our pipeline of acquisition candidates remains robust.
We expect continued growth from both our global HIV and HCV franchises and believe our molecular solutions business is healthy and what well positioned to leverage a number of growth opportunities.
We expect the growth from these burgeoning areas to be more evident as the impact to consumer genomics rolls out of our quarter to quarter comparisons beginning in 2020.
With that we'll now take your questions.
Operator. Please proceed.
Ladies and gentlemen, if you have the question at this time. Please press star and then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the Q. Please press the pound key.
Your first question comes from branding clear from Jefferies.
Hey, Thanks, good afternoon.
Okay.
Bertotti, maybe start with you just in terms of the guidance I mean, you came out in mid August and kind of pointed to the 160 to under 65 million revenue for the year now kind of lowering that range by about 10 million or so could you sort of articulate what exactly has changed on the and I know you spoke to the wine HIV self test that order that got pushed out in the fourth quarter.
But help us sort to understand the moving parts in the business as it transpired over the last two months and then also if you could help US bridge the delta in the EPS guidance range relative to the figure you you put out in mid August .
Sure. So I'll start with the EPS range, so thats pretty much a direct result of the change in the revenue forecast.
With a little bit of cost savings in the back part of the year.
So there's nothing.
There's nothing hidden in there it really is just the revenues.
As far as the change in the revenue guidance, the 10 or so million dollars of production.
As we said a small part of that was an order a larger order in HIV self test international the remainder, though is in the consumer genomics business and as we said much in the prepared remarks.
That's Deo Jay initiative.
Which didnt, which occurred in the third quarter, but didnt affect our third quarter sales has based on our conversations with customers.
That is likely to effects the fourth quarter and additionally.
We're seeing just in general.
Greater overhang in that business and so the general business.
All around the DJ business do you agree affected business has come down.
Got you and then.
Which you could sort of share with us what's you're embedding for the.
DNA Genotek business in the fourth quarter and as you look out to next year, assuming that one large customer kind of only maintained their minimum orders as they have through this year.
Shouldnt should we expect that business to may be returned to double digit growth as you've kind of articulated it is being.
At least through the third quarter.
So.
So as you correctly as you pointed out we did say that our guidance for the year included an assumption that that business with the largest company would largest customer would order at their contractual minimums for the year.
If they do continue to order at the contractual minimums next year that large part of the business is likely to be flattish and so the question then is what happens with the remainder of the business.
As we pointed out through the third quarter of this year ex excluding that largest customer we did see pretty healthy double digit revenue growth from the other parts of the business.
And we've often pointed to disease risk management as a source for that growth and our expectation that that will be a continued source for growth. So we would consider just the too we would expect to still see outside of that one big customer growth.
Particularly driven by that disease risk management business. The question is would they together average to more than double digits and we haven't provided guidance on that we have said, though that disease risk management is a smaller part of the business right now.
Sorry, and then any color you can share in terms of the moving parts on the fourth quarter guide, which doesn't play it's about a $10 million step up sequentially.
So.
The continued growth that we see sequentially here, we expect to see is the traditional seasonality to the consumer genomics business, that's driven by holiday gift, giving around the end of year.
If you do some internet search as you'll see that Theres a lot of advertising going on in support of that even even still this year.
And that may actually be.
A bit more there may be a bit more investment into that than we otherwise would have expected given that one of the two largest players in that space has put out a new offerings.
The other thing that we that drives our expectation of the step up in the fourth quarter over the third quarter is as we pointed out we did get two additional country approvals in Africa for sales of our products.
I think every quarter, we list the number of countries that we had approved and the number that we have pending.
As Steve mentioned, Nigeria was one of those big countries and as we've described in the past when a country.
Issues approval for registration approval and begins eradication program initiatives, we typically start with a large stocking order and then move to smaller sustaining we filling orders.
So given the timing of that approval.
The Nigerian approval, we do expect that their first order will be coming in in the fourth quarter will be delivered in the fourth quarter.
Got you off all the rules and jump back into queue. Thanks.
Thanks.
Ladies and gentlemen, if you have a question at this time. Please press the star and then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the Q. Please press the pound key. Your next question comes from John Shoe from Raymond James.
Good afternoon.
Hi, Johnny on the fourth.
Hey, Steve Hey, Robert.
Can you just stay on the fourth quarter guide for a second just to be clear.
You mentioned, Nigeria, you expect initial order in the fourth quarter, and then you Don I believe shipments as well.
You also talked about this dynamic where the lead times at length in the bid.
I guess could you help us think about.
How risk adjusted the fourth quarter guidance for that for those dynamics.
Specifically.
Yes. So we are in discussion with Ministry of health about their eradication programs and plans before they they issue the regulatory approval for the products. So we have our plans in place they have purchase orders ready to go so notwithstanding that.
This is a non star program country, and so uses a different ordering pathway. We did actually have reasonable amount of visibility into both of those programs orders.
So we believe that theres.
Lower risk of slippage although.
There's always some.
But weve essentially begun working on those orders.
Even already.
So.
The risk around those two orders is actually a bit less than the risk of the order that slipped from the fourth quarter into the first quarter of next year, where that ministry of health.
Has it has not fully completed the ordering process.
Okay.
Then on on the SASSA guidelines it sounds like that's a pretty nice opportunity for you.
Just to be clear is there any work that needs to be done for you to participate in that market. If so when do you expect to be a I guess game ready to to address that opportunity.
Yeah, John I think it is a big opportunity for us.
Yes, I think as you know.
Typically drugs of abuse testing is done with urine sample today, and those urine samples Unfortunately and subject to adulteration.
And the chain of custody of samples as always.
Difficult challenge, so using oral fluid.
It makes compliance and the chain of custody much easier and tighter.
And for US it's developing the collection device and then coupling it with assays and as I mentioned in my remarks, we're working with Thermo Fisher to develop those assets. So the.
Timeline for implementation is.
Set to begin.
Tony first 2020, Enron 18 to 24 months and so we'll be working with thermo on those assets, which we believe will give us a strong competitive position in the marketplace to capitalize on this beginning in 2021 midyear and beyond.
Okay, Great and then last one just on the diversity John could you maybe expand a little bit on on the strategic benefits and then never Burdeau anything you can share with us regarding financial impact in the near term.
Sure I think it's clear that with diverse engine.
It will help enhance or shores standing as the microbiome service market leader.
By combining the.
Capabilities with core biome.
It's really a great combination of diversity and track record.
And in particular customer focus 90% of their customers our pharma companies.
They clearly have been cultivating the customer relationships for a long period of time and because they got into the market three years before core bio.
They are sales and marketing as you expect is a bit more mature.
Having said that core by on the technical innovation and analysis and DNA Genoteks sampling kits give us and our customers.
Now industry, leading workflows that span sampling to the actual result, or statistics that we deliver to the customer so were essentially uniting the pioneers in the people who were charting a path in the future.
By these two great founding organizations one founded by.
Dan nights at Corbeil, many other by Joe Petrosino at diverse engine. So.
This from our perspective.
Creates for us.
Opportunity becomes the premier provider microbiome services.
In the industry as it scales that means higher throughput higher complexity faster turnaround bigger data sets and increased regulatory scrutiny. Those are all be defining factors of our competitive advantage.
And John on the on the financial impacts.
We expect to that for the full year, including the part of the year for which we didn't own them. They will have revenues on the order of both core volume and over santas combined for 2019.
But because we'll only be owning them for about seven weeks of the year. The effect on our personnel will be nominal on the revenue line and the bottom line.
But as a reminder, as we've said about our acquisition strategy in general.
We intent we target companies that will be accretive to our growth rate.
So those revenues.
Our thing our revenues that we expect to grow faster than the average of the existing company today.
Great. Thank you so much.
Thank you John Thanks, Jeff.
Your next question comes from branding clean from Jefferies.
Already.
Hi, guys just had a question about ancestry, they're launching a new health service with quest using saliva, just curious if you can confirm whether or not.
That product is split from DNA genotek or it is actually includes a royalty I know you've had some litigation with them related to a new service offerings that they were planning on launching any color you can share with us on that.
Well as far as we know is they continue to use the device that face currently used on the marketplace.
Which relies on our patents them they'll continue to pay a royalty to us.
We do not yet have.
Any visibility on any new kits, they may be offering for commercialization.
And obviously our.
Settlement with them from 2017 has a provision for.
Arbitration as you mentioned and we believe we'll get a decision on that sometime in 2020.
And to be clear brand and they do not use our DNA genotek spit kit, but the kit that they have been using to date is one that subject to the royalty that we settled.
Under our agreement with them.
Okay. Thanks, and then on the versus in the earn out.
Just curious why it's tied to 2019 revenues rather than 2020, and then secondly, the contingent consideration reversal.
In the quarter does that mean or suggested core biomaterial santas maybe aren't.
Ramping to deal models.
So on the first issue I think what we were looking for is firmness in revenue for 2019 for diversification.
Which has embedded in a number of customer relationships, which we believe will speak scalable into 2020, and so having that assurance for 2019 was very important to us and as or what are saying, we believe that they will grow in the short in the long term.
Remarkably.
And with regard to the contingent consideration change so that is tied to two revised forecasts for.
The two acquisitions 101, or both of them, we haven't disclosed which.
And as a reminder, there are.
Payouts associated with both 2019, and 2020 with one or more of those those company acquisitions.
But yes, the revision to the forecast is what drove those value revaluation to the consumer contingent consideration.
Super Thank you.
I am showing no further questions at this time.
Things to an end to the acuity session of today's call I will now turn the call over to Dr. Chang for closing remarks.
Well, we thank you very much for participating in today's call. After a year continued interest in orasure.
I have a pleasant afternoon and evening. Thank you.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may now disconnect.