Q3 2020 OraSure Technologies Inc Earnings Call
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The turn the call over to Gene Mail, Vice President of corporate Communications portion.
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Thank you operator with us today are Dr., Stephen King, President and Chief Executive Officer, and Mr., Burton Kuka, Chief Financial Officer, Dr. Tang and Mr. Kuka will begin.
With opening statements, which will be followed with a question and answer session.
Before I turn the call over to 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 and markets business plans regulatory filings and approval.
Expectations in strategy.
Actual results could be significantly different factors that could affect results are discussed more fully in the companys MPC filings, including its registration statements. Its annual report on form 10-K for the year ended December 31st 2019, its quarterly reports on form 10-Q, and its other FCC filing.
Although forward looking statements help to provide complete information about future prospects listeners should keep in mind that forward looking statements are based solely on information available to management as of today. The company undertakes no obligation to update any forward looking statements to reflect events or circumstances. After this call.
With that I will turn the call over to Dr. Steven Stein.
Thank you gene and thank you everyone for joining us today.
Oh last night was a late night for many.
I appreciate your attention and interest this afternoon.
I Hope you and your families are faring well during these challenging times if.
You will hear today for sure had a strong quarter.
Our molecular sample collection devices are widely used for land based company like T. molecular tests.
We submitted our lab based oral fluid Sars koby, two antibody test to the FDA for emergency use authorization or do you wait.
<unk> expenses for rapid corner buyers antigen test to be ready for easy way submission in Q1 2021.
Overall, our ability to address the COVID-19 pandemic for sample collection, that's contributed positively to our business in the third quarter.
We generated $48 million in revenue this quarter of 33% increase over the prior year.
This performance was driven by our molecular solutions business unit.
Our products continue to be in the band doesn't need for Cobi 19 testing continues to rise.
<unk> solutions business unit generated $18.4 million and 19 related sales in Q3, which is more than double the COVID-19 revenue achieved in the first half of the year.
Globally, we're seeing what appears to be the third wave of the pandemic. That's a number a COVID-19 cases surgeons here in the U.S. and around the world.
Over the next few forecasts are not completely get alignment, but most predicts that the current impact will be felt for another year or two years would COVID-19 existing at some level in perpetuity.
That's a disease becomes endemic.
Well there was hope that a vaccine will be approved by yearend or early 2021 weeks.
We expect it will take quite some time for a vaccine to be broadly available in the U.S. and.
Internationally.
Hey until that it'd be on testing will continue to play a critical role in managing the pandemic.
We expect we're sure to continue to play an important and growing role to address the massive and persistent need for COVID-19 testing and sample collection.
During our Q2 earnings call I cited an estimate from the Rockefeller Foundation that called for 1.5 billion COVID-19 tests per year to get the pandemic under control.
Since then the foundation has increased its estimate to approximately 2.3 billion tons per year in the U.S. alone.
With this in mind, we expect there will be continued to be strong demand for COVID-19 testing for the foreseeable future and.
We are prepared to help meet that need with our innovative solutions for testing and sample collection.
All abortions Koby 19 products are centered on the easy saw collection of samples by individuals in.
An area, which we have long experience.
Our products are designed to make it easier to obtain results.
Either through oral fluid sample collection for PCR antibody testing or through a full diagnostic tests that consumers can cut back on their own.
I'd like to address our current COVID-19 innovations.
Beginning with sample collection for molecular for PCR testing, which is the gold standard when it comes to detecting active COVID-19 infection.
Our experience in innovating devices to facilitate at home self collection of samples has led to significant interest in our collection devices for molecular COVID-19 testing.
Devices made by G and H Unitek subsidiary support both PCR and sequencing based coping liking tests.
And these collection kits are now being used for collection at home by consumers or by laboratory staff and health care providers.
Notably two of our sample collection devices.
Or collect are today and Omnigene oral received you raised from the FDA in October.
Both you ways allow for the collection stabilization and transport of saliva specimens suspected containing Sars koby to arent <unk>.
The authorization also allows the products for use as a component of an authorized for cleared so collection kit for unsupervised home use.
This means that devices can be part of a kit that its authorized under its own anyway for the use of an individual to collect saliva assessments at home.
It's important to note that these devices are not cobot tests. They are components of the test would be run in a lab.
DNA Genoteks customers, which are typically laboratories, offering COVID-19 test pipeline would use devices as a sample.
Saliva collection collection method for their my basic over 19 tests.
Omnigene oral and or collect or in a four to three molecular tests collection kits that have been included in 60 ways dealings unitek customers and team from the FDIC.
But the waves are only one part of the molecular success story.
About half of the third quarter sales of molecular sample collection devices for cobot applications, where the customer is not currently holding you ways with a balance of customers operating to covert tests laboratory developed test or L.D. teas.
Use of DNA Genoteks collection kits continues to grow in back to work settings back to school programs and laboratory testing.
For example, 30000 students were tested at the University of Kansas before returning to the campus using kids from clinical reference laboratory concern.
And 64 State University of New York campuses are testing students and employees with test developed by quadrant buyer sizes.
Our Oragene Dx flight with collection devices available Albertsons companies pharmacies throughout the U.S. as part of phosphorus diagnostics COVID-19 testing program.
And back to work programs are integrating COVID-19 testing monitoring assessment and access to tell them that medicine business for companies through a Zopa Inc.
Additionally, cosco was selling Carbonite team saliva collection kits in conjunction with P. 23 labs, which received an F.D.A. anyway for the laboratory tests workflows with or PCR tests.
The work flow includes Omnigene oral that's his wife collection device.
Easy sell collection of samples is essential to ensuring the safety of workers and students and their families by helping to curtail the spread of the virus as people there's.
Normal aspects of life.
We expect the sales and molecular collection kits for Cobi 19 testing to continue to grow within the U.S. with existing and new customers, but also outside the U.S. as other nations comply.
Complete their validation work around select saliva as a sample type.
Moving onto antibody testing.
We have submitted a new application to the FDA for oral fluid Sars koby, two antibody allysa and.
In the review process.
Today, there are no oral fluid antibody test for COVID-19 authorized for sale in the U.S.
Pending receipt of anyway from the FDA, we have the potential to be the first.
Thislife based world fluid test is intended for the qualitative detection of total antibodies to Sars koby too.
We have a number of interesting customers and are prepared to commercialize our antibody test in the fourth quarter of this year subject to receipt of the way.
Oral sample collection is quick painless non invasive inquires left human contact in comparison to a blood draw.
Both minimizing the need for personal protective equipment or P E and reducing exposure to potentially infected patients.
With the workforce test individuals using collection pad to self collect an oral fluid samples under the direction of the health care professional.
The sample and then be placed in the offshore oral antibody collection device buffer for storage and transport.
The sample would later be dispensed onto our proprietary a life and micro play for analysis and a commercial laboratory to determine the presence of antibodies and the oral fluid samples.
Potential locations for sample collection include physicians offices labs testing facilities and try through testing sites.
We are evaluating whether the eway substance, who currently could be amended to permit and unsupervised in home sample collection option with samples sent to a central laboratory for testing.
Epidemiological level is it is extremely important for public health officials have an accurate understanding of who has been infected.
Antibody tests are well suited for community surveillance and see real problems studies as they can help identify people in a population or community that a mouse antibodies against COVID-19.
According to the centers for disease control and prevention CDC. This information could be used to estimate the number of people who have been previously infected with Sars koby too and were not included in official case counts. This.
This is critical to maintaining an accurate count of infection rates in informing decisions that can advance public health.
Antibody test could also potentially complement vaccine development and implementation.
Turning to our antigen test for sure continues to make tangible progress in the development of our work with Corona virus rapid antigen self test.
Subject to receipt of it either way this product would test for active coping vaccine infection using nasal samples self collected from the lower natural right.
Results would be available at the point of collection with no instrumentation needed to interpret results.
To date, there are no self test authorized in the U.S. that enable individuals to test themselves and read the results at the point of collection with no instrumentation needed.
We are highly confident that we can bring to market an accurate tests that meets <unk> EPA standards for rapid self test.
And as we disclosed previously we intend to sequentially introduced targets to test for three different uses subject to rapid regulatory authorization.
First I professional tests.
For use a drive thru sites physician offices public health testing sites and employer and University health centers.
In this instance physician were prescribed the test in the patient would conduct a self swaps in the presence of a health care provider, who would then interpret the results.
Second a prescription self test for use by individual consumers.
It could be offered by employers or universities on or off site or by physicians are public health authorities.
Your remote testing for telemedicine.
In this instance, the physician prescribed to test and the consumer would conduct the self swap at home or any location.
Where they would then interpret their own results.
Thirdly, and over the counter or Otcs self test for use by consumers, who would purchase online or at retail without prescription would conducted tests and receive the results themselves anytime anywhere.
We expect to file for the professional test <unk> <unk> Q1, 2021, and the prescriptions helped us in LTC self test you ways to fall as soon as possible thereafter.
This is a complex process that cannot be rushed between now and the filing of the way application, we'll finalize the device design and completely you wait studies necessary to determine achievement of the high performance standards as you update demands of the self test.
We are committed to delivering a rapid antigen self test that meets FDA requirements for self test and the needs of the pandemic.
As well as our owner rigorous standards for quality and performance.
We have made a great amount of progress completed important benchmarks.
Limits of detection studies were conducted with light Corona virus at a certified third Party laboratory.
Anyway, the analytical analytical sensitivity in comparison to anyway authorize instrument free rapid antigen test.
The results from the comparison provided further confidence that the proprietary chemistries incorporated in four short lateral flow test trip will deliver the sensitivities needed.
In addition, the company currently has prototypes on the Oraquick platform under evaluation at clinical testing locations continually providing data on the performance of design against FDA requirements.
Based on what we know at this time, we believe there will be significant demand for our antigen test self test in 2021.
Puts control the process in the hands of the user.
In the U.S. alone the Rockefeller Foundation estimates demand at approximately 2.3 billion tests annually right.
Rockefeller Foundation to others have identified fast and frequent testing as a key to getting COVID-19 under control.
This is exactly what our antigen test will deliver.
The timing of anyway is subject to ft a review.
Once you ways obtain we are prepared to launch the test without delay.
Moving on to manufacturing early on in this pandemic, we understood that increasing our manufacturing capacity would be key.
To that end, we are confirming that our plan is to increase manufacturing capacity to meet demand for COVID-19 sample collection kits in test continues on track as outlined last quarter.
With that I'll hand, it over to Roberta for report on the quarter's financials Roberto.
Thanks, Steve.
As Steve mentioned earlier, our third quarter net revenues increased 33% to $48 million from $36 million reported third quarter 2018, primarily as a result of strong sales of molecular sample collection kits for COVID-19 testing increased international sales of the company's HIV self test in higher Laboratory service.
These revenues, partially offset by lower sales across all of our other product lines, primarily due to the impact of the COVID-19 pandemic.
Net product and service revenues were $46.7 million, a 32% increase from the third quarter of 2019.
Total product and services revenues for the company's molecular business unit were $31.2 million during the third quarter of 2020, an increase of 79% from the third quarter 2019.
This increase included 18.4 million got worsened sales of oral fluid sample collection devices for Copa Nike molecular testing, which was partially offset by a decrease in genomic sales.
International sales of the company's work quick HIV self test increased 17% compared to the third quarter of 2019, largely due to higher sales into Africa grew.
Gross profit percentages were 63% and 60% for the three months ended September Thirtyth 2020, and 29 keen respectively gross profit percentage in the third quarter of 2020 benefited from an improved product mix associated with higher gross profit percentage of product sales net income for the third quarter of 2020 was $1 million.
It's a one cents per share on a fully diluted basis compared to net income of $13.1 million or 21 cents per share on a fully diluted basis for the third quarter 2019.
Third quarter 29 key results included two games associated with the sale of a business and a change in the estimated fair value of our acquisition related contingent consideration together totaling $12.5 million, which accounted for approximately 16 cents per share in 2019.
Cash and investments totaled $263.7 million at September Thirtyth 2020.
As we disclosed in our press release, we expect revenues of 55 million to $60 million in the fourth quarter of 2020.
As we discussed on our second quarter earnings call, we expect that as we've just seen but in the third quarter Noncovered revenues will be flat or improved for each business unit in the fourth quarter compared to the second quarter and that couldn't banking product sales will add to this performance.
For the full year, we continue to expect that excluding cryosurgical revenues from 29 PM Noncovered 19 revenues in both infectious disease molecular collections lines of business will be down at 2020 compared to the year ago period with molecular collections during the greater impact however.
However, as our revenue guidance for the fourth quarter indicates we anticipate that the revenue opportunities for our corporate banking sample collection products in test will more than offset the year on year decrease in a non coupon key lines of business such that our total revenues will be higher in 2020 than 2019.
With that I will turn the call back over to Steve.
Thank you were bardo turning to our legacy businesses HIV testing remains an important area of global focus for Orasure Act.
Access to testing during the pandemic has been challenging as in person testing facilities for HIV in the United States had been in many cases shutdown.
Self testing, which enables social distancing and helps protect health care workers and test users like is a key strategy. The efforts to help people know their HIV status, especially under the current global pandemic conditions.
Overall, our net HIV test revenues increased 6% over Q3 2019.
This was driven by strong international sales of our Oraquick HIV self test been increased 17% compared to the third quarter 2019.
To put this in perspective.
UN AIDS report noted significant decreases in HIV testing services between January and July in nearly all countries with available data.
CDC and other government agencies have encourage health departments at all levels to consider HIV self testing as an additional testing strategy to reach persons most affected.
Speaks to the usability and convenience of our at home tests, which allows individuals to test themselves and received the results at home.
Today for sure offers the only over the counter self test for HIV in the United States and the only World Health organization afford WH show pre qualified rapid oral fluid HIV self test globally.
I'd also like to briefly touch on our collection business outside of the <unk> team.
Although not yet back to pre coking levels, we saw increases in our genomics and microbiome kits sales.
Quarter over quarter third.
Third quarter kit sales for genomics, and microbiome were up 32% and 114% versus the prior quarter, respectively, driven by strength in the commercial market.
Academic sales also increased quarter over quarter, but to a lesser degree.
Our laboratory services revenue showed a slight increase over the previous quarter.
We continue to innovate in the microbiome arena, adding new products and services.
Our DNA Genotek subsidiary has launched a skin the microbiome collection kit.
Omnigene skin offers a standard method for collecting skin microbiomes samples from sebaceous dry and wet skin sites, which.
Which will aid researchers in obtaining reproducible high quality samples.
And a great example of how our microbiome services and products team complement each other a startup company sure culture acuity has partnered with DNA genotek and diversification to use data and science to deliver a comprehensive customized skin care regimen to its customers.
DNA Genotek will supply the omnigene scanning the microbiome collection kits and diversity and will provide full microbiome service.
Analytical services offering a complete understanding of the users skin microbiome.
We continue to believe that the promise of our microbiome products and services and look forward to continued growth.
In closing our business momentum is strong and we expect that trend to continue as evidenced by our guidance.
We see COVID-19 testing as a robust part of our business for now in the foreseeable future.
With molecular collection device is already driving significant revenue and our antibody antigen tests on the road to commercialization.
For sure is poised for continued and sustained growth.
Our work with COVID-19 will help accelerate our growth significantly.
We understand the opportunity for our test and sceptical should collection kits is substantial and their role in the fight against COVID-19 is vital.
We want to reiterate our confidence in orasure is the ability to bring our antibody antigen test to market.
We believe they will be worthy of joining the list of our other highly regarded for short products.
With that I will open it up the call for your questions.
[laughter]. Thank you.
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Our first question comes from the line of Ajay Kumar with Evercore ISI. Your line is now open.
Hey, guys. Thanks for taking my question, maybe after the first one Steve.
Steve I wanted to touch on that the collection kit opportunity here 18 million of revenues in the queue.
Yeah, you know beat the Q4 guidance implies a modest step up and I think.
When you look at the capacity expansion the goals that you guys had ramping up pop kids expansion from 35 to 80 million. So I'm just curious curious.
Where are we on on.
Expansion.
What does the current capacity are you selling every single kit that you are making you know.
What should that normalize revenues be you know for this part of the business. So one cell capacity ramps up.
Thank you BJ I'll I'll start by for saying, we're very pleased with the performance of our molecular test solutions business unit and in particular, the COVID-19 products out there that they're selling three into molecular Pcr tests.
To that two products were saving anyways as we noted in the prepared remarks.
Well, we're not breaking out revenue specifically, you're right that there. If there is a step up its for molecular collection kits for Carbonite team that's embedded in our guidance of 55 to 60.
Million for the fourth quarter by the way that $55 million to $60 million would be a record fourth quarter for us as a company.
We are moving ahead with our expansion plans.
We are almost to the point of selling everything we can make which I think makes or.
So I.
I think that as we look into 2021.
I mentioned that we announced in August we will serve us well in terms of providing additional capacity to meet it.
Enormous.
Demand in the marketplace. So this area of our business, which I think has come to fruition nicely.
In the second and third quarter I will continue to grow.
Understood and then I guess that one on the for the follow up maybe on the antigen testing site.
I understand that the the push out here from Q4 to Q1, you know maybe up can you can you.
Give us some color on what drove the push out you know.
And I guess.
You know the question nothing unless this minus you know what is causing the delays are there any technical challenges here.
And as you think about that I guess the language in the press release said that worsened to be at home or self Swabbing worsen would follow soon.
After.
Is that sort of a first half glencore, Rob you know I'm curious on how we should be thinking on the on the self slot at.
At home portion of the test.
Right. So we have only forecasted as you noted.
And easier way for our professional version of the test in the first quarter, which you may recall.
DJ from our second quarter call back in August that we.
Indicated that even though we were going to see sequential you ways. So as you noted professional than prescription self test and over the counter self test, we would actually begun conducting clinical trials in parallel to shorten the time between each approval.
So part of our plan remains to do so and while we're not providing specific information about when the prescription self test and the over the counter self test would be on the market we.
We believe it will be soon after.
The professional product is approved and so we'll leave it at that for now, but I think it's important to step back and.
See what's been accomplished what's impressive to US is the technical work, that's going to essentially validates that our the core of our Oraquick technology, which is a test strip affectively is performing exceptionally well and limits of detection studies compared to.
Rapid antigen test that are already on the market place that so.
That is significant progress for US right now and the clinical trials that will go through between now and the end the airway submit.
Submission process in the first quarter I think we are very comparable validates the success of the product.
What we're trying to do is something that no. Other company has done before and that is essentially have a one step rapid antigen test.
That is essentially the same design, we'll use for the professional the Rx self test and the Odisi self test.
Ready and design in the professional products. So no other product that's on the market today was designed specifically for that purpose, even though all of Omar professional use products in their own right. So we're taking the extra care based on our experience and putting the oraquick HIV tests on them.
Market and also by the way developing be a bowl a rapid antigen test back in 2017 in nine months time, because it's on the market as quickly as possible. So there are always things that are.
I didn't on the anticipated they come along and product development, but I think we're very confident in that first quarter here way.
With the Rx self tests and the LTC self tests coming soon thereafter.
So where does the low the on the on your antigen test even have as a company.
A competition.
Why we were so we haven't disclosed the numbers BJ, but they are competitive with the products that are already on the market and those those are top that's public information.
Thanks, Dave.
Thank you.
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Thank you.
Next question comes on the line of Frank Taconite with Lake Street Capital. Your line is now open.
Hey, guys. Thanks for taking my questions. Just a couple for you here today I heard you guys talk in your prepared remarks, a little bit about the October you ways for the.
To DNA Genotek products I was hoping you could just go a little bit deeper on that and how that could potentially de bottleneck the process to continue.
Continuing to drive the momentum behind this business into the fourth quarter as well as into 2020.
Yes so.
Thanks, Thanks for the question so.
So I think these are important breakthroughs for the two products that received either way.
And so that's our or collect are they are on the gene oral products.
And it's important because essentially there is a pathway now for self collection that wasn't available on the market before if these products were approved provided that they are used in a in a product that is also received into your way.
For individual to collect their own sliwa specimens. So the use of the product. If you will very clearly mimics what we've done for and genomic testing.
Used by companies like 23, M.B. and others and so from a technical perspective.
It was very much in line with with our expertise.
So it really does allow a pathway.
For self collection for saliva.
And I think it's important to recognize how far we've come in molecular testing.
From a nasal ferenci on oropharyngeal swabs to.
Really the breakthrough, which is using saliva, which allows people to take their own sample and not subject themselves to.
The discomfort or pain associated with those those steep swabs. So that's the breakthrough and I think that evidence of that we provided through the work of our customers 30000 students at the University of Kansas tested 64 campuses of the state University of New York using the product. So you see wide spread distribution of our product.
And even into the retail channels that we mentioned in our prepared remarks. So that is that clearly the breakthrough and Thats why were so excited about.
The progress and growth in our molecular collection this molecular solutions business unit.
And that will continue into 2021 and beyond.
Great and then maybe one for Robert always solid gross margin came in at 63%.
Definitely a nice contributor to flipping the model back to profitable for the quarter I'm. Just curious if you could comment on that level of margin given the increasing mix of molecular collection than you expected continued momentum behind this business.
Sure. So as you correctly deduced that the driver that is the corporate banking products.
We continue to expect those to be growing contributors to our revenues so versus the third quarter and the fourth quarter in the fourth quarter, we expect gross margin to be at least as good as the third quarter.
And likely a bit better given the historical seasonality in our commercial genomics business there will be some moderation to the gross margin as we see continued growth in our HIV International business, which has lower gross margin business.
But we do overall see this as a sustainable gross margin level that we'll see some seasonal.
Seasonality from quarter to quarter in the coming year.
Great. Thanks for taking my questions and congrats on the progress this quarter.
Thanks, Greg Thanks, Frank.
Thank you. Our next question comes from the line of Tycho Peterson with JP Morgan. Your line is now open.
Hi, guys. This is Casey I'm sure Tyco.
I guess first question I have is are you guys baking in any add cobot antibody revenue into your Fourq Guide and then how do you see the market evolving for this test I guess, how much of an advantage is <unk>.
<unk> using oral fluid or how much of that competitive advantage is that.
So Casey we have not broken out individual products into our guide for 55 to 60 million.
But I think as he is we announced back in August once we we locked prototype on the antibody test.
We would begin building inventory that is you know manufacturing at risk.
That is come to fruition, we have customers that are now evaluating our product on a research use only basis before we get our E away. So that's moving along nicely.
I think the market for this oral fluid antibody test is going to be expenses.
It's coming at a great time, when the discussion independent make has moved towards serial prevalence in surveillance. There was an article out yesterday that said that there's probably 20% of New York City residents that had been exposed to the disease, but they haven't been.
Counted are measured yet so we really do not know the cirro prep.
[noise] possibilities for our products in 2021 and 2022.
And the rollout of the vaccine this.
This will be a powerful tool to to accompany the vaccine to see what how much of the population are melting antibodies to this to this virus overall so.
We know from our own experience with genomic testing that oral fluid sampling is a lot better than blood based sampling and this is the only product if and when it's approved.
Were you way by the FDA.
To using oral fluid I think there are over 300 antibody test that use blood.
So it.
And in attrition of Orasure. These are unique products with unique applications.
Got it thanks to that and then maybe just one on the antigen push out you know I'm just sort of a little more color on the reasoning behind that I saw last week. The FDA updated its average untested old template that.
<unk> culture.
More studies to be admitted you indeed symptomatic population just wondering is it.
No matter.
What studies that need to be done or was it about getting the sensitivity EPS, where it needs to be I'm, just any more color on the reasoning behind push up.
Well of course, when you're doing product development, there's there's always a bit or process involved with it and then you add to that they need to get clear.
Clinical data from the field, so that that interplay between.
It's a change in the chemistry and changing aspects of the design of the product.
To get to the point, where we are comfortable with it I think contribute to the new forecast for the first quarter of next year.
And you know I think that ultimately.
The push out won't matter to us commercially.
Because I think we're very confident that once the product is on the market will sell as many as we can make.
So it has nothing to do with the external factors of what the FDA is doing it and everything to do with our own standards of performance and as I said before.
We are the only company that's designing a product specifically to ultimately be a self test whether its Rx self test for I know do you see self test and designing those principles into the professional use product, which for which we'll see if the initial you way so to do all those things and create a one step rapid antigen.
Test.
Is a challenge it's not been accomplished by anybody yet so that's why we're investing.
Time and effort to do it right.
Okay. Thank you.
Thank you Casey.
Thank you. Our next question comes from the line of Andrew Cooper with Raymond James Your line is now open.
Hey, Thanks for the question guys I guess, maybe first on on the antibody test and thinking about sort of the demand.
There I know we've touched on it but if I think back to when you guys. Initially talked about it I think.
The statement was this was somewhat pull from your your your assessments of user or risk assessment customers, saying, Hey, we got into the labs and we can do this.
Has that expanded potentially as you as you're approaching that getting to market hopefully to do additional customers potentially kind of bringing your platform and your place in.
Going beyond sort of does labs, or how do we think about the commercial opportunity there.
Yes, Andrew you've recounted our previous statements correctly and I think you're also right that we moved even further beyond that with commercial opportunities.
And I think the reason for that is that they use a need for antibody test has changed since the pandemic first started back in March.
And as I said earlier, we are now at a stage where antibody tests are going to be more important than they were in the beginning of the pandemic, particularly with the prospects of the vaccine coming into play here so with that in mind, there's a lot more commercial interest than we started probably and we are pursuing that as I said with.
Research only customers right now are in the queue in anticipation of the way for the oral fluid or antibody. A lies a test so yes things are moving along.
And we're seeing a lot of Tailwinds for this part of the business.
Okay, Great and then maybe just quickly on on an antigen side.
Just wanted to confirm you know is like you said for antibody like you said before.
Manufacturing at least comfort.
Is that still the plan. Once you do you have the final design locking in sort of know what you're submitting to the FDA that that you would so you start manufacturing me as soon as that Don.
Yes that is still the plan and Dave.
Based on significant inbound interest bearing.
There is very good reason.
For doing so we want to be able to satisfy.
Pent up demand in the marketplace and as I said.
The design of the product, which aims for ultimately a self test even though the first to your way as a professional test is something that will be unique on them in the marketplace.
Okay, and then maybe just one last one if I could sneak it in.
On that you know.
I understand that there's some some of that kind of timeline dynamics that have adjusted that when we think about running some of that trial in parallel.
Does does delaying the professional cast maybe push you know the over the counter or that.
That prescription self test closer to that initial timeline is there any chance you can kind of can press the gap between the two as you've had more time to develop some of the data and do things.
Or is it still kind of the same sort of lagged here you might expect it if you go from one to GE jittery.
[noise] well the lag period is somewhat in our control as you can imagine with the design and Resourcing of clinical trials, but is somewhat out of our control because of course that the EI makes the final call on the way approval process right. So we're doing everything we can to ensure that there is minimal time between.
The way submissions and hopefully the approvals.
We have evolved our thought thinking a lot about what it will take to accomplish these clinical trials and will make the investments we need to ensure.
That we shorten the time as much as possible. So I think that's that's a that's been an evolving.
A set of priorities for us since we spoke about our editors at our second quarter earnings call back in August. So I think we're in very good position there to minimize the amount of time overall and control what we can control.
Okay, Great I'll stop there thanks again.
Thanks, Andrew.
Thank you. Our next question comes from the line of Patrick Donnelly with Citigroup. Your line is now open.
Thanks, guys, Steve maybe just following up on the capacity side I mean, you know with the once you launch so obviously kind of ramping at risk a little bit ahead of time, what type of capacity should we be expecting upon the launch of the cell antigen test I know you talked about expectations of selling pretty much everything you guys can make so how are you.
Thinking about capacity and then at the same time are you thinking about kind of carving that optum directing a certain amount of capacity towards professional prescription otcs, what's what's the right way to think about that for yourself.
Yeah. So.
So we are on plan for what we announced previously and that is we're going to move from 35 million tests per year to 55 million tests per year.
By the first quarter, 2021, and 70 million tests per quarter by the third quarter 2021.
And remember embedded in that that capacity is about 17 to 18 million units per year of capacity for our existing HIV HCV in a bullet test.
So when.
When we come Onstream ready.
Ready to serve the professional market.
We will have the capacity that you can calculate.
From from our previous deferred.
Information.
I think we are going to sell as many as we can make for the professional product.
And then as we have more certainty about the timing for the Rx self test and for the Otcs self test well begin making allocation decisions about which.
Which product to get what capacity.
I think we really do see a sweet spot in the self test, whether its rx or otcs and we'll make the accommodation that we need to do from there.
And I think as I've said before the design considerations here are to try to make the same form factor and product design for all three use cases professional correct self test and Otcs self test that's.
That's it puts it let's say an approach that I think I don't think any other company has taken in the marketplaces, yet so that design for manufacturing is really built into our plan here and that's what leads us to have a more fungible discussion between.
Well.
Now.
Now.
Now okay. Yes. Thanks, you dropped off there would be I think I got most of it and then one more not no problem one more on the antigen self that's I apologize for circling back on this but just on the timeline I just want to clarify last quarter, you guys come shifted from saliva, the lower nasal obviously.
You know it I just want to make sure. The design approach. They are fully locked in right now and it's just kind of refining things on your on the data looks compelling.
No. There is no big changes here outside of again kind of the normal course shifting in a few months ago is that correct.
I that is basically correct, although we haven't announced prototype lock or anything like that and we may not announced that I think our goal is at least right now to announce when we actually submit the way for.
Professional.
Allocation, but.
I think we're comfortable with our progress without revealing too much about what the final design will look like and because we've had experienced with HIV HCV in a bowl I think we know a lot about how to scale the manufactured there.
All right. Thanks.
Thank you Patrick.
Thank you. Our next question comes from the line of Jay Jacob Johnson on the line of Steven Stephens. Your line is now open.
Hey, Thanks, a lot.
Until the Nigerian collection kits can you just talk about what you're hearing from customers in terms of near and long term demand for their tasks.
I I think given your fourth quarter guidance. It would suggest that demand is pretty strong at least in the near term, but I'd just be interested in and any other color there.
I I Jacob I would say that we are approaching a point, where we will sell.
Sell everything we can make and the capacity increases that we have forecasted back.
Back in August will serve us well.
And so we are seeing a rather insatiable demand for our products from.
For molecular testing that we believe will continue certainly through 2021, and probably well into 2022.
It began certainly in North America and in the U.S., but we're looking outside the U.S. as well right now so.
It's been started our our great discussions to have because I think people have really gravitated to the fact that you need saliva and self collection saliva as a key part of testing.
Got it that's helpful and then.
Just maybe one question on the non <unk> right you had a nice rebound in and the HIV franchise during the quarter both internationally.
And in the U.S. I guess on the domestic side are you beginning to see signs of clinics reopening and domestic test volumes, increasing and then a quick little aside there would be you know with the I guess the third waves you described the Intel did it here in the U.S. should we think.
I think Robert I said fourth quarter is expected be better than the second quarter, but could we see maybe some of that rebound be muted here in the fourth quarter with <unk> cases ticking back up.
Yeah, Jake I would say Directionally we.
We are seeing Oh, we've been seeing a pickup as I think Robert alluded to in our in our US States HIV business. Some of that is because with the clinic closing.
CDC is actually issued guidelines urging those clinics to direct there would be patients to our self test and so having that as an alternative in the marketplace and serve EPS incredibly well.
And so the hedge against the third wave of co bid Craig.
Creating a shutdown again.
Well benefit bars are.
Oraquick HIV in home test domestically for that reason, but we'd rather bet on.
The economy, and click staying open which would benefit their professional products. So while we haven't given specific guidance by product line.
That's the way we view the situation. So I think there is upside for us in both scenarios.
Got it that's helpful. Thanks for taking the questions.
You're welcome.
Thank you as a reminder to ask a question you need to press Star then one on your telephone.
Our next question comes from the line of brand include <unk> with Jefferies. Your line is now open.
Thanks, guys. This is Matt on it for a brand just today a quick one on the phase one rollout of your antigen test into the professional market any updated color on how you're thinking about a S.P. there and then as well on the gross margin side given the initial customer will largely be in the setting of doctor offices or University health centers.
You know there are likely to go through distribution channel any any color there on on the margin side as well.
Robert I'd like to take that one.
Sure. So we haven't disclosed or the pricing for the antibody test yet.
Hi, excuse me the antigen test yet other than to say that we expect it to be in line with the other products on the same technological platform and with a product to generally in that market.
We have said, though that we expect the gross margin percentage to be at least as good as for our other products.
And as a reminder, because there are three potential product types and product distribution channels a lot of the actual achieved ASP and gross margin will depend on the mix amongst those three and.
And that will be an evolving mix as we first of all get the ways for the products.
And then optimize the mix for our customers.
Makes sense and then Stephen if we look at the balance sheet. You guys. You know $260 million of cash you done number of smaller deals here, one divestiture clearly spending right now to build out manufacturing, but curious how if at all your M&A appetite has evolved over the last few months and if anything in the funnel.
Perhaps more actionable today than it was coming into this year. Thanks.
[noise], Yeah, we continue to look for attractive opportunities to leverage our balance sheet I think that our business circumstances have certainly changed with the COVID-19 opportunities you know it it remains our objective to.
Look at acquiring companies products technologies that are accretive to our overall growth strategy.
But if we look ahead to 2021 and 2022.
The growth is going to be I think fairly enormous at current course and speed and so we'll be adjusting our expectations of business development and the size and types of deals accordingly.
But the pipeline has been robust I think as you suggested both with our own outreach and inbound interest from.
Potential prospects and we'll continue to look at that our balance sheet I think is a.
Is stellar no debt at all along on the balance sheet.
And I think that will lead us to some interesting opportunities in the in the very near future.
Super Thank you.
You're welcome.
Thank you we do have a follow up question from the line of Ajay Kumar with Evercore ISI. Your line is now open.
Steve just a one quick follow up on the engine testing.
Maybe up can you.
What state investors expect out over the next few months rates one well.
Well, we have any update close we have any update and I'm asking because.
You know we had a push out of Q4 and now its Q1 nothing to see if would like you know some updates Indian friends.
And the second was a when are the trial starting Mike are these.
You know NTM clinical trials as in Europe, Europe Europe casting.
Skin in the field. Unlike you.
No cases, given given these have to be self swap is that what's causing the delay of perhaps in it now has the prototype for the device been locked good. Thank you.
Yeah, BJ, we have not announced prototype lock. So we haven't said anything about that I do understand the interest in our product and the product developments I mentioned earlier response to a separate question that we do plan to announce the submission of our E away application for the professional test that's our plan.
Now beyond that we will have to see what will communicated when.
There are obviously some competitive issues that would.
We have to account for in any particular announcement, but.
The delays are not due to any particular factor other than we had very high expectations for the performance of the product and the clinical trials are running to validate.
The the particular design and performance of the product. So that interplay is continued and ramped up since our.
August.
Q2 earnings call, so that will come.
[laughter].
<unk>.
That.
We will.
Use what we are understand are the standards for the FDA targeting a self test and our own internal quality performance standard as a measuring stick and that's a very high bar.
Which is why it takes time to get this product on the market, but we're very confident that were on the road to getting this product to the way process in the first quarter.
And following with the Rx self test and the Otcs helped us shortly thereafter.
Thanks, Steve.
Thank you BJ.
Thank you. This concludes today's question and answer session I would now like to turn the call back to Steven Tang for closing remarks.
We'd like to thank everybody for participating on the call and your interest in North shore technologies, We hope that you keep well unsafe wherever you are and continue to join your afternoon or evening. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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